- (1.) SMT . Parsini Devi, who was a partner having 40 per cent share in the firm of M/s. Metal Fabriks (India) Ludhiana, died on 19-8-1969. In computing the principal value of the estate of late Parsini Devi, the Assistant Controller of Estate Duty included a sum of Rs. 93,480.00 on account of the share of the deceased in the goodwill of the firm M/s. Metal Fabriks (India) Ludhiana. The Zonal Appellate Controller confirmed the order of the Assistant Controller, but the Income-tax Appellate Tribunal, following a judgment of the High Court of Punjab and Haryana in Controller of Estate Duty v. Ved Parkash Jain, 96 ITR 303 = (1974 Tax LR 339) (Punj and Har) held that the share of goodwill of a deceased person in the assets of a firm did not pass on his death and, therefore, it could not be taken into account in computing the principal value of the estate of the deceased, The addition of Rs. 93,480 was, therefore, deleted. The Tribunal did not go into the question, whether the share of goodwill was correctly valued at Rs. 93,480. At the instance of the Revenue, the following question has been referred to us for our decision:-" Whether on the facts and in the circumstances of the case, share of goodwill of a deceased partner in the assets of a firm passes on his death under the Estate Duty Act. "
(2.) THE reference came before two of us initially. We referred it to a Full Bench as we thought that the decision in Controller of Estate Duty v. Ved Parkash Jain, 1974 Tax LR 339 (Punj & Har) required reconsideration. That is how the matter has now come before the Full Bench. Under Section 5 of the Estate Duty Act, Estate Duty is leviable upon the principal value of all property which passes on the death of a person. Section 2 (16) defines 'property passing on the death' as including property passing either immediately on the death or after an interval either certainly or contingently, and either originally, or by way of substitutive limitation. It also defines 'on the death' as including at a period 'ascer-tainable only by reference to the death'. The question for consideration is, whether the share of a deceased partner in the goodwill of a firm is property which passes on the death of such a person.
(3.) IT is useful to mention at this juncture that under Section 14 of the Indian Partnership Act, the goodwill of the business of a firm is expressly stated to be the property of the firm and Section 55 also provides for the sale of the goodwill either separately or along with other property of the firm after dissolution of the firm. In Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla, AIR 1970 SC 1147, the Supreme Court referred to Section 14 of the Partnership Act and observed:-" Goodwill of the firm is expressly declared to be the property of the firm. " Referring to Section 55 which makes provision for the sale of goodwill after dissolution, the Supreme Court further observed:- "but it is not enacted thereby that goodwill may be taken into account only when there is a general dissolution of the firm, and not when the representatives of a partner claim his share in the firm, which by express stipulation is to continue notwithstanding the death of a partner. . . . . These provisions (Sections 39, 42 and 46) deal with the concept and consequences of dissolution of the firm; they do not either abrogate the terms of the contract between the partners relating to the consequences to ensue in the event of the death of a partner when the firm is not to stand dissolved by such death, nor to the right which the partner has in the assets and property of the firm. The Partnership Act does not operate to extinguish the right in the assets of the firm of a partner who dies, when the partnership agreement provides that on death the partnership is to continue. In the absence of a term in the deed of partnership to that effect, it cannot be inferred that a term that the partnership shall continue notwithstanding the death of a partner, will operate to extinguish his proprietary right in the assets of the firm. " Later again, they observed:- "the goodwill of a firm is an asset. In interpreting the deed of partnership, the Court will insist upon some indication that the right to a share in the assets is, by virtue of the agreement, that the surviving partners are entitled to carry on the business on the death of the partner, to be extinguished. In the absence of a provision expressly made or clearly implied, the normal rule that the share of a partner in the assets devolves upon his legal representatives will apply to the goodwill as well as to other assets. " It is clear from the observations of the Supreme Court that the goodwill of a firm is an asset of the firm the share in which, 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.;