DIPAK KUMAR SEN, J.

( 1 ) THE present reference, arises out of levy of estate duty on the estate of Shri Bastimal Mehta, who died on the 15th March, 1968. The accountable persons, Annaraj Mehta and Deoraj Mehta, are the sons of the deceased. The controversy is over the computation of the value of the 20% share of the deceased in a firm named "ashok Foundry and Metal Works", as a partner. The partnership which commenced its business on and from the 1st January, 1967, was constituted by a deed dated the 30th December, 1966, and, inter alia, provided as follows :" (17) That on the death or the retirement of any partner, the partnership business shall not be dissolved but it shall continue to be carried on with or without the legal heirs or representatives of the deceased partner who may be taken into partnership in his place on such terms and conditions as may be determined by the parties concerned. "

( 2 ) THE Asst. CED computed the value of the deceased's share in the said firm by taking into account, separately, the balances credited to the deceased in the capital account and in the current account, 20% share in the provisions for liquidated damages and development reserve and, lastly. the deceased's share in the goodwill of the business. The goodwill of the firm was valued at Rs. 6 lakhs and that of the share of the deceased therein was calculated at 20% to be Rs. 1,20,000. The value of the deceased's share in the said firm calculated as aforesaid was included in his estate for purposes of estate duty.

( 3 ) BEING aggrieved, the accountable persons preferred an appeal to the Appellate CED and contended, firstly, that the business did not have any goodwill, and further that the value of the goodwill, if any, was wrongly computed ignoring the figures of the total income as finally determined and taking into account interest only on the fixed capital at a low rate of 6%.

( 4 ) THE Appellate Controller held that the business of the firm was of long standing and had a goodwill. He, however, determined the average annual income of the firm at Rs. 1,94,540, allowed interest at the rate of 9% per annum on the entire capital including the balance of the current account and capitalised the super profit at three years' purchase in order to arrive at the market value of the goodwill. On such basis, the goodwill was computed to be Rs. 2,60,400 and the l/5th share of the deceased therein was determined to be Rs. 52,080. The appeal was allowed in part.

( 5 ) FROM the order of the Appellate Controller both the revenue and the accountable persons went up on further appeal before the Income-tax Appellate Tribunal. The accountable persons in their appeal challenged the inclusion of any amount on account of goodwill. The revenue, in their appeal, merely challenged the computation of the value of the goodwill as was done by the Appellate Controller.

( 6 ) IN the appeal of the accountable persons, it was contended before the Tribunal that in a continuing partnership no partner could claim a definite share in any particular property of the firm and as such the assessee not having any specific share in the goodwill there was no question of any part of the goodwill passing on the death of the deceased. The Tribunal took into account Clause 17 of the deed of partnership and, following a decision of the Punjab and Haryana High Court in CED v. Shri Ved Prakash Jain [1974] 96 ITR 303 held that no goodwill of the said firm passed on the death of the deceased and, therefore, the valuation of the deceased's share in the goodwill could not be included in the estate for purposes of estate duty.

( 7 ) THE Tribunal noted that the appeal of the revenue had become academic in view of its finding as above. The Tribunal also noted that the revenue did not dispute the principles of computation adopted by the Appellate Controller and that the accountable persons also did not challenge the computation as such. Accordingly, the appeal of the revenue was dismissed

Click Here to Read the rest of this document