TMI Blog1981 (8) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... be convenient to set out, first, the facts which have given rise to each of these three references. Estate Duty Reference No. 2 of 1973 arises out of the valuation to estate duty of the estate of one Fatehchand Nathumal Sachdev. The deceased carried on business as a stockist and distributor of the Imperial Chemical Industries (India) Private Ltd. and in the purchase and sale of colours, dyes, chemicals, etc., as a sole proprietor. By a deed of partnership dated October 14, 1957, he took his son, Fakirchand, as a partner along with him in the said business which was thereafter to be carried on under the firm name and style of M/s. Shorimal Fakirchand. The shares of the two partners in the profits and losses of the said partnership firm were to be equal. This deed of partnership was substituted by a new deed of partnership dated November 3, 1967, under which the duration of the said partnership was to be at will, the share of the deceased being 25 per cent. while that of his son, Fakirchand, being 75 per cent. The deceased died on October 27, 1968, and the firm thereupon stood dissolved. In the valuation to estate duty the Asst. Controller of Estate Duty included a sum of Rs. 33,750 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deceased had a 9 annas share and his son had a 7 annas share. The terms upon which the said partnership was to be carried on were reduced to writing in deed of partnership dated February 16, 1957. A copy of this deed of partnership which was not on the record has by consent been taken on the record at the hearing of this reference. Clause 5 of the said deed of partnership provided as follows: " 5. That the business shall be carried on as long as possible and should one of the partners die during the continuance of the partnership business, the surviving partners will be entitled to carry on the business entirely on their own risk and liability and the heirs of the deceased partner will be entitled to get the profits and will be liable for the losses, if any, up to the time of the deceased partner. " Though the said cl. 5 uses the phrase " the surviving partners ", it is obvious that since the partnership consisted of only two partners, what was meant was the surviving partner, and there is no dispute between the parties with respect to this point. The deceased died on August 12, 1965. He had also in 1957 made gift of a sum of Rs.71,000 to his other son, Onkarmal. This sum wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal held that the department was not entitled to treat the goodwill of the said firm as an item in which any of the partners had a specified share, and, accordingly, deleted the value of the goodwill from the valuation of the said estate. It also held that the amounts of the said deposits were not hit by s. 10, and deleted these amounts from the principal value of the estate. The four questions which have been submitted to this court in this reference are " (1) Whether, on the facts and in the circumstances of the case, the value of 9 annas share of the deceased in the goodwill of the partnership firm of M/s. Ratnaji Raghunath in which the deceased was a partner was property which passed on his death and as such was includible in his estate under section 5 of the Estate Duty Act, 1953 ? (2) Whether, on the facts and in the circumstances of the case, the value of 7 annas share of the deceased's son in the goodwill of the partnership firm of M/s. Ratnaji Raghunath in which the son was a partner was property which must be deemed to have passed under section 10 of the Estate Duty Act, 1953 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 64(1) was rejected by the Tribunal, but the High Court under s. 64(3) directed the Tribunal to state a case, which the Tribunal accordingly has done. The following question has been submitted to us in this reference: " Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the share of the deceased in the goodwill of the firm was not to be included in the principal value of the estate of the deceased ? " Before proceeding to consider the main question which falls for determination in these references it will be convenient to deal with questions Nos. 2, 3 and 4 in Estate Duty Reference No. 2 of 1974. Both the learned counsel are agreed that in view of the decision of this High Court in CED v. Kantilal Nemchand [1978] 115 ITR 89, question No. 2 must be answered in favour of the accountable person. The parties are also agreed that in view of the decision of the Supreme Court in CED v. Kamlavati [1979] 120 ITR 456, and the decision of this High Court in Khatijabai Abdulla Soomar v. CED [1980] 124 ITR 160, question No. 3 must be answered in favour of the accountable person. So far as question No. 4 is concerned, there is no dispute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the respondent in Estate Duty Reference No. 9 of 1979, supplementing the arguments with certain additional points. Industry of counsel on both sides have resulted in a large number of decisions being cited to us and our attention being drawn to passages from various standard text books. Before, however, getting lost in this maze of citations we would prefer to consider the matter independently by ourselves on first principles and on interpretation of the relevant sections of the Act with the assistance of such authorities as are binding upon us and such others as furnish a direct guidance in determining the questions which arise before us, and thereafter discuss the various authorities which have been cited. The point which we have to consider is whether a partner has a specified share in the goodwill of the firm in which he is a partner and, if so, whether such share passer, on his death for the purposes of estate duty, and if it passes, whether it passes under s. 5 or s. 7 of the Act. Mr. Joshi contended that each partner had a joint or common interest in all the partnership properties. Goodwill is a property belonging to a partnership and forms part of its assets. