VINDOOR BAI Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THE Tribunal has referred the following questions for our opinion:

(2.) THE deceased, Nand Lal, died on December 29, 1968, At the time of his death he was a partner in the firm, M/s. Govardhan Das Ahuja, which was carrying on business of contractors and engineers at 122/730, Nandpuri, Shastri Nagar, Kanpur, his share being 12% in the profits and losses of that firm. The Asst. Controller of Estate Duty while computing the value of the estate of the deceased included in it the value of the deceased's share in the goodwill of the firm. He calculated the value of the goodwillat Rs. 4,71,000. The method adopted for the valuation was this. He worked out the average profits of the firm for three years and deducted therefrom interest at the rate of 9% on the invested capital and remuneration at Rs. 6,000 per annum for six working partners. According to this method, the value came to Rs. 4,71,000, and as the deceased's share was 12%, it was computed at Rs. 56,520. The accountable persons filed an appeal before the Appellate Controller of Estate Duty, and contended that the firm did not have any goodwill, and that in any event the value of the goodwill was inflated. The Appellate Controller held that interest at the rate of 10% per annum on the invested capital should have been deducted instead of 9%, and reduced the valuation of the goodwill accordingly. He did not accept the other contentions. An appeal against this was filed before the Tribunal. The contention before the Tribunal was that the firm had no goodwill, as it had been dissolved thrice between 1959 and 1968, and further that as the business depended on the personal skill and labour of the partners, a firm of this nature did not enjoy any goodwill at all. It was also urged that the rate of interest on the invested capital which had been put at 10% was low and that remuneration to partners should have been allowed at Rs. 12,000 per annum. The Tribunal held that although the firm had been dissolved thrice between 1959 and 1968, the deceased continued to be a partner in the new firms, which were formed after dissolution. It was also held that the goodwill of a firm was an asset and that the firm had goodwill. It repelled the assessee's contention that the goodwill of the firm ceased with the death of the partner on the ground that the partnership deed contained no provision for the continuance of the partnership even in the event of the death of one of the partners. It, however, reduced the valuation of the goodwill and fixed it at Rs. 3,28,700 and the share of the deceased therein at Rs. 39,444. We propose to deal with the second question first, for, on the facts of the case, the answer to the second question may have some repercussion on the answer to be given to the first question. The deceased was a partner in the firm, M/s. Govardhan Das Ahuja, till his death. This firm was carrying on the business of contractors and engineers at 122/730, Nandpuri, Shastri Nagar, Kanpur, and the deceased's share was 12% in the profits and losses of that firm, which consisted of 12 partners. The rights of the partners were regulated by a deed of partnership executed on July 17, 1968. The Tribunal has found that the partnership disclosed that there was no provision in the deed of partnership as to the result of the death of a partner. In the absence of any provision in the partnership deed setting out the result of the death of a partner, the matter would be governed by Section 42 of the Partnership Act. Section 42 by Clause (c) provides for the dissolution of the partnership in the event of the death of apartner. This is made subject to a contract between partners. As the partnership deed does not provide for the continuance of the partnership on the death of the partner, the firm stood dissolved on the death of the deceased.

(3.) NOW , in view of Section 14 of the Partnership Act, it cannot be denied that the goodwill of a partnership is an asset of the partnership. But the section does not lay down that every partnership has a goodwill, or that the goodwill of every partnership has any substantial value. Now, under Section 5 of the E.D. Act, duty is chargeable on the principal value of the property, which passes on the death of a person. Section 36 of the Act lays down the method of estimating the principal value of the property. It requires the Controller to estimate the principal value of the property by reference to the price it would fetch if sold in the open market at the time of the deceased's death. This being so in cases where a firm has goodwill, as it constitutes the property of the firm, and as every partner has a share in the goodwill, it passes on the death of the partner, and has to be evaluated. But from this it does not follow that every partnership has a goodwill, and as soon as a partner dies, the non -existent goodwill has to be evaluated. In every case, it has to be seen as to whether the firm of which the deceased was a partner had a goodwill. Now, what is the good -will of a firm ?