on'ble SINGHAL, J. - (1.) THE Income-Tax Appellate Tribunal Calcutta Bench E, Camp Jaipur has referred the following questions of law arising out of its order dated 10. 03. 1981 :- "1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the value of the good-will did not pass on the death of the deceased under section 9 of the Estate duty Act, 1957? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in directing the Assistant Controller of Estate Duty to work out the deceased's share in the smaller HUF after allowing deduction of Rs. 50,000/- being provision for the marriage of daughters of the deceased?"
(2.) BRIEF facts of the case are, that Sagarmal Daga expired on 15. 10. 1974. He was partner in the Firm M/s Sagarmal Daga & Company. In the course of assessment proceedings of the accountable persons it was pointed out that the deceased had retired from the firm on 9. 10. 1974 i. e. a few days prior to his death and on this ground it was submitted that no share in the good-will of the said firm can be added as he was no longer a partner therein. The Assistant Controller of Estate Duty held that in accordance with the provisions of Section 9 of the Estate Duty Act, the deceased person should be treated as having made disposition of his share in the goodwill of the firm. Since the disposition was within a period of 2 years of death, the value of the good-will was includable under Section 9 of the Estate Duty Act. The value of the good-will was accordingly determined on the basis of the income of the firm for last five years. It was also observed that the provisions of Section 2 (15) of the Estate Duty Act, 1953 defines 'property", according to which the "property" includes any interest in property, moveable 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. The explanation (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 explanation to Section 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 good-will in favour of other partners without any adequate consideration and since this relinquishment had been made by the deceased within 2 years of death, it was held that it is includable being the property deemed to pass on death under Section 9 read with Section 2 (15) of the Estate Duty Act. In the Appeal preferred to the Appellate Controller of Estate Duty, it was submitted that the retirement deed was executed few days before the death and, therefore, there was no question of any deemed gift. The Appellate Controller of Estate Duty rejected the contention of the accountable persons and accordingly a second appeal was preferred to the Income-tax Appellate Tribunal, where this fact was taken into consideration that in the partnership deed dated 21. 10. 1974, the fact of retirement from 9. 10. 1974 leaving the concern with all its assets and liabilities with the surviving partners was clearly mentioned and, therefore, the provisions of Section 9 are not applicable in view of the decision given by the Bombay High Court in the case of Smt. Urmila v/s Controller of Estate Duty (1 ). Learned counsel for the Department has submitted that in accordance with the Full Bench judgment of Punjab & Haryana High Court in the case of State of Punjab & Haryana vs. Prem Nath (2), the share of good-will of a partner in assets of 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 Section 14 of the Partnership Act the good-will of a firm being an asset of a firm, the share of a partner in the good-will 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. Reliance was also placed on the decision of Madras High Court in C. E. D. vs. Ibrahim Gulab Hussain Currimbhoy (3), where in accordance with a clause in the partnership deed the retiring partner or legal representatives of deceased partner were not entitled to any good-will. It was held that the good-will 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 good-will but resulted in augmenting the interest of the surviving partners in good-will in view of clause 14 of the partnership deed and hence there is a passing of the deceased's share in the good-will even if there is no devolution of the deceased's interest in the good-will on the legal representatives. The decision of Madras High Court in Smt. Surumbayi Ammal vs. C. E. D. (4) was also relied upon, wherein it was held that though the accountable person factually did not get any share in the goodwill, the fact that the deceased was entitled to a share was sufficient to hold that the share in the goodwill passed on his death for purposes of estate duty.
(3.) LEARNED counsel for the accountable person has submitted that the deceased was a partner and retired from the firm before his death and all assets including good-will and liabilities were taken over by the continuing partners. Reliance was placed on the decision of Bombay High Court in Urmila vs. C. E. D. (supra ). In this case clause 13 of the Partnership deed provided, inter-alia that : - "if a partner wants to retire from the partnership he can do so by giving to the others not less than three months' notice in writing of his intention to retire from the partnership. Death, retirement or insolvency of any of the partners shall not dissolve the partnership firm as to the surviving or continuing partners. The share of the partner dying, retiring or becoming insolvent or otherwise ceasing to be a partner shall accrue to the surviving partners or continuing partners in proportion to their respective share subject only to payment to the legal representatives of the deceased partner or to the retiring partner or the assignee of the estate of the insolvent partner his share and interest at death or on the date of retirement or the day preceding the date on which he is declared insolvent as ascertained by a general account to be made as on date of death or retirement or the day preceding the insolvency with all proper valuation but without valuation or allowance or payment for good-will. In case of death or retirement of a partner the surviving partner or the continuing partner, as the case may be, shall be entitled to the good-will/partnership business without making any payment or compensation to the legal representatives of the deceased partner or to the retiring partner in respect of good-will and the intention is that the good-will shall accrue to and belong to the surviving or continuing partners without any valuation of or allowance for good-will. " On interpretation of the above clause it was held that there was no cesser of the right of the share of the deceased in the good-will of the said firm on his death. This was a matter in respect of two Firms, namely, Kantilal Manilal and Company and Pannalal Bros. In the case of former firm, C1. 2 of the deed of retirement provided that all the assets of the said firm including the good-will, rights and privileges and outstanding together with all its liabilities will be taken over by the continuing partner. Clause 4 provided that the continuing partners shall pay and discharge all the debts, liabilities and obligations of the partnership and shall indemnify or keep indemnified the retiring partner against all costs, claims and demands in respect thereof. In respect of retirement of Pannalal Bros, the provisions were more or less identical. It was submitted that if a benefit had been secured by the provisions to the continuing partners, viz, the obtaining of the share of the retiring partners in the assets including the good-will this was accompanied by taking over of an obligation, viz. , the entire liabilities of the firm and the further obligation to indemnify or keep indemnified the retiring partners against the claims made in respect of such liabilities. In these circumstances, it was held by the court that it is a clear case of simultaneous taking over of rights and obligations the benefit secured by each group will be supported by the consideration viz. , giving up of its claim. If the retiring partners have given up their share in the assets, they have been relieved of their share in the liabilities. Similarly, if the continuing partners have secured the retiring partners's share in the assets, they have at the same time taken over the retiring partners share of the liabilities. In the above case it was further held that the share of assets in general or in any asset in particular had been given up without consideration. ;