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply. (3) Where a partner's share in the goodwill passes to the surviving partner by the terms of a deed of partnership, the case fell under section 26 of the Act and the value of such partner's share in the goodwill is not liable to be included in the principal value of his estate, With respect to his contention under s. 26 of the Act Mr. Patil stated that he had raised this point before the Tribunal, but in view of the conclusions which it arrived at, the Tribunal did not think it necessary to consider that point. Accordingly, Mr. Patil submitted that it should, therefore, be open to him to argue this point before the Tribunal if an occasion arose. This is the position in law, and Mr. Joshi, learned counsel for the applicants, did not contest it. Accordingly, if occasion arises, it would be open to Mr. Patil to argue the point based on s. 26 of the Act before the Tribunal. In order to test the correctness of the rival submissions the first inquiry which is required to be made is as to the nature of a partner's interest in the firm of which he is a partner. We have three types of partnerships before us. In Estate Duty Reference No. 2 of 1973, the partnership is of the usual t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner are to receive a specified amount or a sum calculated in a particular manner in respect of the interest or share of the retiring or deceased partner in, the firm. In order to determine the legal incidents of a partner in the firm and the rights of his legal representatives in the case of his death, we must examine the provisions of the Indian Partnership Act, 1932. Under s. 11 of the said Act subject to the provisions of the said Act, the mutual rights and duties of the partners of a firm are to be determined by contract between the partners. Section 14 of the said Act defines what is property of the firm. Under that section, subject to contract between the partners, the property, of the firm, includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. Further, unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm. Under s. 15 subject to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital, (iii) in paying to each partner rateably what is due to him on account of capital, and (iv) the residue, if any, is to be divided among the partners in the proportions in which they were entitled to share profits. " The first point to notice about this particular statutory provision is that it speaks of the manner in which the assets of the firm are to be applied. Thus, the partnership property is considered as property of the firm and not as property held by individuals having specific or specified shares therein. The first charge, in a manner of speaking, on the assets of the firm is of the outside creditors. Therefore, before a partner can look to the property of the firm, even for return of the loans made by him to the firm, he would have to wait till the outside creditors are paid. It is only when the outside creditors have been paid and loans advanced by the partners have been returned that the partners can look forward to the return of the amounts they have invested as capital in the firm, and it is only when all the amount of capital is retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erring to the Supreme Court decision in Addanki Narayanappa's case, AIR 1966 SC 1300, Bhagwati C.J. (as he then was), who spoke for the court, observed at pp. 295-246: " It is clear that the interest of a partner in the partnership is not an interest in a specific item of the partnership property, but, as pointed out by the Supreme Court, it is a right to obtain his share of profits from time to time during the subsistence of the partnership and on dissolution of the partnership or his retirement from the partnership, to get the value of his share in the net partnership assets which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48. When, therefore, a Partner retires from the Partnership and the amount of his share in the net Partnership assets after deduction of liabilities and prior charges is determined on taking accounts on the footing of a notional sale of the partnership assets and given to him, what he receives is his share in the partnership and not any Price for sale of his interest in the Partnership. His share in the partnership is worked out by taking accounts in the manner prescribed by relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of the firm. In both cases, the price realized must be brought into the hotch-potch for the purpose of applying it in the manner provided in cl. (b) of s. 48 of the Indian Partnership Act. We will now