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/- 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 & 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.
3. 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.
4. 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:--
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.
5. The earliest case to which we have been referred is the decision of the Privy Council in Perpetual Executors and Trustees Association of Australia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia, (1954) 25 ITR (Supp) 47 (PC). Under the terms of the partnership deed, it was provided that on the death of a partner, the surviving partners had the option of purchasing his share without any sum being added or taken into account for goodwill. On the death of a partner, the surviving partners exercised the option and purchased the deceased partner's share without any sum being added or taken into account for goodwill. In their statement of the deceased partner's estate, the executors of his will gave as the value of his interest in the partnership the price which the surviving partners paid for his share. The revenue added the proportionate value of goodwill. It was held by the Privy Council that the deceased partner's interest in the goodwill passed on his death, with his interest in the other assets to his legal representatives and the fact that its value was not to be taken into account in calculating the price receivable by the estate for his interest in the partnership from the surviving partners was irrelevant. The decision of the Privy Council is conclusive against the assessee on the question referred to us.
6. In S. Devaraj v. Commr. of Wealth Tax, (1973) 90 ITR 400 = (1973 Tax LR 989) (Mad) the Madras High Court considered the identical question which has been referred to us. After referring to the observations of the Supreme Court in Khushal Khemgar Shah v. Khorshed Banu (AIR 1970 SC 1147) (supra) they observed as follows:--
"Therefore, the accountable persons as legal representatives of the deceased partner, Narayanaswami Naidu, will be entitled to the deceased's share in all the partnership assets including the goodwill on devolution and
Sections 39, 42 and 46 of the Partnership Act dealing, with the concept and consequences of the dissolution of the firm cannot be said to extinguish the proprietary right of the deceased partner in the assets of the firm including the goodwill. The fact that the accountable persons had not in fact got a share in the goodwill of the managing agency firm from the surviving partners as found by the Tribunal will not affect the legal consequences of the devolution of the deceased's interest in the goodwill to the accountable persons. It may be that in the instant case the accountable persons did not as a matter of fact get anything other than the deceased's share in the capital and the profits of the business. But, as already stated, the entitlement of the accountable persons to the deceased's share in the goodwill cannot be disputed in view of the decision of the Supreme Court in Khushal Khemgar Shah v. Khorshed Banu, AIR 1970 SC 1147."
7. This view was reiterated by the Madras High Court in Controller of Estate Duty v. Ibrahim Gulam Hussain Currimbhoy, (1975) 100 ITR 320 (Mad) and Surumbayi Ammal v. Controller of Estate Duty, 103 ITR 358 = (1977 Tax LR 127) (Mad).
8. In Smt. Mrudula Nareshchan-dra v. Controller of Estate Duty, (1975) 100 ITR 297 (Guj), the Gujarat High Court, while holding that the goodwill of a firm was one of the firm's assets and that the interest of a deceased partner extended even to it, held that, in the case before them, the interest of the deceased partner in the goodwill of the firm became extinguished with his death and was not inherited by his heirs. Therefore, it was held that the property did not pass within the meaning of Section 5 of the Estate Duty Act. The conclusion of the learned Judges was based on Clause 10 of the Deed of Partnership which said,
"The firm shall not stand dissolved on death of any of the partners and the partner dying shall have no right whatsoever in the goodwill of the firm"
. Apart from the question whether the learned Judges were right in their construction of Clause 10 of the Deed of Partnership, we must also point out that the learned Judges, in arriving at the conclusion that the property did not pass within the meaning of Section 5 of the Act, confined their consideration to the question whether the goodwill passed to the heirs of the deceased or not. They did not consider the question whether the devolution of the goodwill on the surviving partners on the death of the deceased partner was itself not sufficient to constitute passing of property within the meaning of Section 5 of the Act, Since the actual decision of the learned Judges proceeded on a construction of the relevant clause of the Deed of Partnership, we do not think that it is necessary for us to say anything more about the view expressed by the learned Judges. We may, however, add that the view of the learned Judges, appears to be opposed to the decision of the Privy Council in
Perpetual Executors and Trustees Association of Australia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia, (
1954) 25 ITR (Supp) 47 (PC). In
Controller of Estate Duty v. Ibrahim Gulam Hussain Currimbhoy, (1975) 100 ITR 320 (Mad), the Madras High Court expressly disagreed with the view expressed by the Gujarat High Court in Smt. Mrudula Nareshchandra v Controller of Estate Duty, (
1975-100 ITR 297) (Guj).
9. We now come to the decision of the High Court of Punjab and Haryana in Controller of Estate Duty, Patiala v. Ved Parkash Jain, 96 ITR 303 = (1974 Tax LR 339) (Punj & Her), Harbans Singh and Jain JJ. held that the share of a deceased partner in the goodwill of a firm did not pass within the meaning of S. 5 of the Estate Duty Act where the firm continued even after the death of the deceased partner. The learned Judges observed "goodwill has no value in a going concern of partnership and its quantification is not possible and as such the value of the so-called share held by Hari Ram in the goodwill of the firm could not legally be included in the principal value of the estate of the deceased." The observation of the learned Judges that "goodwill has no value in a going concern of partnership" is clearly opposed to Section 14 of the Indian Partnership Act and the observations of the Supreme Court in Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla (AIR 1970 SC 1147) already extracted by us. Nor can the difficulty in quantification be a ground for concluding that the goodwill has no value and does not pass on the death of a deceased partner. The learned Judges also referred to the observations of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, where the Supreme Court generally discussed the rights and duties of a partner and observed that during the subsistence of the partnership no parter can deal with any part of the property as his own. The observations of the Supreme Court throw no light on the question whether the share of a partner in the goodwill of a firm passes or does not pass on the death of the partner. If the share of a partner in goodwill does not pass because no partner can deal with any portion of the property as his own during the subsistence of partnership, the same argument may be made to apply to the share of the partner in the other assets of the firm also. We do not think that we can accept such an argument. We are of the view that Ved Parkash Jain's case (1974 Tax LR 339) (Punj) was wrongly decided. We express our respectful agreement with the view expressed by the Madras High Court in S Devaraj v. Commr. of Wealth Tax, (1973 Tax LR 989} (Mad). In the result, the question referred to us is answered against the assessee and in favour of the revenue. There will be no order regarding costs.