ivil Appeal No 1349NT of 1974
From the Judgment and Order dated 20th June 1973 of the Gujarat High Court in Estate Duty Ref
No 3 of 1970
SC Manchanda KP Bhatnagar and Miss A Subhashini for the Appellant
48 ST Desai and SC Patel for the Respondent
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This is an appeal by certificate granted by the High Court of Gujarat by its order dated 2nd May 1974 from the judgment and order dated 28th June 1973 in Estate Duty Reference No 3 of 1970 under section 651 of the hereinafter called the Act 
One Nareshchandra Kantilal died on 13th September 1962
He was a partner in the firm of Messrs G Bhagwatiprasad  Co having 28 share in the partnership
The partnership was by the document of partnership which is dated 6th June 1957
On the death of the deceased the accountable person filed necessary return under the Act
The Assistant Controller of Estate Duty while valuing the estate of the deceased came to the conclusion that the share of the deceased in the goodwill of the firm in which he was a partner was liable to be included in the principal value of his property
This inclusion was resisted by the accountable person on the ground that the question of adding the value of the share of the deceased in the goodwill of the firm did not arise in view of clause 10 of the partnership deed
Clause 10 was as follows The firm shall not stand dissolved on death of any of the partners and the partner dying shall have no right whatever in the goodwill of the firm
The accountable person contended on the basis of this clause that on the death of the deceased his heirs had no right in the goodwill of the firm and as such the value of the said goodwill did not pass under the provisions of the Act and was therefore not liable to any estate duty
The Assistant Controller however negatived the said contention
He valued the goodwill at Rs216900
The share of the deceased in the goodwill was worked out from this value at Rs60732
The Assistant Controller also worked out the value of the interest which the deceased had in the partnership assets and added to the above referred amount of Rs60732 as the value of his share in the goodwill
The accountable person being aggrieved preferred an appeal before the Appellate Controller of Estate Duty Bombay
He by and 49 large confirmed the order of the Assistant Controller and made only a slight reduction in the value of the goodwill
The accountable person thereafter went up in appeal before the Appellate Tribunal
She raised before the Tribunal two principal contentions namely 1 that the deceased had no interest in the assets of the firm and hence his share in the goodwill did not pass at all and 2 as according to the partnership agreement the partnership was to continue on the death of any of the partners and as it was further stipulated that the deceased would have no interest in the goodwill of the firm on his death his share in the goodwill did not pass and as such was not liable to the charge of estate duty
The Tribunal rejected both these contentions
It was contended on behalf of the accountable person before the Tribunal that when a partnership was a going concern there could not be any separate valuation of the goodwill which went with the running business
The Tribunal noted that there was no question of valuing the goodwill separately because what was to be valued was the totality of interest of a partner in partnership assets including the value of the goodwill
The Tribunal eventually decided the matter relying upon the decision of the Privy Council in Perpetual Executors and Trustees Association of Australia Ltd vs Commissioner of Taxes  25 ITR ED 47
The Tribunal held that in spite of clause 10 of the partnership agreement the value of the goodwill to the extent of the share of the deceased passed on the death of Nareshchandra Kantilal and it was liable to be charged estate duty
Three questions of law were referred to the High Court
These were 1
Whether on the facts and in the circumstances of the case the interest of the deceased in the firm of Messrs G Bhagwatiprasad  Co of Ahmedabad was property within the meaning of the provisions of the  2
If the answer to the above question is in the affirmative whether on the facts and in the circumstances of the case having regard to the terms of the partnership deed dated June 6 1957 the value of the interest of the deceased in the said partnership would include the goodwill of the partnership firm 3
Whether on the facts and in the circumstances of the case the value of the goodwill if any would be exempt under the provisions of section 261 of the Act 50 The last question was not pressed before the High Court
The High Court therefore did not give any answer
The first question the High Court answered in favour of the revenue and in the affirmative and the second question was answered in the negative
As the first question was in favour of the revenue and there was no appeal by the accountable person this appeal is concerned only with the second question namely whether the value of the interest of the deceased in the said partnership would include the goodwill of the partnership firm 
