B.P. Beri, C.J. - (1.) THIS is an application under Section 64(3) of the Estate Duty Act, 1953 (hereinafter called "the Act"), ior directing the Income-tax Appellate Tribunal, Jaipur Bench (hereinafter called "the Tribunal"), to state the case and to refer two questions of law arising out of its order dated December 10, 1971, in the Estate Duty Appeal No. 3 of 1971-72 to this court which the Tribunal had refused to do by its order dated April 27, 1972.
(2.) SHRI Manilal Shivlal of Kota (hereinafter called "the deceased") died on February 9, 1965, and his widow, Smt. Shanta Ben, is the accountable person for the purposes of the Act. The deceased carried on business as the sole distributor of a reputed brand of "bidi" under the name of Chandulal Jagjivandas & Co., Bhavani Mandi. In 1953, a partnership firm of the same name was constituted. The partners of this firm were the deceased and his brother, Purshottamdas Patel. Their shares were 15 per cent, and 25 per cent., respectively. From the assessment year 1963-64, however, their shares were changed and became 56 per cent, and 44 per cent., respectively. While assessing the value of the estate of the deceased, the Assistant Controller of Estate Duty valued the goodwill of the deceased's share in the partnership at Rs. 2,00,000 and added it in the dutiable estate of the deceased. This figure of Rs. 2,00,000 was rounded up. The principle applied for calculating the value of goodwill was that three years' super profits were first ascertained and therefrom were deducted, (a) the interest on the capital invested, and (b) the salaries of the partners notionally fixed. The share of the profits of the deceased for the preceding five years was at Rs. 5,00,000. The Assistant Controller calculated the value of the goodwill at three years' super profits after deducting six percent, interest on the capital employed and Rs. 12,000 as salary of the applicant out of the profits and thus he rounded up the figure at Rs. 2,00,000. In between the period of January 26, 1950, to March, 31, 1951, the deceased carried on the business as a sole proprietor; he had paid sales tax in the sum of Rs. 1,17,287. The deceased had disputed this liability and it appears that the matter was under consideration and was settled later. The amount, however, was refunded on February 16, 1962. It was credited to the profit and loss account of the partnership firm and was divided among the partners according to their shares at that point of time which was 75 per cent, and 25 per cent. What fell to the share of Purshottamdas Patel came to Rs. 29,322. At the time of the assessment of the firm to income-tax for the year 1962-63, the Income-tax Officer had taken this refund amount as income of the firm but on an appeal by the assessee-firm the Appellate Assistant Commissioner accepted the contention of the appellant that only the deceased was entitled to the refund and not the firm and, therefore, deleted the addition of the refund amount of Rs. 1,17,287 from the income of the firm. On this basis the Assistant Controller of Estate Duty included the entire amount of Rs. 1,17,287 in the estate of the deceased. An appeal was taken by the accountable person and the Zonal Appellate Controller of Estate Duty, by his order dated January, 7, 1971, held that the valuation of goodwill by the Assistant Controller at three years' super profits was fair and proper. He, however, held that the profit of the year 1962-63 had included an amount of Rs. 1,17,287 received by way of refund of sales tax due earlier but this amount could not be included while calculating the goodwill. On the question of Rs. 29,322 the Zonal Appellate Controller affirmed the order of the Assistant Controller. A second appeal by the accountable person was taken to the Tribunal and it was held that since the share of the deceased in the firm was only 56 per cent, at the time of his death, the valuation of the deceased's share and goodwill should be calculated at fifty-six per cent only. It was further held that 2 years' purchase at supsr profits basis after the allowance of interest at twelve per cent, and remuneration of partners at Rs. 12,000 per annum should be considered as fair and reasonable. On the point of Rs. 29,322 the Tribunal held that since the whole of the refund amount was kept in the partnership business one-fourth share of this amount fell to the share of the other partner, namely, Purshottamdas Patel, and, therefore, the whole amount could not belong to the deceased. The Tribunal accordingly deleted that sum of Rs. 29,322 from the estate of the deceased. Feeling aggrieved by the Tribunal's order aforesaid, the Controller of Estate Duty, Rajasthan, Jaipur, made an application for reference under Section 64(1) under the Estate Duty Act requiring the Tribunal to refer to this court the following questions of law arising out of its order dated December 10; 1971: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the share of goodwill of the deceased may be arrived at on the basis of two years' purchase of super profits in the place of three years as fair and reasonable without assigning any reason ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 29,322 is deductible from the estate of the deceased when the entire amount of refund of sales tax belonged to the deceased even if it is presumed that the decision of the Appellate Tribunal that the sum of Rs. 29,322 belonged to Shri Purshottamdas, the other partner, is correct despite the fact that the provisions of Section 10 of the Estate Duty Act, 1953, are applicable ?" (The grammar of the question has been left untouched). The Tribunal by its order, dated April 27, 1972, rejected the reference application. The first question was not referred because the Tribunal held that it was a question of fact. The second question was declined to be referred for the reason that the ground regarding the applicability of Section 10 of the Act was not raised before the Tribunal and, therefore, the question could not be said to arise from the order of the Tribunal. On account of the refusal by the Tribunal to refer the questions the Controller of Estate Duty, Rajasthan, Jaipur, has come up before us under Section 64(3) of the Act. Mr.L. R. Mehta, learned counsel for the accountable person urged that the first question relating to the goodwill wherein the Tribunal had varied the percentage for the purposes of its calculation is largely and basically a question of fact. Mr.S. K. Mal Lodha, however, urged that the mode of calculation of goodwill involved basic principles of law and accountancy and was essentially a question of law. Let us examine the decided cases to which our attention was invited.
