Per Shri S. Rajaratnam, Accountant Member - These two appeals, one by the accountable person and the other by the revenue, arise out of the order of the Appellate Controller in the case of late Sri. V. Penchal Reddy who died on 27-2-1980.
2. The accountable person, appeal objects to the order of the Appellate Controller upholding the addition of Rs. 50,000 as the deceaseds share of goodwill in the firm of A. Rami Reddy & Co., Minagallu, who are doing business as contractors. It is the accountable persons case that the partnership deed itself provided that the legal heirs of the deceased will not be entitled to a share in the goodwill on the death or retirement of a partner. It is, therefore, claimed that in such circumstances the share of goodwill could not be included even as held by the Gujarat High Court in CED v. Babubhai Harjivandas  129 ITR 276 and the Gauhati High COurt in CED v. Kanta Devi Taneja (1981) 132 ITR 437.
Alternatively, it was contended that the business being that of a contractor who gets work on lowest tender, it cannot have any goodwill.
As a further alternative, it was contended that the adoption of the goodwill at one years average super profits is excessive and that it can not be more than 10 per cent of deceaseds share of goodwill as worked out. The learned departmental representative relied upon the decision of the Calcutta High Court in CED v. Annaraj Mehta & Deoraj Mehta (1979) 119 ITR 544 and the Madras High Court in CED v. Ibrahim Gulam Hussain Currimbhoy (1975) 100 ITR 320 for the proposition that it is immaterial that the legal heirs do not get the share or goodwill. He pointed out that the benefit will accrue to the surviving partners. He also claimed that the firm being a registered contractor in the Government and having a long standing, had considerable goodwill and that estimate of goodwill at merely one years super profits itself had been a very liberal estimate in favour of the taxpayer and that it cannot be interfered with.
3. We have carefully considered the records as well as the arguments.
We do find that the partnership deed merely provided that the legal heirs will not be entitled to claim a share in goodwill under the contract. It does not mean that there was neither goodwill nor that it had no value. We do find that the facts of the assessees case as well as the decisions cited by the learned departmental representative amply support the order of the first appellate authority. We have held so in the case of Estate of Sri A. Rami Reddy (ED Appeal No. 15 (Hyd.) of 1983, dated 19-1-1984), another deceased partner of the self same firm.
Even the claim that there is no goodwill or that the estimate is excessive cannot be accepted for the same reasons stated in the said order. The very existence of considerable super profits is pointer to the existence of good-will as well. We are not in a position to accept the assessees contention that a firm of contractors cannot have any goodwill. We are also not in a position, on the facts and in the circumstances of the assessees case, to find that the adoption of one years super profits as goodwill is excessive.
The estimate adopted is very conservative especially when it is considered that the index adopted is super profits after allowance of reasonable remuneration to partners and interest on capital. The same yardstick was adopted in the decision of this Tribunal, referred to earlier in respect of the same firm. We, therefore, find no merit in the accountable persons appeal which is, accordingly, dismissed.
4. As for the departmental appeal, the first dispute relates to the manner of valuation of jewellery gifted by the deceased to his grand-daughter within two years prior to death. The inclusion of the value of jewellery is not in dispute. At the time when it was gifted in May 1978, the value was at Rs. 32,549. As on the date of death on 15-2-1980, the value was Rs. 43,132. There is again no dispute as to these figures. The only dispute is whether the Assistant controller is entitled to adopt the value as on 15-2-1980 and not the value as on the date of gift as urged on behalf of the accountable person. The accountable person relies upon the decision of the Andhra Pradesh High Court in the case of CED v. P. Subramanyam (1981) 127 ITR 258 where the accrued interest at the date of gift was held to be not includible. The same view was taken by the Madras High Court in the case of Mrs.
Ratnakumari Kumbhat v. CED (1975) 101 ITR 572. The learned Appellate Controller also cited two other decisions of the Kerala High Court in the cases of P. Gangadharan Pillai v. CED (1968) 70 ITR 640 and P.Gangadharan Pillai v. ACED (1980) 126 ITR 356. The departmental appeal seeks to distinguish the cases relied upon by the Appellate Controller.
