CONTROLLER OF ESTATE DUTY Vs. MOHD. ISMAIL

JUDGEMENT

(1.) THE following questions have been referred under Section 64(1) of the Estate Duty Act, 1953, at the instance of the Controller of Estate Duty, Poona: (1) Whether on the facts and circumstances of the case, it could be rightly held that only 1/3rd share of the goodwill and riot the full value of the goodwill passed on the death of the deceased for the purposes of Estate Duty Act, 1953? (2) Whether on the facts and circumstances of the case, it could be rightly held that there was no gift directly or indirectly of the goodwill of the business by the deceased to his son and grandson?

(2.) THE facts on which these questions arise are: One Ibrahim Kasam Amliwala who died on February 1, 1958 was the sole proprietor of the business which was carried on under the name and style of Messrs Ibrahim Kasam till 1937. He entered into a partnership with his son Ismail Ibrahim which is evidenced by the partnership deed dated July 7, 1937. Under the terms of this deed the net profit or loss of the business after payment of all expenses was to be divided between the partners equally. Each partner was to 'afford every assistance in his power is carrying on the business of the firm for their mutual advantage'. By a partnership deed dated May 11, 1950 the grandson of Ibrahim Kasam, that is, the son of the other partner Ismail Ibrahim was taken as a working partner and a new partnership came to be formed consisting of these three persons. The new partner was Mohomed Ismail. Clause 5 of the partnership deed dated May 11, 1950 expressly provided that the third partner would be a working partner. After the death of Ibrahim, in proceedings for assessment of estate duty, the Assistant Controller of Estate Duty took the view that the share in the goodwill of the firm relinquished by the deceased in favour of his relations, namely, the! son and the grand -son was to be treated as disposition in favour of the relation without adequate consideration and brought to tax. The share so relinquished was, according to the Assistant Controller, two -thirds. The value of the goodwill of the firm was determined at Rs. 2,01,000. The share of the deceased in the goodwill at the time of his death was taken to be one -third, that is, worth Rs. 67,000, which was brought to tax under Section 5 of the Estate Duty Act, whereas the remaining two -third valued at Rs. 1,34,000; was brought to tax under Section 10 of the Estate Duty Act.

(3.) THE Income -tax Appellate Tribunal in the appeal filed by the accountable person took the view that the partnership deed of 1937 provided that the assets and liabilities which were transferred to the firm 'shall be owned and managed by the firm' and that a similar clause was also incorporated in the deed dated May 11, 1950. These clauses, according to the Tribunal showed that the assets and liabilities were owned by the firm which was constituted by three partners each of whom had one -third share. Thus the Tribunal took the view that only one -third share of the goodwill passed on the death of Ibrahim and directed that the value thereof alone should form part of the estate of the deceased. The Controller of Estate Duty not being satisfied with, this decision of the Tribunal had asked for the questions reproduced earlier to be referred to this Court.