ascertain the position where the retirement or death of partner does not bring about the dissolution of a firm. This position can only arise because of a term in the contract of partnership, and such contract may, and at times does, provide for the adjustment of the rights of the partner retiring or the legal representatives of the deceased partner. Some deeds of partnership provide that the retiring partner or the legal representatives of the deceased partner are not entitled to receive anything beyond the amount standing to the credit of such partner in the books of the firm, and sometimes some deeds of partnership further expressly provide that the retiring partner or the legal representatives of the deceased partner shall not be entitled to receive any amount for such partner's share or interest in the assets of the firm, including goodwill. partnership deed at times provides that the retiring partner or the legal representatives of the deceased partner will receive the money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to them of the amount determined to be due to the said Dadiba at the time of his death. The surviving partners resisted the suit. A learned single judge of this High Court, however, passed a preliminary decree declaring that qua the said Dabiba, the partnership stood dissolved on February 20, 1957, being the date of death of the said Dadiba, but not in respect of the surviving partners and directed an account to be taken of the partnership up to February 20, 1957. Against that decree an appeal was filed under cl. 15 of the Letters Patent. The appeal court held that the widow and son were not entitled to an account in the profits and losses of the firm after the death of the said Dadiba, nor to exercise an option under s. 37 of the Indian Partnership Act but that they were entitled only to interest at the rate of 6 per cent. per annum on the amount found due as the said Dabiba's share in the assets of the partnership including the goodwill. The appeal court further declared that the interest of the said Dabiba ceased on February 20, 1957, and deleted the direction with regard to the dissolution of the firm as between the said Dadiba and the surviving partners. An appeal with special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare in these assets after deducting from the total value of the assets, the total liabilities. Having ascertained the nature of a partner's interest in a firm of which he is a partner and the rights of his legal representatives in both cases, namely, where the firm is dissolved on account of death, and where the firm is not dissolved but the surviving partners are entitled to carry on the business, the question which arises is, what happens on the death of partner qua his interest in the firm so far as the valuation to estate duty of his estate is concerned. Under the Act, estate duty is levied on property passing on the death of a person as also on property which is deemed to pass on his death. The term " property " is defined by cl. (15) of s. 2 of the Act as follows: "(15) 'Property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method. " There are two Explanations to this clause which are not material for our purposes. Clause (16) of s. 2 defines the expression " Property pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death. " " 7. Interest ceasing on death.-(1) Subject to the provisions of this section, property in which the deceased, or any other person had an interest, ceasing on the death of the deceased, shall be deemed to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest, including, in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law........." The controversy before us has centered upon whether either s. 5 or s. 7 applies to the cases before us or any of them and whether there was any property which passed on the death of the concerned deceased. One may wonder why this controversy arises, since the property is deemed to pass on the death of the deceased by reason of the statutory rule of interpretation laid down in s. 3(3) and it is to be construed as property passing on the death of the deceased. The importance of this controversy, however, lies in ss. 36 and 40 of the Act, which sections occur in Part V of the Act, which Part is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther on the sale of a business including its goodwill, the goodwill could be made liable to capital gains tax under s. 45 of the I.T. Act, 1961. After examining the scheme of the I.T. Act, the Supreme Court held as follows at pp. 299-300: "Section 45 charges the profits or gains arising from the transfer of capital asset to income-tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings s. 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other sections of the head 'Capital gains'. Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains.. All transactions encompassed by s. 