1. The deceased was a partner in the firm of Jyothi Construction Co.
She died on 31-12-1976. The accountable person rendered the accounts admitting only a sum of Rs. 1,15,198 as the deceased's share including profit till date of death in the firm. It was urged before the Assistant Controller that according to the terms of partnership deed dated 31-8-1963, the retiring partners or the legal representatives of the deceased partners were not entitled to a share of surplus arising out of revaluation of assets or to claim goodwill of the firm.
Therefore, no goodwill or share of surplus should be considered for the purpose of estate duty. This plea was not accepted by the Assistant Controller. He held that the goodwill of the business is an asset and like any other asset it is liable to be included in the dutiable assets of the deceased person. As regards the share of the deceased in the profit due to revaluation of the assets, he held it to be 'property' within the meaning of Section 2(15), Explanation 2 of the Estate Duty Act, 1953 ('the Act') and that though it was not claimable by the legal representative in view of Clause 13 of the partnership deed, its benefit accrued to the remaining partners. The extinguishment of the right at the expense of the deceased was deemed to be a disposition made by the deceased in favour of other partners and, hence, this was to be considered in the estate. Thus, he included Rs. 1,36,605 as profit due to revaluation and Rs. 80,000 as deceased's share in the goodwill of the firm. On appeal, the Commissioner (Appeals) held that the entire interest of the deceased in the partnership at the time of her death passed on her death and the whole of it including goodwill and the surplus on revaluation are, therefore, liable to be included in the principal value of the estate passing on death. In coming to the above conclusion, he followed the decisions of the Madras High Court in CED v. Ibrahim, Gulam Hussain Currimbhoy  100 ITR 320 and the Full Bench decision of the Punjab and Haryana High Court in State v.Prem Nath  106 ITR 446 as against the decision of the Gujarat High Court in CED v. Babubhai Harjivandas  129 ITR 276 which is in favour of the accountable person. Against the same, the present appeal is filed.
2. The learned Counsel for the assessee submitted that as per Clause 13, on retirement or death of any party he or his legal representatives are not entitled to claim any goodwill or revaluation of the assets and liabilities of the firm. He submitted that no partner can claim any share in the interests of the partnership as long as the partnership is not dissolved. He placed reliance on a decision of the Gujarat High Court in Babubhai Harjivandas' case (supra). The learned departmental representative relied upon the decisions in Ibrahim Gulam Hussain Currimbhoy's case (supra) and Prem Nath's case (supra) and, thus, supported the order of the Commissioner (Appeals).
3. We have considered the rival submissions. Under Section 14 of the Indian Partnership Act, 1932, property of the firm includes also goodwill of the firm. The deceased being a partner in the firm had an interest in the partnership at the time of her death. The interest in the partnership should be taken to be property passing on death. There was goodwill for the business of the firm and due to revaluation of the assets, profit has arisen. The deceased had interest in the said assets. On her death, her interest in the partnership including goodwill and revaluation of the assets has passed to her legal heirs.
It is true that in Clause 13 of the partnership deed it is stated that on retirement or death of a partner he or his legal representatives are not entitled to claim any goodwill or a revaluation of the assets and liabilities of the firm. But that does not mean to say that the deceased had no interest in the goodwill or assets of the firm at the time of her death. The deceased had 20 per cent share in all the assets of the firm including the goodwill and profit on revaluation of the assets. The said property has passed on her death. Hence, the deceased's share in the said assets is includible in the principal estate of the deceased. In coming to the above conclusion, we drive support from the decision of the Madras High Court in Ibrahim Gulam Hussain Currimbhoy's case (supra). It was observed as under : .. .Therefore, 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 interest of the goodwill is augmented to the extent of the share of the deceased as per Clause 14 of the partnership deed. This will straightaway attract Section 5 of the Act....
In the said case also there was a similar clause in the partnership deed which stated that the retiring partner or the legal representatives of the deceased partner were not entitled to the goodwill of the business and the surviving or continuing partners alone were entitled to the goodwill and to carry on the business under the same name and style. In spite of that the Madras High Court held that the goodwill being an asset of the firm belonged to the firm which means to all the partners and the death of the deceased did not extinguish his share in the goodwill. Hence, there is a passing of the deceased's share in the goodwill even if there is no devaluation of the deceased's share in the goodwill on the legal representatives. Thus, the deceased's share in the goodwill of the firm was liable to estate duty. In this case the decision of the same Court in S. Devaraj v. CWT  90 ITR 400 was followed. The above decision was followed again in Smt. Surumbayi Armnal v. CED  103 ITR 358 (Mad.) wherein it was held that though the accountable person factually did not get any share in the goodwill, the fact that the deceased was entitled to a share was sufficient to hold that the share in the goodwill passed on his death for purposes of estate duty.In Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla AIR 1970 SC 1147 the Supreme Court observed as under : . . .The goodwill of a business is however an intangible asset being the whole advantage of the reputation and connections formed with the customers together with the circumstances which make the connection durable. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years because of its reputation, location and other features. An agreement between the partners that the name, the place of business and the reputation of the firm are to be utilised by the surviving partners will not necessarily warrant an inference that it was intended that the heirs of the deceased partner will not be entitled to a share in the goodwill.
In this decision, it has been held that the goodwill is an asset of the firm, which devolves on the death of a partner upon his legal representatives along with bis share in the assets and liabilities of the firm. The above decisions were followed by the Full Bench of the Punjab and Haryana High Court in Prem Nath's case (supra). It was held therein that the goodwill of a firm is an asset of the firm, the share of the deceased partner in which, along with his share in the other assets of the firm devolves, for 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 shall not dissolve the firm and 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. In this decision the Punjab and Haryana High Court has dissented with the view of the Gujarat High Court in Smt.
Mrudula Nareshchandra v. CED  100 ITR 297. The above decision of the Gujarat High Court was again followed by the same Court in Babubhai Harjivandas' case (supra). The said two decisions of the Gujarat High Court support the case of the accountable person.
5. We prefer to follow the decisions of the Madras High Court and the Punjab and Haryana High Court in preference to the decision of the Gujarat High Court. Following the above decisions, we hold that the entire interest of the deceased at the time of her death including the goodwill and the surplus on revaluation of the assets passed on her death and, therefore, they are liable to be included in the principal value of the estate of the deceased. Thus we uphold the order of the Commissioner . (Appeals).