The High Court answered the question in the negative and in favour of the accountable person as mentioned hereinbefore
The High Court noted that the primary object of every taxing statute was to recover a tax or duty in cash on the happening of a particular taxable event
This event under the Act is the actual or deemed passing of property on the death of a person
Every taxing statute according to the High Court contemplated the levy of a tax or duty on the valuation date which has to be arrived at on the principles stated in the statute itself
If the valuation principles stipulated in the Act could not be worked out with any precision in respect of any property it would follow as a necessary corollary that that property was not one which was intended to be subject to tax or duty contemplated by the statute
This basic principle according to the High Court should be applied while construing sections 7 and 40 of the Act
Section 7 of the Act according to the High Court would apply only if two conditions were satisfied namely 1 that there was a cesser of interest in the property on the death of a person and 2 an accrual or arising of benefit to another as a result of the said cesser
In order to assess the tax liability the value of the benefit had to be worked out and section 40 of the Act provides the basis for the valuation
Section 40 clearly postulates that the property in which interest had ceased must be capable of yielding income
If the benefit  arising under section 7 on the cesser of an interest  could not be measured under section 40 the cesser of such interest according to the High Court did not attract payment of estate duty under section 7 of the Act
A partner in a firm has a marketable interest in all the capital assets of the firm including the goodwill even during the subsistence of the partnership
Interest in goodwill was property within the meaning of section 215 of the Act according to the High Court
But the goodwill of a firm in the opinion of the High Court standing by itself could not earn any income
In a case where it was specially stipulated 51 that on the death of any of the partners the partnership shall not stand dissolved and that the heirs of the deceased partner shall have no right whatsoever to claim any share in the goodwill of the firm the benefit arising to the other partners on the cesser of interest in the goodwill on the death of the partner could not be measured in terms of section 40
The High Court therefore was of the view that such a benefit was not liable to estate duty under section 7 of the Act
The High Court was therefore of the view that the facts of this case were not covered by either section 5 or section 7 and answered the question No 2 in the negative
In order to appreciate this controversy it is necessary to refer first to section 215 of the 
Section 215 deals with property 
It provides as follows  property  includes any interest in property movable 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
 There are two explanations with which we are not presently concerned
Section 216 deals with property passing on the death  and is as follows  Property passing on the death  includes property passing either immediately on the death or after any interval either certainly or contingently and either originally or by way of substitutive limitation and on the death includes at a period ascertainable only by reference to the death 
The imposition of estate duty is by sub section 1 of section 5
It stipulates that in case of every person dying after the commencement of this Act there shall save as hereinafter expressly provided be levied and paid upon the principal value ascertained as provided in the Act all property settled or not settled including agricultural land  which passes on the death of such person a duty called estate duty  at the rates fixed in accordance with section 35
Section 6 of the Act deals with property which is deemed to pass 52 and provides that property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death
Section 71 deals with interest ceasing on death and is as folllows 1 Subject to the provisions of this section property in which the deceased or any other person had an interest ceasing on the death of the deceased shall be deemed to pass on the deceased s death to the extent to which a benefit accrues or arises by the cesser of such interest including in particular a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara Marumakattayam or Allyasantana law
The other sub sections of the section deal with special cases of different communities the details of which need not be considered
The other relevant provisions which need be considered deal with the value which is chargeable
Sub section 1 of section 36 of the Act stipulates that the principal value of any property shall be estimated to be the price which in the opinion of the Controller it would fetch if sold in open market at the time of the deceased s death
