Ramanujulu Naidu, J.
1. This is a reference made under Section 64(1) of the E.D. Act of 1953, at the instance of the Controller of Estate Duty, Andhra Pradesh, Hyderabad, for the opinion of this court on the following questions of law :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the 'goodwill' of the firm has to be valued only with reference to trading profits and not with reference to both the manufacturing and trading profits as adopted by the Assistant Controller of Estate Duty ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in fixing the trading profits at 1/3rd of the total profits and the value of 'goodwill' at one year's purchase of average profits as against three years adopted by the Assistant Controller of Estate Duty '
2. The facts giving rise to the above reference as set out in the statement of case drawn up by the Appellate Tribunal may be briefly stated.
3. The deceased was a partner of a firm called M/s. Krishna Mining Company. The firm has been doing business in mica mining and sale of mica. In the estate duty return filed by the accountable person she did not include any value towards the deceased's share of goodwill in the said firm for the purpose of duty. The Asst. Controller, holding that there was a goodwill attached to the firm, valued the same at three years' purchase of the average profits of the five years preceding the death of the deceased. A sum of Rs. 5,74,000 was accordingly arrived at. As the deceased had l/8th share in the firm, l/8th of the said amount was included in the value of the estate. The Asst. Controller, holding that on estimate a sum of Rs. 4 lakhs could be treated as available to the firm out of the intangible additions made in the income-tax assessment, included l/8thof the same in the estate of the deceased. A sum of Rs. 8,00,000 advanced by the firm, of which the deceased was a partner, to two firms known as Mohan Exports and Vani Films, was treated by the Asst. Controller as belonging to the firm. The said amount was accordingly included in the assets of the firm and the deceased's l/8th share was included in the value of the estate. On appeal, the Appellate Controller held that the goodwill of the firm related only to trading profits and that the trading profits could be taken as 1/3rd of the total receipts. On the basis of the average profits arrived at by the Asst. Controller, the Appellate Controller took the average trading profits per year at Rs. 65,000 and estimated the goodwill at one and a half years' purchase. The Appellate Controller, accordingly, fixed the value of the goodwill at Rs. 1,00,000 as against Rs. 5,74,000 determined by the Asst. Controller. The Appellate Controller held that the liability of Rs. 8,00,000 in favour of G. Mohan Rao had to be added since a disclosure was made by the firm in May, 1965, and the profits made by the firm up to March 31, 1961, were covered by the disclosure of Rs. 8,00,000. He, however, held that a separate addition of Rs. 4,00,000 again as undisclosed wealth was not called for since the profits made in the years 1958-59 to 1960-61 were also included in the disclosure. He, accordingly, deleted the addition of Rs. 4,00,000. Both the accountable person and the revenue preferred appeals before the Tribunal. Agreeing with the Appellate Controller that a goodwill had passed on the death of the partner of the firm and that the same had to be valued only with, reference to the trading profits, the Tribunal held that it would be reasonable to estimate the value of goodwill at one year's purchase of the average profit. The average trading profits fixed by the Appellate Controller at Rs. 65,000 was held to be reasonable. Accordingly, the goodwill of the firm was determined at Rs. 65,000 and the deceased's 1/8th share therein was directed to be included in his estate. In other respects, the order of the Appellate Controller was confirmed by the Tribunal.
4. The following reasons were assigned by the Tribunal for holding that the goodwill had to be valued only with reference to trading profits: (1) There is no trading reputation attached to mining operations. (2) The firm's mica mining did not yield any particular or special type of mica. (3) The firm had worked the mine for ten years by the time of the death of the deceased, the lease of the mine obtained from the Government being for twenty years, and the firm could not be expected to continue to make profits in the same manner and for an indefinite period. (4) The business of mica mining is highly speculative, in that a mine which is found to be productive at a given point of time may belie all expectations and yield nothing immediately thereafter.
5. We are in entire agreement with the reasons assigned by the Tribunal and hold that the goodwill of the firm could be valued only with reference to the trading profits of the firm and not with reference to both the manufacturing and trading profits as adopted by the Appellate Controller. Question No. 1 is, therefore, answered in the affirmative and in favour of the accountable person.
6. It may be recalled that the Appellate Tribunal fixed the trading profits at one-third of the total profits and determined the value of the goodwill at one year's purchase of average profits.
7. In K.A. Subramaniam v. CED : 46ITR1(Mad) a Division Bench of the High Court of Madras held (headnote):
' A rough and ready method of valuing the goodwill of a business is to take it as being worth one to three years' purchase of the annual profits, such profits being based on the average annual profits of the two to five years immediately preceding the valuation, without making any deduction for interest on capital and owner's services. '
8. In the above case, the goodwill of the business carried on by the deceased therein at one and a half years' purchase was upheld. We see no reason to take a different view. It must, therefore, be held that the determination of the value of the goodwill of the firm by the Tribunal is justified. Question No. 2 is, accordingly, answered in the affirmative and in favour of the assessee.
9. In the result, both the questions are answered in the affirmative and in favour of the assessee. There shall be no order as to costs.