CONTROLLER OF ESTATE DUTY GUJARAT-I, AHMEDABAD versus MRUDULA NARESHCHANDRA

Citation: [1986] 3 S.C.R. 45 · Decided: 09-05-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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CONTROLLER OF ESTATE DUTY GUJARAT-I, 
AHMED ABAD 
v. 
MRUDULA NARESHCHANDRA 
B 
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MAY 9, 1986 
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[R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.] 
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ESTATE DUTY ACT 1953/ESTATE RULES 1953: Section 36/Rule 
7(c)-Firm--Death of partner-Entire interest of deceased in finn in-
eluding goodwill passes on death-To be valued-Includible in estate 
of deceased for levy of estate duty. 
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One N. Kanti Lal had 28% share in a partnership firm. The 
Partnership Deed, hy 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 Estate 
Duty Act, 1953 without including the value of the share of the deceased 
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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. 
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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 
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charge of estate duty; and (3) that when a partnership was a going 
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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 agree-
ment, 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. 
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) 
46 
SUPREME COURT REPORTS 
11986] 3 S.C.R. 
A 
On reference by the Tribunal, the High Court held: (i) that the 
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interest of the deceased in the firm was property within the meaning of 
the provisions of the Estate Duty Act; and (ii) that the value of the 
interest of the deceased in the partnership firm would not include the 
goodwill of the partnership firm. 
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This Court, on the question: 'Whether the value of the interest of 
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the deceased in a partnership firm would include the goodwill of the 
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partnership rmn and liable to estate duty', allowing the Appeal of the 
Revenue, 
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HELD: 1. In a partnership there is a community of interest in 
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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 part· 
ner 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 
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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 s. 2(15) of the Estate Duty Act, 1953. [53 D-F) 
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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 be-
neficiary 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 
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legal representatives might be excluded, would not make any difference 
for the purpose of assessment of estate duty. The entirety of the interest 
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of the deceased partner ·that would pass, which necessarily included 
~oodwill, would be includible in the estate. The valuation of such entire 
interest has to be determined as provided under s. 36 of the Estate Duty 
Act, 1953 read with Rule 7(2) of the Estate Duty Rules, 1953. 161 E-G] 
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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 7(c) of the Estate Duty 
•,
Rules. The goodwill of 

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