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TMI Blog1980 (8) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... , he held 50% share in the partnership of M/s. Taneja Co., Machkhowa, Gauhati, which derived income from commission an sale of confectionery goods. This firm was constituted of two partners, namely, Sri Ram Rang Taneja, the deceased, and his brother, Naubat Ram Taneja. The latter died on June 14, 1971. After his death, his wife, Mst. Lakshmi Devi Taneja, joined the firm. At the time of the death of Ram Rang Taneja, there were two partners, namely, Mst. Laxmi Devi Taneja, widow of Naubat Ram Taneja, and the deceased, Ram Rang Taneja. Since the deceased's share in the said firm passed on his death under s. 5 of the Act, the EDO (Asst. CED) not only included the capital standing to the account of the deceased in his estate but also the valuation of the goodwill attributable to his share in the firm. The value of the entire goodwill of the firm was estimated at Rs. 36,500 and half share thereof at Rs. 18,250 was included in the estate. In the first case, Smt. Kanta Devi Taneja is the accountable person and in the second case, Smt. Laxmi Devi Taneja is the accountable person. In both the cases, the accountable persons separately appealed to the Appellate Controller against the inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment, in T. R. Narayanaswami Naidu v. CED [1973] 90 ITR 400 (Mad) was concerned, the Tribunal expressed the opinion that the said decision did present some difficulty wherein it was held that the Tribunal was not right in holding that the value of the share of the goodwill was not includible in the estate of the deceased that passed on his death. However, the Tribunal disposed of the cases of the accountable persons by paras. 8 and 9 of the order which read: " 8. There are thus two views before us, one laid down by the Madras High Court in the case of Estate of T. R. Narayanaswami Naidu v. CED [1973] 90 ITR 400 and the other of the Punjab and Haryana High Court in the case of CED v. Shri Ved Parkash Jain [1974] 96 ITR 303. It is a well-known principle of law that if there can be two interpretations of fiscal enactment or if any such interpretation is open to doubt, the construction most beneficial to the subject should be adopted. Following this well-known principle we hold in the present case also that the value of the goodwill attached to the deceased's share in the firm of M/s. Taneja and Co., Gauhati, could not be included in his estate for the purposes of estate duty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eable against him personally or against property which he was or might become competent to dispose of, or to charge or burden for his own benefit, shall be deemed to have been a disposition made by that person, and in relation to such a disposition, the expression `property' shall include the debt or right created. Explanation 2.-The extinguishment at the expense of the deceased of a debt or other right shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression 'property' shall include the benefit conferred by the extinguishment of the debt or right." In clause (16) of s. 2, " property passing on the death " is defined as under : " 2. (16) 'Property passing on the death' includes property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and 'on the death' includes 'at a period ascertainable only by reference to the death'." On a perusal of the above sections, we find that under s. 5 of the Act, estate duty is payable on the principal valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principle which constitutes a passing of property is not a mere change of source or title but a change of beneficial possession or enjoyment as can be found from the judicial pronouncements of various courts. The Supreme Court in CED v. Hussainbhai Mohamedbhai Badri [1973] 90 ITR 148 observed (p. 154) ; " In our opinion, what is relevant in determining the scope of the expression 'property passing on the death of the deceased' is the change in the beneficial interest and not title." In Baidyanath Banerjee v. Asst. CED [1965] 55 ITR (ED) 31 (Cal), the court made it clear that the Act does not speak of devolution of title from one person to another. What it refers to is the property which goes from one hand to another. The above principle have been very succinctly explained in Mahendra Rambhai Patel v.CED [1965] 55 ITR (ED) 1. There, Bhagwati J. (as he then was), of the Gujarat High Court, observed (p. 17): " In order to arrive at a correct decision on the question as to when property passes, we must focus our attention on a 'comparison between the persons beneficially interested in the fund the moment before the death, and the persons so interested the moment after the deat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 (Mad)]. Lord Eldon L.C. observed in Cruttwell v. Lye [1810] 17 Ves. 335 at 346, that goodwill is " nothing more than the probability that the old customers will resort to the old place ". In IRC v. Muller Co.'s Margarine Ltd. [1901] AC 217 at pp. 223 and 224 (HL), Lord Macnaghten made the following observations: " What is goodwill ? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old established business from a new business at its first start ......... if there is one attribute common to all cases of goodwill it is the attribute of locality. For goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again." Therefore, the goodwill of a business is a composite thing referable in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act it is seen that this section charged to estate duty only that property which passes on the death of person. In the Australian Act considered by the Privy Council reference was to the estate of a deceased person comprising of his personal property wherever situate, if the deceased was at the time of his death domiciled in Australia. On a consideration of the provisions in the Australian and the Indian Acts, the Tribunal held that the two provisions were different and, therefore, the principle laid down therein was of no assistance to the department. For its conclusion, the Tribunal mainly relied on the decision in Shri Ved Parkash Jain [1974] 96 ITR 303 of the Punjab Haryana High Court wherein it was held that it could not be said that on the death of a partner any goodwill passed to his heirs and, therefore, its inclusion in the estate for the purpose of estate duty was not correct. Now, let us consider the decision of the Madras High Court in the case of Estate of T.R.Narayanaswami Naidu [1973] 90 ITR 400 (Mad). That case turned on the following facts : Narayanaswami Naidu died on December 31, 1958. At the time of his death, he was a partner in the firm of M/s. T. R. Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of the deceased's 3/16ths share in the goodwill but the question was whether that share legally passed on to or vested in the accountable persons on the death of the deceased. The court relied on the decision of the Supreme Court in Khushal Khemgar Shah, AIR 1970 SC 1147. Finally, the court held that the Tribunal was not right in holding that the value of the share of the goodwill was not includible in the estate of the deceased that passed on his death. The fact that the legal representatives of the deceased may not have received or may not have been entitled to receive any amount representing the share of the deceased in the goodwill will not prevent the estate duty from being levied on the share, which the deceased was entitled to, in the goodwill of the firm and Which passed on his death. In Khushal Khemgar Shah, AIR 1970 SC 1147, the Supreme Court has observed that s. 55 of the Partnership Act does not provide that goodwill may be taken into account only when there is a general dissolution of the firm and not when the representative of a deceased partner claims his share in the firm which by express stipulation is to continue notwithstanding the death of a partner. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share of a partner in the assets devolves upon his legal representatives will apply to the goodwill as well as to other assets. In support of his contention, that there is no passing of the goodwill under s. 5 of the Act, Mr. Sen heavily relies on the decision of the Division Bench of the Gujarat High Court, Smt. Mrudula Nareshchandra v. CED [1975] 100 ITR 297. That decision of the Gujarat High Court turned on the consideration of cl. 10 of the deed of partnership, which was in the following words : " 10. The firm shall not stand dissolved on death of any of the partners and the partner dying shall have no right whatsoever in the goodwill of the firm. " The Gujarat High Court considered the case before it and, thereafter, having set out the relevant statutory provisions, proceeded to consider whether the share of interest which the deceased had in the goodwill of the firm either passed under s. 5 or could be deemed to have passed under s. 7 of the Act in the following words (p. 307) : " We shall first take up for our consideration the question whether section 5 applies to the facts of the case. As already noted above, a mere event of passing of property from one hand to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt came to the conclusion that the: interest of the deceased in the assets became extinguished on his death by virtue of cl. 10 of the partnership agreement. In other words, there was a cesser of his interest within the meaning of s. 7. It also found that there was an augmentation or enhancement in the interest in the goodwill of the remaining partners and this augmentation was the result of the cesser of the interest of the deceased on his death and hence both the conditions of s. 7 were satisfied. The aforesaid decision of the Gujarat High Court was distinguished by the Bombay High Court in Smt. Urmila v. CED [1980] 122 ITR 958. That was a case where the deceased was a partner in a firm till his death, and the question was whether the share of the deceased in the goodwill of the firm passed on the death of the deceased under s. 5 of the Act, or, whether there was only a cesser of interest under s. 7. Clause 13 of the partnership deed of the firm provided, inter alia, that " the share of the partner dying...... shall accrue to the surviving partners...... in proportion to their respective shares subject only to payment to the legal representatives of the deceased partner..... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odwill stood augmented to the extent of the share of the deceased as per cl. 14 of the partnership deed, and this would straightaway attract s. 5 of the Act. In Smt. Urmila [1980] 122 ITR 958, the Bombay High Court considering cl. 13 of the deed of partnership held that there was no cesser of the right of the share of the deceased in the goodwill of the firm on his death. A contention raised on behalf of the accountable person, that the cesser must be presumed because the continuing persons were absolved of the obligation to pay for the share of the deceased in the goodwill, was rejected by the court. It was further observed (p. 966): " In any case, it is impossible to hold on the provisions of clause 13 of the deed of partnership that there was any cesser, and hold further the only provision which could be attracted was section 7. In our view clause 13 clearly contemplates devolution of the share of the deceased in all the assets including the goodwill on the continuing partners but providing that there is to be payment to the legal representatives for the share in the assets but excluding goodwill. This would clearly bring the case within the meaning of section 5 and the poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons has no bearing at all in the present cases. In those two reference cases before us, the partnership was constituted with two brothers. Therefore, on the death of one of the partners, the partnership itself comes to an end despite any term in the articles of agreement of partnership that even on the death of a partner, the partnership shall continue. In this connection, we may refer to a decision of the Supreme Court in CIT v . Seth Govindram Sugar Mills [1965] 57 ITR 510, where their Lordships have held that where a firm consists of two partners, death of one of the partners will dissolve the firm despite an agreement to the contrary. In that case, their Lordships have noticed a chain of decisions which show a cleavage of judicial opinions on the question. On a consideration of these decisions, it has been noted as under (p. 515): " The decision of the Allahabad High Court in Ram Kumar v. Kishore Lal, ILR [1946] All 309; AIR 1946 All 259, is not of any practical help to decide the present case. There, from the conduct of the surviving partner and the heirs of the deceased partner after the death of the said partner, the contract between the original partners that the par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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