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2012 Supreme(AP) 18
High Court of Andhra Pradesh
V.V.S.RAO & B.N.RAO NALLA
The Controller of Estate Duty, Andhra Pradesh – II
Versus
Late Sri M.Gangappa, by A/P. Sri M.Ramana
REFERRED CASE No.222 OF 1996
Decided On : 05-01-2012
For the Petitioner:S.R. Ashok, Advocate.
Headnote:
Estate Duty Act, 1953 -Section 64 (1), 36(1) - Following question is referred for the opinion of this Court - Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that for evaluation of the fair market value of the interest of the deceased partner in a firm at the time of his death, valuing of certain assets independently of balance sheet could not be restored to for inclusion in the principal value of the deceased’s estate in the instance case? fact of the matter which is not in serious dispute is as follows. In GIR Assistant Controller of Estate Duty (ACED), passed an assessment order with reference to the statement of account filed– accountable person (A.P.) wherein the value of the property passed on the death the A.P. was directed to pay estate duty of Rs.2,08,154/-and a demand was made for Rs.1,44,494/-after giving credit to the amount already paid. partner having interest in several partnership firms. In the statement, the A.P. discloses the value of the property of the firm in which late had interest as per the valuation of the balance sheet. At the time of scrutiny, the ACED declined to accept such valuation. The principal value to the estate was determined based on the market value ignoring the balance sheet of different firms. Being aggrieved, an appeal was filed. By an order, the Appellate Controller reversed the order of the ACED holding that the value of the net assets including the goodwill of the firm should be with reference to balance sheet of the firm and accordingly deleted the additions made by the ACED. The Revenue then went in appeal before the Income Tax Appellate Tribunal (ITAT). By order, the ITAT dismissed the appeals holding that the global method of valuation for the purpose of valuing partnership property has to be adopted while determining the value of the estate that passed on to the A.P. on the death of the estate holder. The Revenue then sought the reference unsuccessfully. Thereupon they approached this Court by filing I.T.C. By an order this Court directed the ITAT to refer the question quoted supra for the opinion of this Court –Held we accept submission that for arriving at the market value of the deceased’s share, it is not open to the assessing authority to take up the valuation of individual assets of the partnership. In pure theory, which does not take note of practicalities, it would be correct to say that a valuer of a partnership interest should not see before him anything other than the partnership interest as such. Since a partnership interest is a property in itself, it has got to be evaluated on its own terms. However, it would not be practicable to arrive at the market value of an interest in a partnership by completely ignoring the position that the interest is an interest in a partnership. We have, therefore, necessarily to take stock of the net worth of the partnership and then proceed to deduce therefrom each partner’s interest as but a fractional share thereof. To arrive at the net worth of the partnership, we have perforce to take note of the individual items of assets which go to make up the assets side of the partnership, as well as the outstanding debts and liabilities of the partnership. These are but necessary steps in order to arrive at the final result, namely, the valuation of the interest of the partner in the partnership. In the result, for the above reasons, we answer the question in the affirmative against the Revenue and in favour of the assessee/accountable person. Referred Case shall stand disposed of accordingly –Appeal is Dismissed.
V.V.S. Rao, J.
In this reference at the instance of the Controller of Estate Duty (CED) under Section 64(1) of the Estate Duty Act, 1953 (the Act, for brevity), the following question is referred for the opinion of this Court. Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that for evaluation of the fair market value of the interest of the deceased partner in a firm at the time of his death under Section 36(1) of the Estate Duty Act read with Rule 7© of the E.D.Rules, 1953, valuing of certain assets independently of balance sheet could not be restored to for inclusion in the principal value of the deceased’s estate in the instance case?
The fact of the matter which is not in serious dispute is as follows. In GIR No.G.212, the Assistant Controller of Estate
Duty (ACED), Tirupati, passed an assessment order with reference to the statement of account filed by M.Ramana – accountable person (A.P.) wherein the value of the property passed on the death of M.Gangappa (died on 22.01.1978), the A.P. was directed to pay estate duty of Rs.2,08,154/-and a demand was made for Rs.1,44,494/-after giving credit to the amount already paid.
Late M.Gangappa was a partner having interest in several partnership firms. In the statement, the A.P. discloses the value of the property of the firm in which late Gangappa had interest as per the valuation of the balance sheet. At the time of scrutiny, the ACED declined to accept such valuation. The principal value to the estate was determined based on the market value ignoring the balance sheet of different firms. Being aggrieved, an appeal was filed. By an order dated 31.10.1988, the Appellate Controller reversed the order of the ACED holding that the value of the net assets including the goodwill of the firm should be with reference to balance sheet of the firm and accordingly deleted the additions made by the ACED. The Revenue then went in appeal before the Income Tax Appellate Tribunal (ITAT). By order dated 23.01.1990, the ITAT dismissed the appeals holding that the global method of valuation for the purpose of valuing partnership property has to be adopted while determining the value of the estate that passed on to the A.P. on the death of the estate holder. The Revenue then sought the reference unsuccessfully. Thereupon they approached this Court by filing I.T.C.No.1 of 1991. By an order dated 16.10.1995, this Court directed the ITAT to refer the question quoted supra for the opinion of this Court.
The Junior Counsel for Income Tax submits that the decision in Controller of Estate Duty v Mrudula Nareshchandra (1986) 160 ITR 342 (SC)relied on by the ITAT was only concerned with the issue of valuation of interest of the deceased person in the goodwill and therefore in applying the ratio therein the ITAT went wrong. He would contend that Section 36 of the Act enables the Assistant Controller to determine the principal value according to market price at the time of the deceased’s death and therefore the global method of valuation applied to valuation of the assets of the firm is not applicable.
In spite of service of notice, none appears for the respondents. Therefore, the matter is decided ex parte.
The point that would arise for consideration is whether the principal value that passed on the deceased’s death cannot be fixed by taking cognizance of the firm’s balance sheet which reflects the share of each partner in the assets and liabilities.
Section 36 of the Act to the extent relevant reads as under.
36. Principal value how to be estimated.-(1) The principal value of any property shall be estimated to be the price which, in the opinion of the Controller it would fetch if sold in the open market at the time of the deceased’s death.
(2) In estimating the principal value under this section the Controller shall fix the price of the property according to the market price at the time of the deceased’s death and shall not make any reduction in t
