TMI Blog1982 (11) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a partner, during the subsistence of his partnership, cannot put his finger on any asset of the partnership and say that he has such and such a share in that asset nor can he say that he has got a particular share in all the assets of the partnership put together. The conception of partner's interest in the partnership, during the subsistence of the partnership, is that that interest entitles him only to a share in the profits of the partnership and perhaps a right to an accounting of such profits in terms of the articles of partnership. When the partnership is alive and the business is being carried on, the partner cannot demand from the other partners that his title, to any extent, be recognised in any of the assets of the partnership. The position is different when the partnership becomes dissolved. In one sense, it is only at a dissolution that the true character of a partner's interest is laid bare. At that moment only, and not at any time before, he is entitled to demand a winding-up of the business, which would involve the realisation of all the assets of the partnership and the payment of all the outside creditors as well as any borrowings as such effected by the firm f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of all properties passing on his death. How to evaluate such an interest is the problem which has been debated in this reference. It would appear from the order of assessment in this case that the firm concerned in this reference went by the name of V. Guruviah Naidu and Sons. The deceased, Guruviah Naidu, was a partner in that firm with a 15% share. We have no idea of the nature of the business of the partnership. We do not also have a complete list of the assets of the partnership firm. It would, however, appear from the assessment order passed by the Assistant Controller of Estate Duty that the only partnership asset worth mentioning was an item of immovable property, namely, a building situate in R.S. Puram, Coimbatore. The record shows that in the account books of the firm, this building was valued at Rs. 1,18,637 either on the date of death or nearabout that date. Other details regarding the financial position of the partnership as at the date of the death of the deceased were furnished by the accountable person before the Assistant Controller. From these details, the Assistant Controller found that the capital account of the deceased in the partnership books showed Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation. It was contended that there was no dissolution of the partnership firm at all on the death of the deceased, because under the terms of the Partnership, the surviving partners were permitted to carry on the business without winding-up or dissolution of the firm. With this provision in the partnership deed as the basis, it was urged before the Tribunal that the only way of valuing the partnership interest of the deceased in the firm was to accept, without question, what the surviving partners gave to his heirs. It was pointed out before the Tribunal that the surviving partners took stock of the state of the account of the deceased partner and then arrived at Rs. 53,419.40 as the only amount which remained to his credit in the firm and that alone was the measure of the interest which the deceased had in the firm which could properly be brought into dutiable estate. Although the argument was addressed in this comprehensive fashion before the Tribunal, apparently the aim of the submission was merely to have the addition of Rs. 4,704 taken out from the principal value of the dutiable estate. At any rate, this was how the Tribunal understood the submission, although parts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is nothing in rule 7(c) which carries any principle of valuation. All it says is that the share of a partner in a partnership has got to be treated as an " indivisible " asset, whatever that expression may mean. Although s. 36 is the crucial valuation provision under the estate duty law, even that provision does not contain any specific rule for the evaluation of a partnership interest. Learned counsel then referred us to the prescribed form which relates to the form of estate duty account. He particularly referred to the first part of Account No. 1 in the statutory form, and drew our attention to the column in which the accountable person had to mention the appropriate value of the item of properties in question. This column reads as under : " The deceased's share in movable and immovable property as partner in the firm of ...... as per balance-sheet annexed, signed by the surviving partners ". According to Mr. Subramaniam, the framing of the estate duty account in this form with a provision drafted into the entry, in the manner in which it is found in the extract given above must be regarded as a veritable rule of valuation of the partnership interest of a deceased. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue shown as respects the various items shown in the account filed by the accountable person. Section 36(2) reiterates and re-emphasises the objective valuation on the basis of the market value, which the Assistant Controller is under a statutory obligation to arrive at. The balance-sheet value of a property may not necessarily be the same as the market value of that property, unless the date of purchase of the property coincides with the date of the drawing up of the balance-sheet and unless there is evidence to show that the price at which the property was purchased, in every respect accords with the market value. For, if property is retained in any business, then under ordinary principles of accounting, depreciation will have to be charged to the property and in every successive balance-sheet the asset will not carry its original cost but something less than that, after charging depreciation, at a figure which is called its " written down value ". In a period of rising prices for real estate, even the original cost of a property retained will be a wrong figure and successive balance-sheets will not give a true version of the market value of the property. The position will be much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty, but, rather, from the point of view of ascertaining what the position of the deceased's partnership interest is, either under the law of partnership or under the peculiar terms of the instrument of partnership governing the deceased's share. Some of the learned judges were disposed to regard the charge to estate duty from the point of view of either the heirs of the deceased partner or from the point of view of the surviving partner. The judgment of the Bombay High Court in CED v. Fakirchand Fatehchand Sachdev [1982] 134 ITR 268, may be said to concentrate on this aspect more than the other decisions which we have referred. This case before the Bombay High Court as well as the others we have referred to, were cases of partnership agreements which provide that the firm shall not dissolve on the death of a partner, but shall continue with the surviving partners. In almost every one of them, it was laid down by the learned judges as a general rule of partnership law, that the deceased partner's share has to be calculated not on the basis of the break-up value method or on the basis of a winding-up of the business, but on the basis of whatever was due to the deceased's partner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decisions abovenamed hold that the dutiable estate under the Act must be restricted only to the amount payable to the deceased's heirs, the decisions are wrong, for they would lead to under-assessment of the share of the deceased in the partnership. In such an assessment, only that which devolves on the deceased's heirs will be taken into account. The assessment will not take note of that which goes to the surviving partners on the death of the deceased partner. We are supported in this part of our opinion by a decision of a Division Bench of this court in CED v. Ibrahim Gulam Hussain Currimbhoy [1975] 100 ITR 320 (Mad). That was also a case where a partnership was not dissolved on the death of a partner, but the surviving partners continued the business. There was also a provision in the partnership deed that the deceased's heirs would not be entitled to any part of the goodwill of the firm, as a matter of accounting of the share of the deceased. In these circumstances, on the death of the partner concerned, the Assistant Controller made an assessment of the dutiable estate including therein the value of the deceased's interest in the partnership. The Assistant Controller did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who are the beneficiaries of any part of the property of the deceased, including the partnership interest, whether it is the heir or the legatee of the deceased. The approach, as we earlier stated, must be to find out whether the property passes and then proceed to evaluate the market value of the property on the interest therein which passes. None of the cases cited including that of this court, which we have mentioned above, makes this direct approach. Nevertheless, the observations of this court support us to a considerable extent. Having discussed the case law cited from the view-point of their general trend, we do not think it necessary to go into the details of any of the cases cited. Nor can we accept Mr. Subramaniam's 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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