Sub section 2 of the section stipulates that in estimating the principal value under this section the Controller shall fix the price of the property according to the market price at the time of the deceased s death and shall not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to be placed on the market at one and the same time provided that where it is proved to the satisfaction of the Controller that the value of the property has depreciated by reason of the death of the deceased the depreciation shall be taken into account in fixing the price
Sections 37 38 and 39 are provisions with which the present controversy is not directly concerned
Section 40 deals with the valuation of benefits from interests ceasing on death
This is relevant and is as follows The value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased shall a if the interest extended to the whole income of the property be the principal value of that property and 53 b if the interest extended to less than the whole income of the property be the principal value of an addition to the property equal to the income to which the interest extended
 The other provisions of the Act need not be considered for the present controversy
Section 14 of The recognises that subject to contract between the partners the property of the firm would include all the property and rights and interests in property originally brought into the stock of the firm or acquired by purchase or otherwise by the firm or for the purpose or in the course of business of the firm and includes the goodwill of the business
It further provides that unless contrary intention appears property and rights in the property acquired with money belonging to the firm are deemed to have been acquired for the firm
Section 15 of the said Act provides that the property of the firm shall be held and used exclusively for the purpose of the firm
In a partnership there is a community of interest in which all the partners take in the property of the firm
But that does not mean that during the subsistence of the partnership a particular partner has any proprietary interest in the assets of the firm
Every partner of the firm has right to get his share of profits till the firm subsists and he has also a right to see that all the assets of the partnership are applied to and used for the purpose of partnership business
Section 29 of the said Act also shows that he can transfer his interest in the firm either absolutely or partially
He has also the right to get the value of his share in the net asset of the firm after the accounts are settled on dissolution
All these rights of a partner show that he has got a marketable interest in all the capital assets of the firm including the goodwill asset even during the subsistence of the partnership
This interest is property within the meaning of section 215 of the Act as mentioned hereinbefore
Our attention was drawn to the decision of the King s Bench Division in the case of Attorney General vs Boden and Another  in support of the contention on behalf of the revenue
There the Court was concerned with section 1 of the Finance Act 1894 of United Kingdom
By the said provision estate duty was except as in the Act provided payable upon the principal value of all property which passes on the death of every person dying after the 54 date therein mentioned
By seation 2 sub section 1 property passing on the death of the deceased was deemed to include b property in which the deceased had an interest ceasing on the death of the deceased to the extent to which a benefit accrues or arises by the cesser of such interest c property which would be required on the death of the deceased to be included in an account under section 38 of the Customs and Inland Revenue Act 1881 as amended by section 11 of the Customs and Inland Revenue Act 1889
There a father and his two sons carried on the business of lace or plain net manufacturers under a deed of partnership which included covenants among others to the following effect Neither of the sons was without the consent of the father to be directly or indirectly engaged in any trade or business except on account and for the benefit of the partnership both the sons were bound to give so much time and attention to the business as the proper conduct of its affairs required the father was not bound to give more time or attention to the business then he should think fit if the father should die his share was to accrue to the sons in equal shares subject only to their paying out to his representatives the value of his share and interest at his death as ascertained by an account to be made as on the day of his death with all proper valuations but without any valuation of or allowance for goodwill which goodwill was to accrue to the sons in equal shares
The father died the value of his share and interest at his death was ascertained by an account taken as directed by the deed of partnership without any valuation of or allowance for goodwill
The share and interest so ascertained amounted to a large sum and estate duty was paid on that sum
