NALINI V SARAF Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) Questions of law referred are as follows :

(2.) One V.G. Saraf passed away on 18.10.1984. He was a partner in the Firm, M/s. Saraf Trading Corporation, a partnership Finn carrying on business as commission agent and exporters of tea. The Firm was originally constituted under the deed of partnership dated 27.11.1963 with three partners as follows:

(3.) The Assistant Controller of Estate Duty noticed that during the life time of the deceased, the Firm had distributed a sum of Rs.2,50,000/- on 14.11.1982 out of which Rs. 1,70,000/- was given to the deceased. In the subsequent year, namely, year ended 04 11.1983 in a distribution of Rs. 1,20,000/- the deceased got a share of Rs.30,000 / - . It was noticed by the Assistant Controller that after the death of V.G. Saraf, a sum of Rs. 15 lakhs was distributed and in that only Rs.9,000/- was treated as the share of the deceased. Hence, he held that the profits of the Firm were not distributed properly. He also noticed that the deceased was allowed to withdraw more than Rs. 10 lakhs during the same periods which resulted in a debit balance of Rs. 17,93,351/- in his accounts at the time of death. The Assistant Controller came to the conclusion that the surviving partners had indulged in some kind of planning so as to avoid tax liability. In that view, he chose to adopt 1/5th share of the undistributed profits as the share of the deceased in the interest of the Firm. He also took into account 1/5th share in the profit of the Finn for the year ended on 24.10.1984 on the ground that the time lag between the death and the closing of the accounts of the Finn was short and that almost all the transactions of the Firm must have been over as on the date of the death of the deceased. The Assistant Controller further held that even though the deceased was only a lessee of a building in which the business was carried on by the firm, the property commanded a market value and so he included the leasehold property for the purpose of estate duty assessment at 1/5th of its value. He also overruled the objection of the accountable person that the Firm had no goodwill. In arriving at the value of the goodwill, he gave marginal reduction for managerial remuneration, etc. and computed the interest of the deceased at 1/5th of the value of the goodwill. In such computation he included the amount of duty draw back, cash assistance, etc. which were received by the Firm during the course of the business. Thus, 1/5th of the value of the goodwill was added as the share of the deceased.