1. In this reference, the following question of law has been referred to us by the Tribunal under s. 64(1) of the E. D. Act :
'Whether, on the facts and in the circumstances of the case, the admission of Ramesh, the son of the deceased, as a partner of the firm of M/s. New Modern Cloth Stores, resulted in a gift of any portion of the goodwill of the firm's business in his favour by the deceased ?'
2. In this reference, we are concerned with the estate of one Rajaram Yeswant Sakhalkar, who died on 29th August, 1963. The deceased was a partner in the firm of Messrs. New Modern Cloth Stores, Prarthana Samaj, Vithalbhai Patel Road, Bombay-4, right from 1945. Initially, the firm had three partners, viz., the deceased, A. N. Mulay and S. V. Pathare. The business of the partnership was a retail business in cloth in a crowded middle class locality in Bombay. The shop was situate at the corner of Raja Ram Mohan Roy Road and Vithalbhai Patel Road. By a deed dated 30th April, 1962, the partnership was reconstituted with effect from 8th November, 1961. Three new partners were introduced into the firm, viz., Ramesh, son of Rajaram - the deceased, Dattatraya, son of Anand Mulay, and Jagannath, son of Sakharam Pathare. The share of the partners including the old partners was fixed at one-sixth. There was a recital in the preamble of the partnership stating that the original partners had become old and were frequently not keeping good health and, therefore, could not attend to the business fully as was necessary. It was observed that instead of taking outsiders in the partnership it had been decided that the sons of the original partners who could work in the business should be taken as partners in the shop. It was made clear by cls. 3, 8, 13 and 16 of the partnership deed (annex.'A' to the statement of case) that each partner had an equal interest in the goodwill and tenancy rights of the firm, which would come to 1/6th for each partner. Rajaram Yeshwant Sakhalkar died on 29th August, 1963. The reconstitution of the partnership had taken place within two years of his death. Accordingly, the question arose whether the introduction of Ramesh into the firm in November, 1961, resulted in a gift in his favour by the deceased of any portion of the goodwill of the firm's business. The Assistant CED included in the property passing on the death of the deceased the value of 1/6th share in the goodwill which was regarded as a gift made by the deceased to his son, Ramesh. The same was valued at Rs. 78,140 and added to the other estate. The accountable person thereafter appealed to the Appellate CED, who, however, concurred in the view taken by the Assistant Controller. The accountable person carried the matter in further appeal to the Tribunal. It was contended before the Tribunal on his behalf that there was no gift from the deceased to his son and that Ramesh was admitted to the partnership in the interest of the business itself. Reliance was placed on the recital in the partnership deed which indicated the reason for introducing the three sons of the three old partners as new partners. The Tribunal upheld the contentions and arguments urged on behalf of the accountable person and held that no amount was includible in the property passing on the death of the deceased by reference to Ramesh being introduced as partner in the firm of Messrs. New Modern Cloth Stores. The reasons for this conclusion have been given by it in para. 5 of its order, which has been set out in para. 7 of the statement of case. A number of grounds appear to have been given by the Tribunal in the said para. But we may rest out approval of its decision on the third of the grounds, which was that admission by the firm of the new partners could not be held to be without any consideration flowing from the new partners. The conclusions reached by the Tribunal is in accord with the views expressed by the Division Benches of this court in Estate Duty Reference No. 1 of 1967 CED v. Kantilal Nemchand decided on 22nd July, 1977, by Kantawala C.J. and Tulzapurkar J. (since reported in : 115ITR89(Bom) ), Gift-tax Reference No. 3 of 1966 CGT v. Smt. Lalita B. Shah, Legal heirs of Bhogilal C. Shah, decided on 19th November, 1975, by Vimadalal and Desai JJ. - since reported in : 118ITR794(Bom) and Gift-tax Reference No. 4 of 1966 CGT v. Nagji Dullabhji, decided on 20th November, 1975, by Vimadalal and Desai JJ. - since reported in : 118ITR804(Bom) and with what has been held by us in our judgment delivered today in Estate Duty Reference No. 1 of 1969 Ramanlal Nagji and Dhirajilal Nagji v. CED - since reported in : 118ITR785(Bom) . The case before us in the present reference is indeed stronger inasmuch as in the deed of partnership there is a clear recital indicating the reasons for induction of the new partners, which reason has been accepted by the Tribunal. If there is such clear finding, then the question referred to us is capable of having only one answer, share of goodwill to Ramesh; and, therefore, the 1/6th share in the goodwill could not be added to the estate left by the deceased.
3. In the result, the question referred to us is answered in the negative and in favour of the accountable person.