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by s. 45 to be, the subject of the charge. This inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , s. 39 with valuation of interest in coparcenary property ceasing on death, and s. 40 with valuation of benefits from interests ceasing on death. In such a case, the rule of interpretation is well settled. This question had arisen for consideration before a Division Bench of this High Court, of which one of us (Madon J.) was a Member, in Municipal Corporation of Greater Bombay v. Durgadas Shankarrao Rego, AIR 1980 Bom 93. The Division Bench held at p. 98(1): " So far as the first question is concerned, the rule of interpretation is well settled. It was thus stated by Romilly M.R., in Pretty v. Solly [1859] 26 Beav 606, 610; [1859] 53 ER 1032 : 'The general rules which are applicable to particular and general enactments in statutes are very clear, the only difficulty is in their application. The rule is, that whenever there is a particular enactment and general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply.' This rule of interpretation was also enuncia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the particular statutory provision the interpretation which ensures its constitutionality. This principle applies to interpretation of all statutes including taxing statutes. See Ramkrishan Kulwantrai v. Commissioner of Sales Tax [1979] 44 STC 117, 120 (Bom). Therefore, it must be held that in case which falls under s. 7(1) the computation of value can be done only under s. 40 of the Act and not by any other mode of valuation. Mr. Joshi, however, submitted that the charging section is only s. 5, and by reason of s. 3(3) where a property is deemed to pass on death, it is brought under s. 5, and once that is done, it is not s. 40 which applies for the purposes of computation of value but only s. 36 of the Act. In support of this submission, Mr. Joshi relied upon the decision of the Supreme Court in CED v. Aloke Mitra [1980] 126 ITR 599 (SC). That was a case under s. 6 of the Act. It was argued that s. 6 and s. 5 stood in sharp opposition and contrast to each other. The Supreme Court rejected this contention and held that by no rule of construction could the operation of s. 5(1) be curtailed by the operation of s. 6, for, s. 6 was in addition to, or supplemental of, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during his lifetime, and, therefore, it is not the same property, and unless the property which passes on death is the same property which the deceased was possessed of at the time of his death, it cannot be said that property actually passed, and, therefore, s. 5 would not apply. This argument of Mr. Dastur was confined to the case of an actual passing of property and not to a case of deemed passing of property under s. 7(1) of the Act. The above contention overlooks the real nature of a partner's right in the firm. The nature of this right has been elaborately discussed and defined by the Supreme Court in Addanki Narayanappa's case, AIR 1966 SC 1300 referred to earlier. As held by the Supreme Court in that case, partner's right during the subsistence of the partnership is to obtain such profits, if any, as fall to his share from time to time by the application of the property of the firm, and upon the dissolution of the firm, to a share in the assets of the firm which remain after satisfying the liabilities set out in cl. (a), and sub-cls. (i), (ii) and (iii) of cl. (b) of s. 48 of the Indian Partnership Act. In substance, therefore, a partner enjoys two rights or rather two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be a partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled and, for the purpose of ascertaining that share, to an account as from the date of dissolution ". Thus, on the death of a partner resulting in the dissolution of the firm, though the right which he had during the subsistence of the partnership ceases to exist and would not be property passing on his death, the right which he had on the dissolution of the firm continues to subsist and would be property passing on his death. In a case, where the death of a partner does not dissolve the partnership but the surviving partners have the right to carry on the business of the partnership, what would pass would be the two sets of rights or both the rights which the deceased possessed as a partner, namely, his right during the subsistence of the partnership and the right which he would have on the dissolution of the firm. In a case of dissolution brought about by a partner's death the property would pass to his legal representatives, that is, to his heirs on intestacy in case he has died intestate, or if he has died testa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the deed of partnership. It may be noted that the Judicial Committee held that the interest of the deceased partner in the property of the firm, including goodwill, passed to his legal representatives because under the deed of partnership in that case the surviving partners had an option to purchase the deceased partner's share, which option they might or might not exercise. In support of his submission, Mr. Dastur relied upon certain authorities to which we will now refer. The first authority relied upon by Mr. Dastur was the decision of the Jammu and Kashmir High Court in CED v. Kasturi Lal Jain [1974] 93 ITR 435. In that case, the deceased died in an air crash and his heirs got compensation of Rs. 42,000 from the Indian Airlines Corporation. It was contended on behalf of the revenue that the said sum of Rs. 42,000 was property passing on the death of the deceased and was accordingly chargeable to estate duty. The court repelled this contention holding that the deceased neither had any interest in the property nor was he in possession of the property