CONTROLLER OF ESTATE DUTY Vs. GURUVIAH NAIDU

JUDGEMENT

(1.) THE question in this estate duty reference is about the manner of valuation of a partner's interest in a partnership held by the deceased at the moment of his death.

(2.) UNLIKE as in the W.T. Rules, there is no provision in the estate duty legislation which carries any express rules relating to valuation of a partnership interest. However, the presence of an express valuation formula in the law relating to wealth tax may perhaps, be explained by saying that, in wealth-tax, we deal with a live assessee who is a live partner, having a subsisting interest in an existing partnership. In such a situation, it would be essential to have the principle of valuation laid down in black and white, as it were, lest people should seek to push in the substantive doctrines of partnership law into a purely valuation question. For instance, there is the doctrine of partnership law which says that 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 a partner's interest in the partnership, during the subsistence of the partnership, and perhaps a right to an accounting of such profits in terms of the articles of partnership. When the partnership a 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 finding 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 from any of the partners, so as to arrive at the net surplus of the firm's assets over the firm's liabilities. When such surplus is ascertained, every partner is entitled to his aliquot share in that surplus. This would really represent the quantum of the partner's interest, in terms of evaluation. Apparently because this is the substantive law on the subject of a partner's interest in a partnership firm, it was felt necessary, in a legislation like the W.T. Act, to introduce an express provision for evaluating a partner's interest during the subsistence of a partnership. Shortly stated, those provisions demand what is usually called the breakup value method. Under that method. all the assets of the partnership are valued either in the gross or individually and as against the aggregate value of the partnership assets are set off the debts of the partnership so as to arrive at the net worth of the firm as such. It is therefrom that the partner's interest is arrived at by applying the proportionate share he holds in the partnership under the terms of the partnership deed.

(3.) 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 the order of the Tribunal might gave the impression that they had accepted the assessee's submission based on the general principle that the interest of the deceased partner in a firm does not get dissolved in his death but continues with the surviving partners and hence such interest must be calculated only on the basis of what the surviving partner are prepared to grant to this heirs of the deceased. If this really were the argument, the Tribunal did not adopt Rs. 53,890.40 as the value of the deceased's share. The Tribunal ultimately ordered the deletion only of Rs. 4,704 from the dutiable estate.