The Crown claimed estate duty on the value of the father s share in the goodwill on the ground that it was 1 property which passed on the death of the father within section 1 of the Finance Act 1894 or 2 property in which the deceased had an interest ceasing on his death in which a benefit accrued or arose to the sons by the cesser of that interest within section 2 sub section 1b of the Act or 3 property passing under a settlement by deed whereby an interest for life was reserved to the father and therefore property which would be required on the death of the father to be included in an account under section 38 of the Customs and Inland Revenue Act 1881 as amended by section 11 of the Customs and Inland Revenue Act 1889 as further amended by and within the provision of section 2 sub section 1c of the Finance Act 1894 or 4 an interest provided by the father in which a beneficial interest accrued or arose by survivorship on his death within section 2 sub section 1d of the Act
55 The Court deciding on the evidence that the goodwill of the business was of small value held that having regard to the obligation of the sons under the partnership deed the share and interest of the father in the goodwill of the busines passed on the death of the father to the sons by reason only of a bona fide purchase for full consideration in money s worth paid to the father for his own use and benefit within the meaning of section 3 sub section1 of the Act
It was further held that the share and interest of the father in the goodwill of the business was not 1 property which passed on the death of the father within the meaning of section 1 of the Act nor 2 an interest for life reserved to the father within the meaning of section 38 subsection 2c of the Customs and Inland Revenue Act 1881 as amended by section 11 of the Customs and Inland Revenue Act 1889
It was further held that it was a benefit accruing or arising to the sons by the cesser of an interest which the father had in property and which ceased on his death within section 2 sub section 1b of the Act
The High Court on the analysis of this case which was placed before it came to the conclusion that clause 10 of the present partnership deed with which we are concerned is entirely different
In the partnership agreement in Boden s case the interest of the deceased passed to his legal representatives immediately after his death because his share was to accrue to his partnership who were his sons subject only to their paying to his legal representatives the value of their share as on the date of death ascertained by proper valuation
This decision in our opinion must be understood in the light of the facts of that case and though there is a ring of similarity with the facts of the present case
Though clause 10 of the present agreement is different on the aspect of section 7 of the Act this decision certainly supports the revenue s contentions
In Perpetual Executors and Trustees Association of Australia Ltd vs Commissioner of Taxes of the Commonwealth of Australia supra ED the Privy Council had to deal with a case where the principal asset of a testator was his interest in a partnership pursuant to a deed of partnership which inter alia conferred option on the surviving partners to purchase the testator s share in the capital on his death and further provide that in computing the amount of purchase money payable on account of the exercise of any option no sum shall be added or taken into account for the goodwill
 It was held by the Privy Council that the whole of the testator s interest including goodwill was assessable to duty
In so far as the Boden s case decided that the 56 goodwill did not pass was dissented from
But the moot question is what happens to the share of the partner in the goodwill of the firm
Clause 10 of the partnership deed in the instant case states as indicated before that the firm shall not stand dissolved on the death of any of the partners
Therefore death of any of the partners will not dissolve the partnership firm and so long as partnership firm exists goodwill as an intangible asset will belong to all the partners
What the clause says that on the death of the partner the partner dying shall have no right whatsoever in the goodwill of the firm
It is clear there fore that goodwill exists up to the death among the partners
If it does then the property in the goodwill will also exist in the partners
After his death the partner shall have no right
It means to convey that as a result of inheritance the heirs of the partners will not get any share but it cannot evaporate nor can the parties by agreement defeat the rights of the revenue
The very moment life ceases the right of the deceased in the asset ceases and at that moment the property shall pass andor shall be deemed to pass on
Jawaharlal Nehru in The Discovery of India  quotes Aurobindo Ghose thus Aurobindo Ghosh writes comewhere of the present as the pure and virgin moment  that razor s edge of time and existence which divides the past from the future and is and yet instantaneously is not
The phrase is attractive and yet what does it mean The virgin moment emerging from the veil of the future in all its naked purity coming into contact with us and immediately becoming the soiled and stale past
Is it we that soil it and violate it Or is the moment not so virgin after all for it is bound up with all the harlotry of the past 1983 Impression p 21 So therefore in that razor s edge of time and existence which divides the past from the future and is and yet instantaneously is not the property indubitably passes on to whom depends upon the facts and circumstances of a particular case