The learned departmental representative pointed out that the cases relied upon by the Appellate Controller related to the cases of accrued interest, while the decision of the Allahabad High Court in the case of Vijay Kumar Kedia v. CED (1976) 104 ITR 302 directly dealt with the question of valuation as between the date of gift and the date of death and decided in favour of the revenue. He strongly relied upon the decision and also the commentary of the learned author, V.Balasubramanyam, at pages 110 and 111 of Fourth edition. The learned counsel for the accountable person, however, strongly relied upon the decision of the Andhra Pradesh High Court in P. Subramaniams case (supra) and the other decisions mentioned by the first appellate authority. He claimed that the law justifies inclusion only at the value as on the date of gift.
5. We have carefully considered the records as well as the arguments.
Section 9 of the Estate Duty Act, 1953 (the Act) authorises the inclusion of the gifts made within a certain period before death. It reads as under : "9. (1) Property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise, which shall not have been bona fide made two years or more before the death of the deceased shall be deemed to pass on the death :" Hence, what passes on death is the property taken under the disposition of gift. In other words, it is the property itself that is to be taken as passing on the death. Section 36 of the Act requires 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 deceaseds death. We should, therefore, imagine that it is not open to the Assistant Controller or the Appellate Controller to choose any date other than the date of death for the purpose of valuation of assets which passes on death or deemed to pass on death. This is the view taken by the Allahabad High Court in the case of Vijay Kumar Kedia (supra). It also stands to reason that if the market value as on the date of death happens to be less than the value as on the date of death, only the lesser value has to be adopted.
Otherwise, it will not be a death duty at all. Indian laws of estate duty closely follows that of United Kingdom in this regard. On an identical issue, the House of Lords held in Sneddon v. Lord Advocate (1954) 25 ITR (ED) 6, that the relevant date of valuation is date of death and not the date of gift. Sneddons case (supra) followed an earlier decision in the case of Lord Strathcona v. Inland Revenue (1929) SC 800. The Kerala High Court in P. Gangadharan Pillais case (supra) and T. O. Hydrose v. CED (1971) 81 ITR 745 followed the reasoning in Sneddons case (supra) after citing the above cases. The first appellate authority was wrong in assuming that the Kerala High Court in the case of P. Gangadharan Pillai (supra) supported the accountable persons case. In that case, valuation as on date of death became complex as the money was utilised along with the effort and, hence, the increment in the value of the property gifted as between the date of gift and date of death could not be solely attributed to the gift as such. Only the natural increment could be considered and not what had accrued due to extraneous factors. In the case before us, there was no such extraneous accretion. As for the decision of the Andhra Pradesh High Court in case of P. Subramanyam (supra), the question again related to a cash gift on which some interest was paid.
It was held that neither section 16(2) nor section 46(3) relates to a debit of the property derived by the deceased while section 46(3) relates to a debit in relation to a transaction covered by section 16(2). This is not the issue before us. The facts are also different.
Provisions of section 9 and section 36(1), which have been considered by us as directly relevant, were not in issue before the Andhra Pradesh High Court. Both this decision as well as the decision of the Madras High Court in Mrs. Ratnakumari Kumbhats case (supra) did not also have occasion to consider the effect of section 34(4) of the Act which authorised the inclusion of the income accrued on property, transferred and outstanding, as on date of death of the deceased. At any rate, the issue before us is certainly different from the one which was before the Andhra Pradesh High Court. The statute and the decided case law so far support the revenues stand that the valuation of the gifted property deemed as passing on death under section 9 should be with reference to the value as on the date of death. Hence, the departmental appeal on this point has to succeed. The value has to be adopted at Rs. 42,132 and the order of the Assistant Controller on this point has to be restored. We direct accordingly.
6 and 7. (These paras are not reproduced here as they involve minor issues.) 8. In the result, the appeal of the accountable person is dismissed and the departmental appeal is treated as allowed in the manner indicated in the two preceding paragraphs.