either actually or constructively and in such a case the property did not and could not have come into existence during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the net assets of the firm is not dependent upon the discretion of the surviving partners. It is an incidence of the contract of partnership. This authority too, therefore, cannot help the respondents' case. The next decision relied upon by Mr. Dastur was that of the Supreme Court in Mfrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 (SC). In that case, certain lands were acquired under the Land Acquisition Act, 1894, and certain compensation was received by the deceased during his lifetime. The matter, however, went in reference and additional compensation was granted by the civil court. The department claimed to include the amount of such additional compensation in the dutiable estate of the deceased. The Supreme Court held that when lands were compulsorily acquired by the Government during the lifetime of the deceased they did not form part of his estate, but what formed part of his estate was the right to receive compensation therefor at the market value as at the date of the notification and it is such value which would be property that would pass on the death of the deceased. The court further held that this did not mean that the evaluation of this right done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law nor any provision corresponding to our s. 40. After considering the nature of a coparcenary, the judicial Committee came to the conclusion that the interest of a coparcener in coparcenary property did not pass on his death. It is unnecessary to refer to this decision further, because the incidence of a coparcenary does not bear any resemblance to the incidence of a partnership. There are basic and fundamental differences between a coparcenary and a partnership which are elementary and too well known to be catalogued here, and this decision cannot be taken to be an authority for the proposition that on a partner's death his interest in the partnership property does not pass to his legal representatives. Mr. Patil, learned counsel for the respondent in, Estate Duty Reference No. 9 of 1979, contended that whatever may be the position with respect to a partner's share or interest in the firm when his death dissolves the firm, where, under the terms of a deed of partnership, the surviving partners acquired the right to carry on the partnership business, no property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he liability to pay to the legal representatives the value of such share, whether for the purpose of computation of such valuation they are to take into account all the assets of the firm or not being dependent upon the terms of the deed of partnership, but this fact has no relevance as to whether the property passes to the surviving partners or not. Assuming for the sake of argument that in a case where the surviving partners become entitled to carry on the business the deceased partner's interest passes under s. 7(1), in our opinion, it would not be correct to say that the value of such interest cannot be computed under s. 40. Clause (a) of s. 40 obviously does not apply to the case, because, for it to apply, the interest ceasing on death must extend to the whole income of the property, while in the case of a partnership the partner's share or interest does not extend to the whole income of the property. What, therefore, may apply is cl. (b) under which if the interest extends to less than the whole income of the property, the value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased is to be the principal value of an addition to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analogy of the mode of valuation set out in r. 2(1) of the W.T. Rules, 1957, and that it takes first the market value of the tangible assets of the firm. It deducts from it the capital account, then the deceased partner's capital account is taken separately and is deducted, and then from the total so arrived at, the total liabilities of the firm excluding reserve are deducted, and the net total is apportioned between the partners in proportion to their shares in the profits and losses of the firm. The value of the goodwill is then separately determined, and the principal value of the deceased partner's share is then arrived at by adding to the proportionate share of the deceased his share in the capital of the firm plus his share in the goodwill. Briefly put, by this method what the department appears to be doing is to take the total assets of the firm less the total liabilities, and, after making adjustments for the amount of the capital brought in by the deceased partner, arrive at the net assets and then apportion them amongst the partners in order to arrive at the value of the deceased partner's share. For the sake of convenience we will call it the break-up method. In Mr. Dast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Veerraju v. Chittori Lakshminarasamma, AIR 1971 AP 266. In support of the action taken by the department reliance was placed on the Supreme Court case of Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla, AIR 1970 SC 1147. We have already set out in detail the facts of that case. The Supreme Court did not in that case lay down that goodwill could be valued separately apart from the other assets