CONTROLLER OF ESTATE DUTY Vs. SAGARMAL DAGA LATE

JUDGEMENT

(1.) THE Tribunal, Calcutta Bench "E", Camp Jaipur, has referred the following questions of law arising out of its order dt. 10th March, 1981 :

(2.) THE brief facts of the case are that Sagarmal Daga expired on 15th Oct., 1974. He was a partner in the firm, M/s Sagarmal Daga and Company. In the course of the assessment proceedings of the accountable persons, it was pointed out that the deceased had retired from the firm on 9th Oct., 1974, i.e., a few days prior to his death, and on this ground it was submitted that no share in the goodwill of the said firm can be added as he was no longer a partner therein. The Asstt. CED held that in accordance with the provisions of S. 9 of the ED Act, the deceased person should be treated as having made a disposition of his share in the goodwill of the firm. Since the disposition was within a period of two years of death, the value of the goodwill was includible under S. 9 of the ED Act. The value of the goodwill was accordingly determined on the basis of the income of the firm for the last five years. It was also observed that the provisions of S. 2(15) of the ED Act, 1953, defines "property", according to which "property" includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method. Expln. 2 to this section further provided that "the extinguishment at the expense of the deceased of a debt or other right shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression 'property' shall include the benefit conferred by the extinguishment of the debt or right." In view of the Explanation to S. 2(15) of the Act, it was considered to be a deemed disposition and since the deceased at the time of retirement had relinquished his right of goodwill in favour of other partners without any adequate consideration and since this relinquishment had been made by the deceased within two years of death, it was held that it is includible being property deemed to pass on death under S. 9 r/w S. 2(15) of the ED Act. In the appeal preferred to the ACED, it was submitted that the retirement deed was executed a few days before the death and, therefore, there was no question of any deemed gift. The ACED rejected the contention of the accountable persons and accordingly a second appeal was preferred to the Tribunal, where this fact was taken into consideration that in the partnership deed dt. 21st Oct., 1974, the fact of retirement from 9th Oct., 1974, leaving the concern with all its assets and liabilities with the surviving partners was clearly mentioned and, therefore, the provisions of S. 9 are not applicable in view of the decision given by the Bombay High Court in the case of Smt. Urmila vs. CED (1979) 9 CTR (Bom) 81 : (1980) 122 ITR 958 (Bom). 4. Learned counsel for the Department has submitted that in accordance with the Full Bench judgment of the Punjab and Haryana High Court in the case of State vs. Prem Nath 1977 CTR (P&H) 187 (FB) : (1977) 106 ITR 446 (P&H) (FB), the share of goodwill of a partner in the assets of the firm is property which passes on his death and can be included in computing the principal value of the estate of deceased. It was held in this case that under S. 14 of the Partnership Act, the goodwill of a firm being an asset of a firm, the share of a partner in the goodwill along with his share in the other assets of the firm devolves, on his death, upon his legal representatives notwithstanding any clause in the deed of partnership to the effect that the surviving partners are entitled to carry on the business on the death of the partner. A term extinguishing the right of a deceased partner to a share in the assets is not to be implied merely because the deed provides for continuance of business by the surviving partners.

(3.) Reliance was also placed on the decision of the Madras High Court in CED vs. Ibrahim Gulab Hussain Currimbhoy (1975) 100 ITR 320 (Mad), where, in accordance with a clause in the partnership deed, the retiring partner or legal representatives of the deceased partner were not entitled to any goodwill. It was held that the goodwill being assets of the firm belonged to the firm, that means, to all the partners, and the death of the deceased did not extinguish his share in the goodwill but resulted in augmenting the interest of the surviving partners in the goodwill in view of cl. 14 of the partnership deed and hence there is a passing of the deceased's share in the goodwill even if there is no devaluation of the deceased's interest in the goodwill on the legal representatives.