TMI Blog1982 (1) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... uted a will on 13-2-1972 distributing Rs. 20,000 out of his capital to his granddaughters and his daughter-in-law and bequeathing balance of capital and his share in goodwill in the firm to his two grandsons Kamal Kishore and Vinodkumar. It was further stipulated that as the share of goodwill of the aforesaid two grandsons would be utilised by the firm, the firm should pay 10 per cent of the profits each year to each of the said two grandsons, subject to minimum of Rs. 3,000 per annum as consideration. Mohanlal died on 17-7-1973 and the firm was reconstituted as per partnership deed dated 24-8-1973 between the surviving partners Gowardhan Mohanlal and his grandson Jugalkishore. The partnership deed recited that the business had been continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the fair market value of the goods, services or facilities for which payment was made to a closely connected relation, was disallowable. 3. The assessee's appeal to the AAC was unsuccessful. 4. Learned counsel for the assessee at the hearing before us has urged that the aforesaid payment of Rs. 11,802 to the grandsons was clearly for commercial considerations and the said payment was made under overriding title to the said two grandsons of deceased Mohanlal as they were bequeathed the deceased's share in the goodwill and the assessee-firm had to make said payment for the user of the deceased's share of goodwill. For this proposition, reliance was placed on Vithaldas Thakordas Co. v. CIT [1946] 14 ITR 822 (Bom.), CIT v. Harj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was, therefore, urged that the deceased did not have share in any particular asset and, therefore, could not bequeath goodwill by his will and that the will was not an effective document to create an obligation on surviving partners by compelling them to pay 20 per cent of future profits and, hence, it was a voluntary obligation taken over by the continuing partners as was clear from the fact that no such payment had been made to the two minor grandsons in the assessment year 1974-75. It was also urged that the goodwill of the firm was illusory as per calculation made by departmental representative and further that share of deceased Mohanlal was not more than Rs. 3,000 as was valued by the accountable person in the deceased's estate duty c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 24-8-1973 to user of the said asset left by Mohanlal and pay for the said user at 10 per cent of the net profits to the two minors and, therefore, continuing partners having taken over this obligation, it could not be said to be for non-business purposes and as it was a foundational condition for carrying on of the business, it amounted to overriding title created in favour of the two minors. It was, therefore, a binding obligation necessary for carrying on the business. It was also pointed out that under section 29 of the Partnership Act a partner can assign his share in the firm and the deceased Mohanlal who had heritable rights in the assets of the partnership, including goodwill, disposed of such rights by will and the partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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