of the firm. The question before the Supreme Court was whether by reason of a particular clause in the deed of partnership in that case goodwill was not to be included in arriving at the value of the deceased partner's share, and the Supreme Court, rejecting the construction canvassed by the surviving partners, held that in the absence of a provision expressly made or clearly implied, the normal rule that the share of a partner in the assets of the firm devolved upon his legal representatives applied to goodwill as well as to the other assets of the firm and, therefore, goodwill was to be taken into account while valuing the assets of the firm. In CGT v. P. Gheevarghese, Travancore Timbers and Products [1972] 83 ITR 403 (SC), the assessee was desirous of introducing in his busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was whether having regard to the terms of the deed of partnership, the value of the interest of the deceased in the said partnership would include the goodwill of the partnership firm, and the third was whether the value of the goodwill was exempt under the provisions of s. 26(1) of the Act. The third question was not pressed before the High Court, and, accordingly, the High Court did not answer it. So far as the first question was concerned, the High Court answered it in the affirmative and so far as the second question was concerned, it answered it in the negative. After examining the nature of a partner's interest in the firm, the Gujarat High Court held that it was property for the purposes of the Act. It further held that the value of the goodwill, if any, was to be taken into account not as a separate or individual asset but for the purpose of considering the value of the totality of the interest which the deceased partner possessed. The argument, however, before the Gujarat High Court, proceeded upon the basis that on the death of the deceased, by reason of the aforesaid clause in the deed of partnership his right to claim any share in the goodwill came to an end and did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed possessed and could dispose of along with his entire interest in the firm at the time of his death came to devolve on the surviving partners and their share in the interest of the goodwill was augmented to the extent of the share of the deceased, which attracted s. 5 of the Act. Though we ourselves have held that in such a case the entire interest of the deceased partner in the assets of the firm, including goodwill, after deducting liabilities of the firm would pass under s. 5, we have held so for reasons different than those which found favour with the Madras High Court. In our opinion, it would not be right to consider goodwill separately except where in the valuation of the assets there is a dispute with respect to the value placed on goodwill. Such a dispute can arise not only with respect to the value to be placed upon goodwill but also with respect to the value to be placed upon any tangible asset of the firm. The question then would not be of the deceased's share in that particular asset, but it would be with respect to the mode of valuing the total assets of the partnership for the purpose of arriving ultimately at the value of the deceased's share in the firm. In Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urning now to the decisions of the Calcutta High Court in CED v. John Gregory Apcar [1979] 119 ITR 192, the deed of partnership provided that on the death of a partner the surviving partners would be entitled to carry on the business but would be liable to pay to the legal representatives of the deceased partner his share in the capital and property of the partnership as ascertained by the last annual account taken prior to his death and his share of undrawn current profits up to the date of his death and that for the purpose of ascertaining the amount payable to the legal representatives of the deceased partner his share in the goodwill of the business the value of the goodwill was to be taken as Rs. 1,00,000 which was to be added to the sum payable as aforesaid in respect of his share in the capital and property of the partnership. The Calcutta High Court held that upon the death of the deceased the property, namely, the share of the deceased in the partnership, including goodwill, passed to his legal representatives and the value of such share should be determined in the manner provided in the deed of partnership, but so far as the other surviving partners were concerned, due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuing partners. In support of this contention, the decision of the Gujarat High Court in Smt. Mrudula Nareshchandra's case [1975] 100 ITR 297, was relied upon. This High Court rejected the contention holding that the relevant clause of the deed of partnership contemplated devolution of the share of the deceased partner in all the assets of the firm, including goodwill, on the continuing partners. It did not consider the correctness of the decision of the Gujarat High Court, but distinguished that case on the ground that the clause in the deed of partnership before the Gujarat High Court was very different from the one before it. It also held that s. 7 of the Act did not apply and s. 5 applied to the case. In a later Bombay case, CED v. N. H. Kotak , the deed of partnership provided that the goodwill and the name