Desai, J.:— In this reference, the following two questions have been referred to us under s. 64(1) of the E.D Act s

“1. Whether, on the facts and in the circumstances of the case, it has been rightly held that any portion of the goodwill of the firm of Messrs. M. Madhukar & Co. could be deemed to be property passing on the death of the deceased under section 10 of the Estate Duty Act?

2. Whether, on the facts and in the circumstances of the case, it has been rightly held that the shares of Shri Ramanlal and Shri Dhirajlal in the goodwill of the firm of Messrs. M. Madhukar & Co. were property taken under a gift made by the deceased, and, if so, whether the deceased cannot be said to have been excluded from possession and enjoyment of such share which belonged exclusively to them?”

2. A few facts may be stated we are concerned with the estate of Nagji Raghavji, who died on 30th November, 1962. Prior to 1951, the deceased was carrying on business in the import and sale of hardware, etc., which was his sole proprietary concern. By a partnership deed dated 3rd January, 1951, his son, Ramanlal, was taken as a partner. The said partnership deed is annexed to the statement of case as annex. “A”, and, by the same, Ramanlal is given his share in the profit and loss of four annas in a rupee, the balance of twelve annas being reserved by Nagji. There is, however, cl. 6 in the deed which clearly provides that all the rights, title and interest of M/s. M. Madhukar & Co. in the premises, furniture, fixtures and goodwill shall belong to Nagjibhai. Another partnership deed was executed on 12th December, 1955, between Nagjibhai and Ramanlal; a copy of the same is to be found annexed as annex. “B” to the statement of case. By this deed, Ramanlal's share was increased from four annas to six annas in a rupee, and with this enhancement there was a corresponding diminution in Nagjibhai's share from twelve annas to ten annas in a rupee. Clause 6 of the original deed of partnership remained, which meant that, the right, title and interest of the firm in the premises, furniture, fixtures and goodwill continued to belong exclusively to Nagjibhai. There was, however, a further clause, viz., cl. 5, which gave to Ramanlal commission at the rate of half per cent, on the total sales of the firm in addition to his share in the partnership. A third partnership deed came to be executed on 18th December, 1959; a copy of the same is to be found annexed as annex. “C” to the statement of case. This was between Nagjibhai, Ramanlal and the second son of Nagjibhai, viz., Dhirajlal. It contains the following recital:

“……AND WHEREAS the said firm as reconstituted by the intro duction of the said new partner has taken over the business, assets, liabili ties and goodwill of the said firm of M/s. M. Madhukar & Co. as belonging to the old partners……”

3. Under this deed of partnership, Nagjibhai's share was fifty-five paise in a rupee, Ramanlal's share was thirty paise in a rupee and the balance 15 paise share was given to Dhirajlal. The provision of giving commission to Ramanlal is not to be found in the said partnership deed. Instead, we find cl. 5 providing for giving salary at the rate of Rs. 125 per month to Dhirajlal in addition to his fifteen paise share in profit and loss. Clause 6 of the earlier deed, which provided that the goodwill, premises, furniture and fixtures shall exclusively belong to Nagjibhai, is omitted in this partnership deed. There is a clause which is usual in partnerships, viz., cl. 7, which provides that all the three partners are entitled to attend and conduct the business in the mutual interest and will do so diligently. Clause 8 also gives an indication of the mutual rights and obligations of the partners.

4. As stated earlier, Nagjibhai expired on 30th November, 1962. In the estate duty proceedings, the Asst. CED valued the goodwill and tenancy rights at Rs. 2,70,000 and took into account the whole of the value as estate passing on Nagjibhai's death. Aggrieved by the order of Asst. CED, the accountable persons went in appeal to the Appellate CED, but did not meet with success in the appeal. According to the Appellate Controller, there was nothing to indicate that the deceased had transferred the goodwill and tenancy rights of the business to the new partnership; even on the basis that there was a gift of some part of the tenancy rights and goodwill, according to the Appellate Controller, the deceased was not wholly excluded from the possession and enjoyment of the same till his death, and the provisions of s. 10 were clearly attracted.

