BHAKTAVARMAL SHIVALAL OSTWAL Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) PURSUANT to the order by this court in Civil Petition No. 264 of 1976, the Income-tax appellate Tribunal, Bangalore Bench, has referred the following question for the opinion of this court:

(2.) ONE S.Hansaji Ostwal was a partner of the firm, M/s. Shah Shivalal Hansaji Ostwal. It was doing business in commission agency and trading in cotton seeds at Kundgol in the district of Dharwad. HansajiOstwal died on September 12, 1971. He has 17% share in the firm. Bhaktavarmal Shivalal Ostwal, son of the deceased partner, became an accountable person for the purpose of levy of estate duty under the provisions of the E.D. Act, 1953. The Assistant Controller of Estate Duty, Hubli, while computing the estate duty on the assets which passed on to the accountable person on the death of his father by virtue of s. 7 of the Act, computed the share of the deceased in the goodwill. Taking into account the super profit at Rs. 21,874 and computing the goodwill at 3 years' purchase, the total value of the goodwill arrived by the Asst. Controller was Rs. 65,000. The share of the was calculated at Rs. 11,050. Including the value of the goodwill, the estate of the deceased was brought to tax under the provisions of the Act. Aggrieved by the said order, the accountable person pr an appeal before the Appellate Controller, Mysore Range. appellate authority confirmed that the firm had a goodwill and the share of the decreased therein passed on to the accountable person on the death of the deceased. However, he reduced the share of the goodwill of the deceased to Rs. 9,690. The accountable person preferred a second appeal before the Income-tax Appellate Tribunal, Bangalore Range. Two contentions were raised by the accountable person before the Tribunal. Firstly, it was contended that no share in the goodwill could be included in the principal value of the estate and, secondly, it was contended that the valuation was excessive. The Tribunal rejected both the contentions. Thereafter, as the Tribunal refused to make a reference, the accountable person filed Civil petition No. 264 of 1976 and pursuant to an order made by his court the question set out earlier has been referred to this court for its opinion.

(3.) THE Gujarat High Court held that in a case like that there was no cesser of interest in the goodwill on the death of the partner and it cannot be measured under s. 40 of the Indian Partnership Act, 1932, and the cesser of such interest did not attract payment of estate duty under s. 7 of the Act. THE Madras High court took a contrary view and held that, even in a case of that type, the interest of the deceased partner in the goodwill passes on the other partners on his death and it is liable to tax under the provisions of the Act at the hands of the surviving partners.