If property exists as it must as the clause does not and indeed cannot say that goodwill vanishes then share of the partner exists
If that is so then the title to that property cannot be in the vacuum
The High Court at page 309 of the report has observed that interest of a dying partner automatically comes to an end on his death
The High Court further stated that if an interest in any property came 57 to an end at a particular point of time nothing survived which could be inherited by the heirs
We are unable to accept this position
The moment the life comes to an end the razor  edge of time and existence which divides the past from the future and is and yet instantaneously is not  at that time property passes or is deemed to pass
The goodwill of the firm after the death of the dying partner does not get diminished or extinguished
Whoever has the benefit of that firm has the benefit of the value of that goodwill
Therefore if by any arrangement for instance clause 10 of the partnership agreement in the instant case the heirs do not get any share in the goodwill the surviving partners who will have the benefit of the partnership will certainly have that benefit
The High Court was right in observing at page 312 of the report that section 7 of the Act might apply to the facts of a given case if it could be shown that there was a cesser of any interest resulting in some form of benefit
Indeed in this case whoever gets the partnership firm is the gainer
Therefore as a result of the death of the dying partner there is cesser of interest as well as accrual or arising of benefit of the said cesser
It is well settled that during the subsistence of the partnership no partner can claim any specific share in any particular items of the partnership assets
A partner s interest in running partnership is not specific and is not confined to any specific item of partnership property but that does not mean that the partner has no interest in any individual asset of the firm
His interest obviously extends to each and every item of firm s asset
See the observations in the case of Addanki Narayanappa  Anr
vs Bhaskara Krishnappa and 13 Ors  3 SCR 400
So the goodwill of the firm was an asset in which dying partner had a share
It passed from the death of the dying partner and the beneficiary of such passing would be one who by virtue of the partnership agreement would be entitled to the value of that asset
The question is how should such asset be valued Under the Act the levy of the estate duty is on every asset that will pass on the death of the deceased
Part V of the Act deals with the valuation of assets that is chargeable to tax under the Act
Sub section 1 of section 36 provides that the principal value of any property shall be estimated to be the price which in the opinion of the Controller it would fetch if sold in the open market at the time of the deceased s death
Subsection 2 of section 36 further stipulates that in estimating the principal value under this section the Controller shall fix the price of the property according to the market price at the time of the deceased s 58 death and shall not make any reduction in the estimate on account of the estimate being made on certain assumptions
Section 40 deals with the valuation of benefits from interests ceasing on death
It has been canvassed before the High Court on behalf of the accountable person and it found favour with the High Court that clause b of section 40 of the Act which deals with the valuation of benefit of interest arising on death would be wholly inapplicable with the facts and circumstances of this case
We are unable to accept this position
Difficulties in making apportionment does not make a taxable item non taxable
See in this connection the observations of this Court in Commissioner of Income tax Madras
vs Best and Co Private Ltd Reliance was placed on behalf of the accountable person on a decision of the Judicial Committee in Attorney General of Ceylon vs AR
Arunachalam Chettiar and Others 34 ITR 20 ED
The facts of that case and the clauses with which the Judicial Committee was concerned there were entirely different
There the son had merely a right to be maintained by the Karta out of the common fund to an extent in the Karta s absolute discretion and there was no basis of valuation which in relation to such an interest  would conform to the scheme prescribed under section 176 of the Ordinance with which the Judicial Committee was concerned
A full bench of the Madras High Court in the case of Alladi Kuppuswami vs Controller of Estate Duty Madras  had to construe the effect of a Hindu Women s Rights to Property Act 1937 and to consider the nature of the right of the widow in the property
It was found that at the death of the widow there was no cesser of any interest she had in the joint family property and in any case her interest being entirely undefined it lapsed on her death resulting in no change in the coparcenership as such and her interest could not properly be regarded as an interest in property within the meaning of section 71 of the Act