5. The matter was taken in further appeal to the Tribunal. It was contended before the Tribunal that there was no necessity of any specific deed for the purpose of transferring goodwill and vesting it in all the partners comprising the new partnership. Reliance was placed on s. 14 of the Partnership Act. The Tribunal upheld this contention. In its view, no document was necessary for the purpose of transferring the item of goodwill and other rights including the tenancy rights. The Tribunal considered the recital which we have earlier extracted, and, in the view that it took, the Tribunal held in favour of the accountable persons that the goodwill became vested in the firm, which would mean that, after the new partnership was formed, Nagjibhai retained 55% interest in the goodwill, tenancy rights, furniture and fixtures and the balance 45% became vested in Ramanlal and Dhirajlal, respectively. Ramanlal would have a 30% interest in the same equivalent to his share of profit and loss, and Dhirajlal would have accordingly 15% interest, this being his share of profit and loss.

6. The Tribunal, however, held against the accountable persons on the question of applicability of s. 10. The Tribunal rejected the accountable persons' contention that the vesting of goodwill in the new firm was on account of commercial consideration. According to the Tribunal, 45% of the goodwill had been transferred by Nagjibhai to the other two; this constituted a gift and the deceased had not entirely excluded himself from the goodwill which was transferred to the firm. Accordingly, the inclusion of the entire amount of Rs. 2,70,000 was upheld.

7. It is from this decision of the Tribunal that the reference has been made at the instance of the assessees. Mr. Dwarkadas on behalf of the accountable persons referred us to an unreported decision of this court in Estate Duty Reference No. 1 of 1967 [Controller of Estate Duty v. Kantilal Nemchand— decided by Kantawala C.J and Tulzapurkar J. on 22nd July, 1977—since reported in [1978] 115 ITR 89 (Bom)], where a similar question was being considered by the court. One Nemchand Laherchand was carrying on business in the name and style of Kirtilal & Co. as its sole proprietor till 9th November, 1950. The proprietary business was converted into a partnership by admitting Nemchand's son, Kirtilal, as a partner with a share of six annas in the profits and losses. By a further deed dated 10th November, 1956, the shares were further reshuffled and Nemchand's share was reduced from ten annas to four annas in a rupee and Kirtilal's share was enhanced from six annas to twelve annas. This reshuffling was to take effect from 3rd November, 1956. Nemchand died on 16th February, 1963. In the estate duty proceedings, the Tribunal ultimately held in favour of the accountable person observing that it was clear that Kirtilal was given enhanced share in profits and correspondingly in the assets and goodwill for a consideration which was the labour that he was to contribute to the business; this was on both the occasions, initially when the sole proprietary business was converted into partnership and subsequently when the shares of the partners were reshuffled as earlier stated. The observations of the Division Bench dealing with the rival contentions in the reference to the High Court are to be found in para. 6 of the said unreported judgment (since reported in [1978] 115 ITR 89 (Bom)) and read as follows (p. 93);

“It is obvious that the question whether the provisions of section 10 are attracted or not must principally depend upon the first question whether the relinquishment of 6 annas share in the goodwill and tenancy rights in the first instance and further relinquishment of 6 annas share in the goodwill and tenancy rights on the occasion of reshuffling or profit-sharing proportion amount to gifts or not; in other words, unless these relinquishments amount to gifts in the sense that these were without adequate consideration, the further question as to whether the donor had or had not entirely excluded himself from possession and enjoyment of goodwill and tenancy rights would not arise. Mr. Joshi also fairly conceded that before his submission could be accepted in its entirety the revenue must establish that there was a gift in favour of the son by the deceased father on each of the two occasions. Now, it is not disputed that the expression ‘consideration’ or ‘adequate consideration’ has not been defined in the Estate Duty Act and these expressions will have to be understood in their normal connotation. It is true that the deceased had taken his relative, viz., his son, as a partner in his business when he converted his proprietary business into a partnership business and upon taking him as a partner he was given a share of six annas in the partnership including the goodwill and tenancy rights thereof. But the question is Whether this was done without any adequate consideration? Both in the deed of partnership as well as in the deed dated November 10, 1956, there is an express term, which runs thus:

‘The partnership business shall be carried on by both the partners in mutual consultation with each other.’

