Decided on December 06,1967



- (1.) THESE two references arise out of an order passed by the Central Board of revenue on 18-3-1910 in Estate Duty appeal No. KL 28, and they relate to the assessment of estate duty under the Estate Duty Act, 1953 (hereinafter referred to as the Act) on the property passing on the death of one Sri Parameswaran Pillai of quilon, who died on 13-5-1956. The applicant in these references is one of the accountable persons. He delivered to the Assistant Controller of Estate Duty, ernakulam, a statement of account of all the properties in respect of which the estate duty is payable, showing a total value of Rs. 2,04,861/ -. After scrutiny of the statement, and giving the accountable persons due opportunity of being heard in the matter, the Assistant Controller determined the principal value of the estate at Rs. 9,16,321/-, and the estate duty payable thereon at Rupees 1,33,560/ -.
(2.) THE controversy before the Assistant Controller related only to the following matters: (i) The deceased Parameswaran Pillai had purchased a land more than two years prior to his death in the name of his wife. He had also constructed a house in the said land, wherein he was living with his wife and children till he died. It was contended that the above land and building belonged absolutely to the wife of the deceased as a gift, which was made more than two years prior to his death, and that the value of this property should not, therefore, be treated at part of the property passing on the death of the deceased (ii) Sri Parameswaran Pillai was carrying on a business in cashewnut and tobacco On 29-12-1954, which is within two years of his death, he executed a deed of settlement in respect of certain immovable properties, and the assets and liabilities of the above business together with its goodwill in favour of his sons. According to the applicant, the business was then running at a loss; and the value of its assets was a negative figure. It was only after the donees had invested their own moneys, expended their skill and effort in running the business and ploughing back the accrued profits into the business, that the business flourished, and the balance-sheet of the subsequent year showed a positive value for the assets. It was, therefore, contended that these assets should not be valued, as they stood at the time of the death, but only as they stood on the date of the settlement. In other words, the additions brought to the business by the donees should be excluded from the valuation; and (iii) The business of the deceased had no goodwill as it was being run at a loss; and there was no scope for assessing any value for its alleged goodwill.
(3.) THE Assistant Controller rejected all the above contentions. The applicant, therefore, filed an appeal before the Central Board of Revenue, who was then the appellate authority, and pressed the same contentions before it. The Central Board upheld the order of the Assistant Controller, except with regard to the value of the goodwill of the business. It held that the value of the goodwill of the cashew business was nil, as against Rs. 1,25,959/-fixed by the Assistant Controller. As regards the value of the goodwill of the tobacco business, the sum of Rs. 68,831/fixed by the Alsistant Controller was reduced to Rs. 50,000/ -. Being dissatisfied with the order of the Central Board, the applicant moved under section 64 of the act by an application dated 6th June, 1960 to refer the following questions of law said to arise out of the said order for decision by this Court: 1. Whether on the facts and in circumstances of the case, the Central board of Direct Taxes was right in holding that the bona fide possession and enjoyment of the property gifted was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor? 2. Whether on the facts and circumstances of the case the Central Board of Direct Taxes was justified in including the profits of the business carried on exclusively by the donees with their own monies and the augmented value of the assets, the augmentation being due to the exercise of the skill and efforts of the donees, in the value of the assets said to pass on the death of Sri Parameswaran Pillai? 3. Whether the Central Board of Direct Taxes was justified in taking into consideration also the profits of business conducted exclusively by the appellants in computing the value of the goodwill of the business which was gifted long ago before the death of Shri Parameswaran Pillai? 4. Whether on the facts and circumstances of the case, the method of computation adopted by the Central Board of Direct Taxes for computing the value of the goodwill is justified in law? 5. Whether in any view of the matter the Central Board of Direct Taxes should not have taken the profits from the two main items of business together in computing the profits for ascertaining the goodwill ?;

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