Our attention was drawn to certain observations of Veeraswami CJ at page 507 of the report wherein it was observed that it was only property that passed in the sense of passing hands by way of inheritance or other form of devolution which seemed to attract section 5
Likewise for purposes of section 6 it must be property which the deceased at the time of his death was competent 59 to dispose of
So also for the application of the first part of section 71 it should be such interest in property as on its cesser the benefit that accrues or arises should be referable to the whole or less than the whole income of the property
The Chief Justice had observed that the implication was that if that measure in terms of income of the property was not apposite to the cesser of an interest it would not be an interest such as was contemplated by section 71 of the Act
It is not necessary to examine this proposition in any greater detail because in our opinion under section 5 of the Act read with section 36 valuation can be made in the instant case
The Madras High Court in Controller of Estate Duty Madras vs Ibrahim Gulam Hussain Currimbhoy  observed that the goodwill being an asset of the firm belonged to the firm ie to all the partners and the death of the deceased partner did not extinguish his share in the goodwill but resulted in the augmentation of the interest of the surviving partners in the goodwill in view of clause 14 of the partnership deed in that case
Clause 14 was as follows The retiring partner or the legal representatives of the deceased partner shall not be entitled to the goodwill of the business as the surviving or continuing partners alone shall be entitled to the goodwill and to continue to carry on the business under the same name and style
 And hence there was a passing of the deceased s share in the goodwill even if there was no devolution of the deceased s interest in the goodwill on the legal representatives
The interest in the goodwill which the deceased possessed and could dispose of along with his entire interest in the firm at the time of his death came to devolve on the surviving partners and their share in the goodwill was augmented to the extent of the share of the deceased as per clause 14 of the partnership deed in that case and the Madras High Court held that section 5 of the Act applied
Section 5 we have noted is applicable in the instant case in the sense that property passed on the death of the deceased partner and if that is so section 40 would not have any application in the valuation
On this aspect the Madras High Court was unable to agree with the Gujarat High Court s decision under appeal
The Madras High Court relied on the decision of this Court in Khushal Khemgar Saha vs Mrs Khorsed Banu 19703 SCR 689
Our attention was also drawn to a decision of the Madras High 60 Court in the case of Smt
Surumbayi Ammal vs Controller of Estate Duty Madras But the question under controversy was different in that case and no useful purpose would be served by examining that case in detail
The full bench of Punjab and Haryana High Court in the case of State vs Prem Nath  held that the goodwill of a firm was an asset of the firm the share of the deceased partner in which along with his share in the other assets of the firm devolved for the purposes of estate duty on his death upon his legal representatives notwithstanding any clause in the deed of partnership to the effect that the death of a partner should not disolve the firm and that the surviving partners were entitled to carry on the business on the death of the partner
The Punjab  Haryana High Court noted that the decision under appeal of the Gujarat High Court 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 the property within the meaning of section 5 of the Act
It noted that this view of the Gujarat High Court was contrary to the Privy Council s decision referred to hereinbefore and that of the Madras High Court s view noted earlier
The Bombay High Court in the case of Controller of Estate Duty Bombay City I vs Fakirchand Fatehchand Sachdev  came to the conclusion that the charging provisions and the computation provisions in the constituted an integrated scheme and if in a given case it was not possible to compute the value of a particular property passing on death then that property did not become exigible to the charge of estate duty
Where certain property was deemed to pass under section 71 of the Act estate duty thereon would be chargeable under section 5 but the value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased would have to be computed under section 40 and if it could not be computed then such a benefit was not liable to the charge of estate duty
The goodwill of a firm was one of the properties or assets of a firm
Merely because it was an intangible asset it did not stand on a diferent footing from the tangible assets of the firm but in making up the final accounts it had to be taken together with the other assets of the firm in arriving at the value of the total assets and for deducting therefrom the liabilities as provided by law and in paying to the partners their share in the balance so arrived at