of the firm were to belong absolutely to the surviving partners, who would be entitled to carry on the business. A peculiar provision in the deed of partnership in that case was that the name, style and goodwill of the firm were at all times to be at the disposal of the head partner for the time being who was to have the right at any time, whether during the partnership or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deceased partner. From the facts reproduced in the judgment it is not clear whether there were any assets of the firm other than capital and goodwill or whether the department had deducted from the amount of capital and the share of the goodwill the liabilities of the firm. It might have been that the amount of capital exceeded the liabilities, and, therefore, if there were no assets other than the goodwill, goodwill was the only asset left out. If, however, such was not the case, it would not be correct, in our opinion, to speak of any partner having a share in the goodwill, just as it would not be correct to speak of any partner having a share in any of the other assets of the firm. As pointed out earlier, what a partner has is his share in the totality of the assets of the firm less its liabilities. In S. Devaraj v. CWT and Estate of T. R. Narayanaswami Naidu v. CED [1973] 90 ITR 400 (Mad), the deed of partnership provided that the partnership should not be determined by reason of death, retirement, etc., so long as the business of the firm was continued by at least two partners. The accountable persons included in the estate duty return the amount standing to the credit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the estate passing either when all the assets and liabilities of the business have been evaluated or when prima facie they are proved to have a good positive value even without the goodwill. In the instant case, no such controversy is involved, for, there is nothing to show that there was any stipulation between the partners of the firm that on the death of any of the partners, the partnership shall not stand dissolved and the heirs of the deceased partner shall have no right to claim any share in the goodwill of the firm. There is also nothing on the record to show that the overall assets of the business have been completely depleted so that even for the positive value of the goodwill no prudent person will purchase the business. Goodwill being an asset and property within the meaning of s. 2(15) of the Act, in the normal course will devolve upon the legal representatives and its value as calculated on established commercial principles will be included in the principal value of the estate of the deceased." It is pertinent to note that the Allahabad High Court proceeded upon the basis that the overall assets of the firm exceeded the liabilities. It also held that goodwill is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, constitute an integrated scheme, and if in a given case it is not possible to compute the value of a particular property passing on death, then that property does not become exigible to the charge of estate duty. (5) Where property is deemed to pass under s. 7(1) of the E.D. Act, 1953, estate duty thereon will be chargeable under s. 5, but the value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased will have to be computed under s. 40 of the Act, and if it cannot be computed, then such benefit is not liable to the charge of estate duty. (6) The definition of the term " property " in cl. (15) of s. 2 of the E.D. Act, 1953, is not a restrictive definition but is an extensive one. It comprehends within it not only the particular interests mentioned in the said cl. (15) but also all that is generally understood in law by the term " property ". There is no warrant for holding that in s. 7(1) of the Act the word " property " is used in a narrow sense and refers only to such property which is a defined and specific property or, in other words, to tangible property. (7) During the subsistence of a partnership the right of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect to say that the right of a partner in the case of dissolution of the firm or his right or the right of his legal representatives as representing his estate to receive the amount of the value of the deceased partner's share from the surviving partners came into being for the first time on the death of the partner Such a right existed in the partner himself at the time the partnership came into existence, and on the death of the partner it is this right which passes. (12) For the purposes of the E.D. Act, 1953, what is to be seen is whether property has changed hands, irrespective of the destination of that property. The value of such property is liable to be included in the value of the estate of the deceased. (13) Where a partnership is dissolved by the death of a partner, his share in the firm passes on his death to his legal representatives. Where a partnership is not dissolved on the death of a partner but the surviving partners become entitled to continue the partnership business, the deceased partner's share passes to his surviving partners subject to their making payment to the legal representatives of the deceased partner of the amount of the value of his share i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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