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TMI Blog1986 (7) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... survived by his only son, Shri Ghanshyamdas Binani who filed the return of the estate duty in the capacity of an accountable person. The net principal value of the estate was returned at Rs. 8,37,752. The Assistant Controller heard the accountable person and pointed out that the assessee carried on the business as a sole proprietor in the name of G.D. Binani Co. apart from his partnership business in Mathuradas Govardhandas (2/5th share), Star Dye Castings (3/16th share), General Metal Trading Co. (9/16th share) and Plastic Enterprise (50 per cent share). He pointed out also that the deceased was the karta of the HUF styled as G.D. Binani and had 50 per cent interest in the HUF as the other 50 per cent belonged to the said son. 4. Amongst other things, the jewellery, cash, etc., were included. The Assistant Controller apparently was of the view that the assessee had interest in his share of the goodwill of the partnership firms, companies and proprietary concerns. The accountable persons filed a statement of computation of goodwill dated 24-3-1983. Later on, the accountable person filed letter dated 19-12-1984 and letter dated 11-2-1985 in which objections were raised in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Appellate Controller was that no goodwill could have passed on the death of the deceased in respect of the above firm. The Appellate Controller, however, was of the view that goodwill, if any, has to be included in the estate, of course if the business had a goodwill. He referred to the decisions of the Hon'ble Madras High Court in the cases of A.K.D. Dharmaraja v. CED [1978] 111 ITR 72 and CED v. Estate of Late V.R.M. Valliappa Chettiar [1980] 125 ITR 181. The Appellate Controller indicated that in order to estimate the value of goodwill, the only accepted method was the 'super-profit method' as adopted by the Hon'ble Patna High Court in the case of Das Co. v. CIT [1962] 45 ITR 369 and also by the Hon'ble Calcutta High Court in the case of CED v. Biswanath Rungta [1968] 67 ITR 748. He accordingly held that the goodwill in each of the concerns has to be computed after ascertaining the net annual average commercial profit of the business for three years. He thereafter directed that the deduction should be allowed for normal rate of interest of 18 per cent and also on account of managerial remuneration at 25 per cent of the average profit. He pointed out that the normal ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted that the rate of interest on the return on capital was quite appropriate and reasonable, which included the element of risk also. It is also urged that the deceased in the commercial world was known as metal king during his lifetime and in fact his devotion in the management along with others, was quite substantial and, therefore, the amount of the remuneration awarded by the Appellate Controller was reasonable and adequate. In brief, it is urged that the minor computation was quite sustainable and, therefore, the appeal by the revenue on this point may not be accepted. 11. We have heard both the sides at length and we have perused the orders of the authorities below and other papers placed before us for our consideration. We have also gone through the decisions cited before us. The learned counsel for the accountable person also submits that it is the commercial profit which has to be taken into account after allowing tax for the purpose of evaluation of goodwill relying on the decision of Biswanath Rungta's case. It is also submitted that the number of years of purchase has been adopted at two years in the cases of K. Ismail v. CED [1974] 97 ITR 201 (Mys.), Smt. Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the value cannot be determined by adding up break-up value of each and every asset of the firm. But in the present case balance sheets of those firms are not available. In the case of Biswanath Rungta on the facts of that case, it was held by the Hon'ble High Court that although goodwill was not shown in the balance sheet but it has to be taken as being worth 1 to 3 years' purchase of the annual profit. It was also observed that goodwill is the value attaching to a successful business beyond intrinsic worth of the net asset employed therein, because of its good reputation, established connection, continued prosperity, etc., and the hope that the business will maintain similar profit-earning capacity in future. Thus, it is seen that in computing the value of a goodwill one has to take various factors into account like type of business, location of the business, earning capacity, etc. Reference may be made to the decision in the case of Mehru Belgam Vala v. G. Bell Co. [1984] 150 ITR 51 (Mad.) and also in the case of Smt. Surumbayi Ammal's case. 13. One has to ascertain whether the firms in which the deceased was a partner had been making progressive profits. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goodwill various factors should be taken into account as dealt with by various Courts as discussed by us above, also after taking into account the balance sheets, deed of partnership, etc., which in the present case are not available at all. In fact, the Assistant Controller has not made separate computation as be has depended on the computation of the accountable person, who withdrew the computation statement, at a later stage. 16. After considering the rival contentions of both the sides, we are of the opinion that the rate of interest allowed by the Appellate Controller at 18 per cent including the element of risk, was on higher side. We consider that the rate of 15 per cent on the facts of the case, would be appropriate and reasonable. As far as the managerial remuneration is concerned, we are of the opinion that one has to take into account whether such remuneration was allowed as reduction in the computation of the commercial profit or not, at the first instance. If the same had not been so deducted, then a deduction of 25 per cent would be within a reasonable limit. Thus, the Assistant Controller would have to verify the balance sheets, profit and loss account, etc., of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] filed by the department against the decision of the Hon'ble Madras High Court in CED v. R.K. Chettiar [1980] 125 ITR 605. The said dismissal was in [1983] 143 ITR St. 67. According to the Appellate Controller, the dismissal of the special leave petition by the Hon'ble Supreme Court settled all controversies on the inclusion of the lineal descendants' share for the rate purpose. Following that decision, he directed that the lineal descendants' share should be deleted completely. In view of this, the Appellate Controller did not go into the merits of the other contentions of the assessee regarding exclusion of the share of the wife of the lineal descendants, as per the Hon'ble Calcutta High Court decision in the case of Satyanarayan Saraf v. ACED [1978] 111 ITR 432. 20. The contention on behalf of the revenue is that the Appellate Controller erred in giving the above direction, having regard to another decision of the Hon'ble Supreme Court in the case of Daryao v. State of U.P. AIR [1961] SC 1457 in which it was held that dismissal by the special leave petition at the admission stage without giving reasons does not lay down any binding principal under article 141 to be followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table person that if inclusion of the descendants' share, if any, has to be made, the share of the lineal descendants only should be included and not of the share of widow or the wife of coparceners of the present HUF. 24. In this connection it may be pointed out also that the Hon'ble Madhya Pradesh High Court in the case of CED v. Santram [1981] 130 ITR 38 and in the case of Smt. Gunvanti Bai v. CED [1981] 130 ITR 122 has upheld aggregation. In view of all these decisions we are of the opinion that the Appellate Controller erred in deleting the addition for the purpose of aggregation for rate purpose only under section 34(1)(c). Of course, we would direct the Assistant Controller to include the share of the lineal descendants only in view of the decision of the Hon'ble Calcutta High Court mentioned above. 25. Before we close, it is essential that we should refer also to a decision of the Appellate Tribunal, Delhi Bench 'C' in the case of K.B. Rohetgi v. ACED [1984] 10 ITD 714 in which it was urged on behalf of the accountable person that in view of the dismissal of the special leave application by the Hon'ble Supreme Court in the case of V. Devaki Ammal's case, aggregation und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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