Where a partnership was dissolved by the death of a partner his share in the firm 61 passed on his death to his legal representatives
Where a partnership A was not dissolved on the death of a partner but the surviving partners became entitled to continue the partnership business the deceased partner s share passed to his surviving partners subject to their making payment to the legal representatives of the deceased partner of the amount of the value of his share in accordance with the provisions of the deed of partnership
A partner did not have a defined share in the goodwill of the firm and the estate duty authorities could not regard it as a separate property by itself apart from the other assets and liabilities of the firm and include its value in the estate of a deceased partner under section section The Bombay High Court could not agree with the view of the Gujarat High Court under appeal
In the case of Controller of Estate Duty vs Kanta Devi Taneja  the Gauhati High Court held that passing of property was not a mere change of source or title but change of beneficial possession or enjoyment
The interest of a partner in a partnership firm was property within the meaning of section 215 of the  and such interest extended to the share of the partnership including goodwill
Therefore on the death of a partner his interest in the entire unit of the firm including goodwill passes irrespective of the provisions of the partnership deed as to its final devolution
The Calcutta High Court in the case of Controller of Estate Duty West Bengal vs Annaraj Mehta and Deoraj Mehta had occasion to consider this question and held that what passed on the death of a partner was his share in the firm that is his interest in the entire unit of the firm
This had to include goodwill
The fact that such interest might devolve not on the legal representatives but on a different group or category of persons or that from the goodwill of the legal representatives might be excluded would not make any difference for the purpose of assessment to estate duty
The entirety of the the interest of the deceased partner that would pass which necessarily included goodwill would be includible in the estate
The valuation of such entire interest had to be determined as provided under section 36 of the read with rule 7c of the Estate Duty Rules 1953
Goodwill as such could not be valued according to the Calcutta High Court for inclusion in the estate of the deceased for purposes of estate duty
The High Court observed at page 552 of the report as follows We hold that the Tribunal s finding that the goodwill in 62 the firm Messrs Ashok Foundary and Metal Works did not pass on the death of the deceased is incorrect but the finding that the valuation of the goodwill as such could not be included in the estate of the deceased for the purpose of the estate duty is correct
Goodwill being part of the entire assets of the firm the entire share of the deceased therein has to be valued in accordance with law and this value has to be included in the estate for levy of estate duty The Allahabad High Court in the case of Controller of Estate Duty vs Smt
Ram Sumarni Devi  followed the decision under appeal and was of the view that the goodwill could not be included in the value of the property passing on the death of a partner
In PT Abdul Sattar vs Controller of Estate Duty  the Kerala High Court came to the conclusion that under clause 15 of the deed it had to construe provided that in the event of death or retirement of a partner such deceased or retiring partner would not be entitled to any goodwill of the firm
A had died in 1969 and the Asst
Controller held that the interest of A in the goodwill of the firm passed on his death and this was upheld by the Tribunal
It was held by the High Court that under clause 15 the interest of A in the goodwill of the firm automatically came to an end on his death
Property in the goodwill did not therefore pass on his death
We are however for the reasons we have indicated before unable to accept this conclusion
In the aforesaid view of the matter we are of the opinion that the share of the deceased in the partnership did not evaporate or disappear
It went together with the other assets and should be valued in the manner contemplated under rule 7c of the Estate Duty Rules as indicated in the judgment of the High Court of Calcutta in Controller of Estate Duty West Bengal vs Annaraj Mehta and Deoraj Mehta supra 
The second question must therefore be answered in the affirmative and in favour of the revenue
The appeal is therefore allowed
In the facts and circumstances of the case parties will pay and bear their own costs
Consequential orders in accordance with law and in consonance of this decision should be passed by the Tribunal upon notice to all necessary parties
APJ 
Appeal allowed


Summary:
One N Kanti Lal had 28 share in a partnership firm
The Partnership Deed by cl
10 provided that the firm shall not stand dissolved on death of any of the partners and the partner dying shall have no right whatever in the goodwill of the firm
