1951 Present: Gratiaen J. and Swan J.

THE ATTORNEY-GENERAL, Appellant, and HALE,
Respondent

S. C. 329-D. C. Colombo, 73/T (Special)

Estate Duty Ordinance (Cap. 187)-" Property passing on death "-Bona fide alienation operating from time of death-Exemption from estate duty-Sections 6 (a), (b), 10, 20 (1), 21, 24, 25.

Three solicitors were practising in partnership. It was clear from the partner -ship deed that they had undertaken to work with one another in partnership to their mutual financial advantage and that their engagement was " a business deal ". Clause 11 provided : " In case of the death or retirement of any partner during the continuance of the partnership the share of such deceased or retiring partner in the Reserve Fund and in the capital assets and goodwill of the partnership and in the office furniture books and papers shall accrue to and be purchased by the surviving or continuing partners or partner in the proportions in which they are entitled to the net profits of the business ".

One of the partners died on 29th March, 1944. On his death, therefore, Clause 11 of the deed of partnership came into operation and his interest in the entire assets of the partnership business consisting of the Reserve Fund, capital, assets and goodwill " accrued to " his surviving partners. The consideration for these assets was duly paid into his estate in accordance with the basis of computation provided by the partnership deed.

Held, that the interest of the deceased partner " in the Reserve Fund and in the capital, assets and goodwill" of the partnership business passed to his surviving partners by reason only of a bona fide purchase for full consideration in money or money's worth which was paid to the vendor for his own benefit. Estate duty on the market value of the deceased's interest in the goodwill and other partnership assets was therefore exempted under Section 10 of the Estate Duty Ordinance. Only the total sum paid into the deceased's estate as full consideration for his share of the partnership assets (including his interest in that part which constituted goodwill) was liable to duty under Section 6 (a).

APPEAL from a judgment of the District Court, Colombo.

H. W. R. Weerasooriya, Crown Counsel, with G. U. Sethukavaler, Crown Counsel, for the defendant appellant.

H. V. Perera, K.C., with J. R. V. Ferdinands and E. LaBrooy, for the plaintiff respondent.

Cur. adv. vult.

November 29, 1951. GRATIAEN J.-

This is an appeal by the Crown under Section 43 of the Estate Duty Ordinance against an order made by the learned District Judge of Colombo in favour of the respondent who is the executor of the last will and testament of the late Mr. O. P. Mount.

The deceased was at the date of his death, which occurred on 29th March, 1944, a Solicitor and Proctor of this Court carrying on business in partnership with two other professional gentlemen in terms of a Deed of Partnership A 2 dated 10th May, 1937,

Clause 2 provided that the profits and losses of the business should be divided between the parties in certain agreed proportions, and that the goodwill, capital and assets of the partnership should belong to them in the same proportions. Each partner was to devote his whole time and attention to the partnership business and was precluded from engaging in any other business or holding any office, appointment or directorate without the consent of the other partners. The other clauses in the Deed A 2 which are relevant to the present appeal are as follows:-

" 4. No partner shall sell give mortgage or otherwise dispose of or charge his share of the partnership or any part thereof without the previous written consent of the other partners.

" 8. The death of a partner shall not determine the partnership between the other partners.

"11. In case of the death or retirement of any partner during the continuance of the partnership the share of such dec