8. In other words, both initially as well as on the occasion when the profit-sharing proportion was reshuffled, the parties intended that for whatever share was granted to the son, the son will have to work in the business as a working partner, which business was carried on by the father as the sole proprietor till 9th November, 1950; in other words, the son was under an obligation to devote his time and energy for the partnership business and such business was carried on by both the partners in consultation with each other. Devoting time, energy and attention by the son to the partnership business will have to be regarded as sufficient consideration for taking the son as a partner and giving him initially 6 annas share and later on increasing that share to 12 annas. As facts stand, the father ultimately died in 1963. It, therefore, does appear that on account of old age of the father he wanted his son mainly to attend to and manage all the businesses and wanted him to devote his time and energy to the business. If for this purpose the son was taken as a partner and was given certain share initially and later on increased, it cannot be said that the transfer of share in the profit and loss of the business including the share in the goodwill and tenancy rights was without adequate consideration. The Tribunal has recorded a finding in that behalf in the following words:

‘The physical labour contributed by the son to the business amounted to a consideration for his getting the share in profits and also a share in the goodwill. That is, in our opinion, sufficient consideration. Since the acquisition of a share in the goodwill was for a consideration which was the physical labour contributed by the working partner, there was no gift of any portion of the goodwill by the deceased to his son.’

9. It was sought to be urged by Mr. Joshi that the physical labour to be contributed by the son might afford adequate consideration for giving him 6 annas share initially, but at least when the profit-sharing proportion was reshuffled on November 10, 1956, for additional share of 6 annas granted to the son there was no adequate consideration and as such at least that relinquishment by the deceased in favour of his son should be regarded as a gift, to which the provisions of section 10 would apply. It is not possible to accept even this contention. As we have stated above, presumably on account of advancing age the father wanted his son to take over the business, retaining small responsibilities with himself. It would be reasonable to assume that an additional share was granted to the son in view of the son accepting additional responsibilities of the business. In any case, in view of the finding which has been recorded by the Tribunal, which is applicable to both the occasions, it would be difficult for the revenue to urge that the transaction amounted to gift without adequate consideration.”