(3.) IN Jogta Coal Co. Ltd. v. Commissioner of INcome-tax, [1959]36 ITR 521 (SC) where their Lordships of the Supreme Court observed that the question whether on the interpretation of the sale deed it could be said that any goodwill was purchased by the appellant and whether the INcome-tax Officer was compelled to go behind the sale deed and adopt his own value for the assets were questions of law which could be referred to the High Court, IN S.C. Cambatta & Co. Pot. Ltd. v. Commissioner of Excess Profits Tax, [1961] 41 ITR 500 (SC) the Supreme Court again observed that whether the goodwill of the subsidiary company was calculated in accordance with law did arise and the High Court ought to have directed the Tribunal to refer it treating it to be a question of law. IN R. Ranganayaki Ammal v. Controller of Estate Duty, [1973] 88 ITR 386, 388 (Mad) the question referred to the High Court was whether, on the facts and in the circumstances of that case, the basis adopted for the valuation of the goodwill was in accordance with law. This was considered to be a question of law and answered as such by the Madras High Court. IN Commissioner of INcome-tax v. K. Rathnam Nadar, [1969] 71 ITR 433, 446 (Mad) the concept of goodwill has been discussed at some length by the Madras High Court and the principle regarding it evaluation has been considered to be a mixed question of law and fact. The aforesaid authorities leave no doubt in our mind that the mode of assessing the value of goodwill of a firm is prima facie as question of law or at least a mixed question of law and fact and deserves to be referred to this court for answer under Section 64(3) of the Act. The second question was split by the learned counsel for the department in two parts. The first part reading : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 29,322 is deductible-from the estate of the deceased when the entire amount of refund of sales tax belonged to the deceased ?" and the second part according to the learned counsel included in the question was that: "even if it is presumed that the decision of the Appellate Tribunal that the sum of Rs. 29,322 belonged to Shri Purshottamdas, the other partner, was correct despite the fact that the provisions of Section 10 of the Estate Duty Act, 1953, are applicable ?" In regard to the first part of the question the finding of the Tribunal is that because the partnership had taken over all the assets and liabilities of the deceased's individual business, therefore, one-fourth of the amount of the refund of the sales tax rightly belonged to the other partner, namely, Purshottamdas Patel. In regard to the second part of the question, with reference to Section 10 of the Act, the Tribunal held that such a question was never raised before it and, therefore, it did not arise from the order of the Tribunal. Mr.Lodha urged that the expression "was right in holding" was comprehensive enough to include all attacks on the legality of the conclusion reached by the Tribunal. In particular, the learned counsel urged that there was no evidence to show that the partnership firm which came into being in 1953 had inherited all the assets and liabilities of the sole proprietary concern of the deceased and, therefore, in view of the principles laid down in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, [1957] 31ITR 28 (SC) a case which was decided with no evidence, did raise a question of law. He also invited our attention to Commissioner oj Income-tax v. Scindia Steam Navigation Co. Ltd., [1961] 42 ITR 589 (SC), Commissioner of Income-tax v. S. P. Jain, [1973] 87 ITR 370 (SC), India Cements Ltd. v. Commissioner of Income-tax, 1966 60 ITR 52 and Commissioner of Income-tax v. Kamal Singh Rampuria, 1970 75 ITR 157. In regard to the second part of the question the learned counsel urged that the expression" was right in holding whether the provisions of Section 10 of the Estate Duty Act, 1953, were applicable or not" was implied and no reference to the section was necessary. It merely related to one aspect of the question. ;