On his death the respondent accountable person filed necessary return under the without including the value of the share of the deceased in the goodwill of the firm
The Assistant Controller of Estate Duty however held that the share of the deceased in the goodwill of the firm was liable to be included in the principal value of his property and added the same to the value of the interest which the deceased had in the partnership assets
The Appellate Controller of Estate Duty confirmed the aforesaid order in appeal
The accountable person preferred appeal before the Appellate Tribunal contending 1 that the deceased had no interest in the assets of the firm and hence his share in the goodwill did not pass at all 2 that in view of cl
10 of the Partnership Deed the share of the deceased partner in the goodwill did not pass and as such was not liable to the charge of estate duty and 3 that when a partnership was a going concern there could not be any separate valuation of the goodwill which went with the running business
The Tribunal rejected all the contentions and held that in spite of cl
10 of the partnership agreement the value of the goodwill to the extent of the share of the deceased passed on his death and it was liable to be charged to estate duty
46 On reference by the Tribunal the High Court held i that the interest of the deceased in the firm was property within the meaning of the provisions of the  and ii that the value of the interest of the deceased in the partnership firm would not include the goodwill of the partnership firm
This Court on the question Whether the value of the interest of the deceased in a partnership firm would include the goodwill of the partnership firm and liable to estate duty  allowing the Appeal of the Revenue  HELD 1
In a partnership there is a community of interest in which all the partners take in the property of the firm
But that does not mean that during the subsistence of the partnership a particular partner has any proprietary interest in the assets of the firm
Every partner of the firm has a right to get his share of profits till the firm subsists and he has also a right to see that all the assets of the partnership are applied to and used for the purpose of the partnership business
All these rights of a partner show that he has got a marketable interest in all the capital assets of the firm including the goodwill asset even during the subsistence of the partnership
This interest is property  within the meaning of section 215 of the 
53 D F 2
The goodwill of the firm is an asset in which the dying partner has a share
It passes on the death of the dying partner and the beneficiary of such passing would be one who by virtue of the partnership agreement would be entitled to the value of that asset
The fact that such interest might devolve not on the legal representatives but on a different group or category of persons or that from the goodwill the legal representatives might be excluded would not make any difference for the purpose of assessment of estate duty
The entirety of the interest of the deceased partner that would pass which necessarily included goodwill would be includible in the estate
The valuation of such entire interest has to be determined as provided under section 36 of the read with Rule 72 of the Estate Duty Rules 1953
61 E G 3
The share of the deceased in the partnership did not evaporate or disappear
It went together with the other assets and should be valued in the manner contemplated under Rule 7c of the Estate Duty Rules
The goodwill of the firm after the death of the dying partner does not get diminished or extinguished
Whoever has the benefit of that firm has the benefit of the value of that goodwill
Therefore if by any 47 arrangement for instance clause 10 of the partnership agreement in the instant case heirs do not get any share in the good will the surviving partners who will have the benefit of the partnership will certainly have that benefit
Therefore as a result of the death of the dying partner there is cesser of interest as well as accrual or arising of benefit of the said cesser
B D 4
Difficulties in making apportionment do not make a taxable item non taxable58 C Perpetual Executors and Trustees Association of Australia Ltd vs Commissioner of Taxes  25 ITR ED 47 Attorney General vs Boden and Another 1912 I KB 539 Addanki Narayanappa  Anr
vs Bhashara Krishnappa and 13 ors
 AIR 1966 SC 13301966 3 SCR 400 Commission of Income tax Madras vs Best and Co Private Ltd 60 ITR11 and Khushal Khemgar Shah vs Mrs Khorshed Banu  relied upon
Controller of Estate Duty Madras vs Ibrahim Gulam Hussain Currimbhoy  State vs Prem Nath  Controller of Estate Duty Bombay City I vs Fakirchand Fatchchand Sachdev  Controller of Estate Duty vs Kanta Devi Taneja and Controller of Estate Duty West Bengal vs Annaraj Mehta and Deoraj Mehta  approved
Attorney General of Ceylon vs AR
Arunachalam Chettiar and Others ED Alladi Kuppuswami vs Controller of Estate Duty Madras and Smt
Surumbayi Ammal vs
Controller of Estate Duty Madras  distinguished
Controller of Estate Duty vs Smt
Ram Sumarni Devi and P Abdul Sattar vs Controller of Estate Duty  overruled