10. In connection with this aspect of the matter we may also refer to decisions given in gift-tax references of this court in which it has been held in similar circumstances that there was no gift when a partner was inducted in a sole proprietary business or when shares of partners were reshuffled and the partners given enhanced share of profits and correspondingly an enhanced share in the assets and goodwill for commercial considerations, the actual consideration being that the partner was supposed to work and earn profits. We may refer to only two such decisions: (1) Gift-tax Reference No. 3 of 1966 (CGT v. Smt. Lalita B. Shah, legal heirs of Bhogilal B. Shah) decided on 18th November, 1975, by Vimadalal and Desai JJ.—see page 794 infra), which was a case of a chartered accountant's firm, and (2) Gift-tax Reference No. 4 of 1966 (CGT v. Nagji Dullabhji, decided on 20th November, 1975, by Vimadalal and Desai JJ. —see page 804 infra) where the business was of purchasing and selling cloth. In Gift-tax Reference No. 3 of 1966 (CGT v. Smt. Lalita B. Shah-see page 794 infra) a passage from Lindley on Partnership, 13th edn., at page 113 was extracted, and it was observed that in an agreement of partnership there is conferment of mutual rights and the undertaking of reciprocal obligations which would constitute for each of the parties the respective consideration for its share in the profits and assets. It was further observed that it was impermissible to consider the question of transmission or transfer of goodwill de hors the formation of the partnership and it is required to be considered as part and parcel of the same transaction. Reliance was also placed on a decision of the Gujarat High Court in CGT v. Karnaji Lumbaji, [1969] 74 ITR 343 and of the Allahabad High Court in CGT v. Sardar Wazir Singh, [1975] 99 ITR 104. It was ultimately held in both the cases that there was no gift by reason merely of a share in goodwill being given to an incoming partner or by reason of a share in the goodwill being enhanced as the consequence of enhancement of the share in profits given to a person who is already a partner. These observations to be found in para. 6 of the decision in Estate Duty Reference No. 1 of 1967 (CED v. Kantilal Nemchand—since reported in [1978] 115 ITR 89 (Bom)) and in Gift-tax References Nos. 3 of 1966 (CGT v. Smt. Lalita B. Shah—see page 794 infra) and 4 of 1966 (CGT v. Nagji Dullabhji —see page 804 infra) will apply fully to the facts before us. It is true that, in this case, the Tribunal has rather cursorily observed that the conferment of goodwill on the partnership of three was not for commercial considerations, without giving any reason for this bald conclusion. If the relationship of the partners is properly understood as explained in the aforesaid three decisions, this conclusion cannot be sustained. As far as Ramanlal is concerned, it is further to be observed that under the partnership of 12th November, 1955, he had six annas share in the profits, which was more than 30% share in profits given to him under the partnership of 18th December, 1959. Further, under the partnership of 1955, he was entitled to commission of half per cent, on the total sales, which commission has been given a go-by to in the new partnership when Dhirajlal is introduced as a partner. As far as Ramanlal is concerned, therefore, we find that his share of profits is reduced from about 36% to 30%; he has lost his commission. It is true that by reason of omission of cl. 6 and by the express recital in the partnership of 1959, which we have noted earlier, Ramanlal gets a 30% share in certain assets including goodwill which hitherto he had not. On the one hand, there is a reduction or diminution in his share of profits and loss of his commission; on the other hand, he gets an interest in the goodwill and other assets which he did not possess earlier. It is not proper to consider the share in goodwill obtained by him in isolation and regard it as a gift without consideration and then seek to apply s. 10. Even so far as Dhirajlal is concerned, if we apply the approach which we have indicated in Gift-tax References Nos. 3 of 1966 (CGT v. Smt. Lalita B. Shah— see page 794 infra) and 4 of 1966 (CGT v. Nagji Dullabhji—see page 804 infra), then it must be held that the observations and conclusions of the Tribunal as regards this item were not appropriate and the conferment of 15% share in the goodwill and other assets cannot be regarded as a gift made to Dhirajlal, who obviously is to work as a partner. This is clearly brought out and contemplated by cl. 5 which gives him a salary. It was suggested by Mr. Joshi that the Tribunal should give a clear finding as was done in Estate Duty Reference No. 1 of 1967 (CED v. Kantilal Nemchand— since reported in [1978] 115 ITR 89 (Bom)), and that we should consider seeking of such a finding by an appropriate order of remand. In our view, no useful purpose will be served by requiring the Tribunal to give a finding, as such a finding can only be in favour of the accountable persons for the reasons indicated in the observations made in the decisions given in Gift-tax References Nos. 3 of 1966 (CGT v. Smt. Lalita B. Shah—see page 794 infra) and 4 of 1966 (CGT v. Nagji Dullabhji—see page 804 infra).

11. In the result, we are of the opinion that there was no gift of the 45% share in the-goodwill and the other assets to Ramanlal or Dhirajlal, and, if that is so, the provisions contained in s. 10 of the E.D Act can have no relevance. In this view of the matter, both the questions will be required to be answered in favour of the accountable persons and are so answered. As far as question No. 1 is concerned, we would clarify that the accountable persons have never objected to the 55% share of Nagjibhai in the goodwill and other assets as having passed on his death and being includible in his estate. Therefore, the answers we have given only affect the balance of 45% share which, according to the Tribunal, was hit bys. 10 and which was erroneous in the view that we have taken.

12. The revenue will pay to the accountable persons the costs of the reference.