1981 (1) TMI 93 - AT - Income Tax

Summary

Issues:
- Departmental grievance regarding deletion of addition of Rs. 18,000 representing the share of goodwill of the deceased in the firm of M/s. Mehta Brothers (India).

Detailed Analysis:

1. The appeal centered around the department's contention that the Appellate Controller erred in deleting the addition of Rs. 18,000, which was made by the Assistant Controller of Estate Duty (CED) as the deceased's share of goodwill in M/s. Mehta Brothers (India). The deceased, a partner in the firm, passed away, and the Accountable Person, his son, stated that the firm had no goodwill as it operated from their residence and dealt in paper & resin on a semi-wholesale basis. The Assistant CED estimated the goodwill at Rs. 18,000 based on the firm's profits preceding the death. However, the Appellate Controller deleted this addition, considering the nature of the business and the dissolution of the partnership after the death of one partner.

2. In the appeal, it was argued that the partnership firm's business was in paper and resin on a semi-wholesale basis, and the principal place of business was far from the centralized business area. The firm consisted of two partners, and after the death of one partner, the firm was dissolved. The Appellate Controller agreed with the appellant that the Assistant Controller did not consider all relevant aspects in valuing the goodwill. It was also noted that since the business did not deal in specific products and the partnership was dissolved, no payment of goodwill could be deemed to have passed, citing a relevant case law.

3. The Departmental Representative contended that the reliance on a specific High Court decision was misplaced, as the business continued as a proprietary concern and had established goodwill. It was argued that even after the firm's dissolution, the business had standing and attracted good customers, indicating the existence of goodwill. However, the Accountable Person's counsel argued that the firm was dissolved naturally upon the death of a partner, and the business was entirely discontinued. The absence of any significant trademark or brand name was highlighted to support the Appellate Controller's decision.

4. After considering the arguments from both sides, the Tribunal concluded that there was no substantial goodwill associated with the firm that could be said to have passed upon the deceased's death. The business was entirely discontinued at the residence, and the Accountable Person had already started a similar business elsewhere. The Tribunal agreed with the Appellate Controller's decision, emphasizing the lack of goodwill transfer upon the partner's demise. Despite the partnership deed allowing the surviving partner to continue the business, the actual discontinuation of operations at the location supported the decision.

5. Ultimately, the Tribunal dismissed the appeal, affirming the Appellate Controller's decision to delete the addition of Rs. 18,000 representing the deceased partner's share of goodwill in the firm.