1. This appeal has been filed by the accountable person. The name of the deceased is Shri Cawas M. Mody. The date of death is 31-1-1973. At the time of his death, the deceased was a partner in the firm of 'C.J.Industries (L.N.L.)' and 'C.J. Industries (Cold Storage Department)'.
Under Clause 3(b) of the partnership deed, it was provided that the goodwill, trade name and tenancy right of the premises in which the partnership business were carried on would belong exclusively to the deceased Shri Cawas M. Mody. In Clause 3(c) of the partnership deed it was mentioned that the goodwill of partnership business should be valued at 18 months' purchase of the average annual profits of the last completed four years or shorter period as the case might be and should not in any event for the purpose of accounting between partners either upon dissolution or upon death of the said deceased Shri Cawas M. Mody be valued at more than Rs. 50,000. The contention of the accountable person before the Assistant Controller was that the value of goodwill to be included in the principal value of the property passing on death could not exceed Rs. 50,000 in view of Clause 3(c) of the partnership deed. The Assistant Controller rejected the said submission. He observed that under Clause 3(b), the goodwill belonged exclusively to the deceased and that under Clause 3(c) the restriction of Rs. 50,000 applied only to the price of goodwill payable to the legal heir of the deceased. It did not represent the market value of the property passing on death. The market value of the goodwill as on the date of death would be deemed to pass on death, and the fact that legal heir would be entitled to only Rs. 50,000 was irrelevant. He relied on the decision of the Privy Council in Perpetual Executors & Trustees Association of Australia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia  25 ITR (ED) 47. He estimated the value of the goodwill at the time of death at Rs. 75,829 and added this amount instead of Rs. 50,000 mentioned by the accountable person.
2. In the appeal filed by the accountable person, the Controller observed that out of the value of the goodwill as on the date of death, the value worth Rs. 50,000 passed to the legal heirs, while the balance passed to other partners. Consequently, the value of goodwill on the date of death was liable to be included in the principal value of the property passing on death. He, therefore, confirmed the order of the Assistant Controller. The accountable person has now come in appeal before us. On his behalf reliance is placed on two decisions. Both the decisions are of the Gujarat High Court. The first decision is Smt.
Mrudula Nareshchandra v. CED  100 ITR 297. The second decision is CED v. Babubhai Harjivandas  129 ITR 276. The learned departmental representative has relied on the reasons given in the orders of the lower authorities.
3. We have considered the rival submissions. The leading case on this subject is the decision of the Privy Council in Perpetual Executors & Trustees Association of Australia Ltd.'s case (supra). In that case the deceased was a partner in a firm and the partnership deed provided that the firm would not be dissolved by the death of the partner and further that on the death of a partner, the surviving partners would have an option to purchase the deceased's share in the partnership, the purchased price being determined as mentioned in the deed of partnership. It was specifically agreed that in computing the price, no sum should be taken into account for goodwill. On the death of the deceased the partners who survived him duly exercised options conferred on them and the purchase price was ascertained in accordance with the provisions of the deed, no sum being added or taken into account by way of goodwill. The legal representative declared the value of the deceased's interest in the partnership to be the price at which, pursuant to the deed, they were obliged to sell it to the surviving partners. The revenue authorities claimed an additional amount of estate duty in respect of the share of the deceased in the goodwill of the business. The Privy Council held that the interest of the deceased in all the partnership assets, including goodwill, passed to his legal representatives, who were bound to transfer that interest to the surviving partners under the partnership deed and that the fact that the value of the goodwill was not to be taken into account in calculating the price receivable by the estate for the deceased's interest in the partnership was wholly irrelevant. This decision is an authority for the proposition that the property in the goodwill would pass to the legal heir as well as the surviving partners in spite of the fact that in the partnership deed, it is mentioned that the value of goodwill should not be taken into account while determining the value of the interest of the deceased in the partnership. On the same principle, in the present case, the market value of the goodwill at the time of the date of death of the deceased would be included in the principal value of the property passing on death in spite of the fact that the partnership itself provides that the value of goodwill while taking accounts on the date of death of the deceased would not exceed Rs. 50,000. The only effect of this restriction would be that the legal heir would not be entitled to receive more than Rs. 50,000 on account of goodwill when accounts are taken. However, the goodwill to the extent of remaining value would pass on to the surviving partners.
Consequently, it is the market value of the goodwill on the date of death of the deceased, which would be includible and not merely market value of that part of the goodwill which passed on to the legal heir.
4. The decisions on which the learned counsel for the assessee relied on are of no assistance. In both the Gujarat High Court decisions, the stipulation in the partnership deed was that the heirs of the deceased would not be entitled to any amount towards the value of goodwill on dissolution of the firm by death. It was held that goodwill did not pass on the death of the partner. In our case the stipulation is not that on taking account on death of a partner, the goodwill would not be considered at all. What is stipulated is that value of goodwill to be taken into account would not exceed Rs. 50,000. Thus, it is clear that in our case the stipulation itself indicated that goodwill would pass.
The restriction put was on the value of the goodwill. When it is held that property has passed on death, what becomes relevant is its value on the date of death and not the direction of the deceased in his lifetime that on his death the value of such property should be restricted to particular figure. In fact, a direction of this type is to be ignored in determining the value of property passing on death.
5. As regards the two decisions of the Gujarat High Court, we may state that in the latter decision the High Court felt itself bound by the earlier decision in the case of Smt. Mrudula Nareshchandra (supra) has been dissented by the Madras High Court in CED v. Ibrahim Gulam Hussain Currimbhoy  100 ITR 320 and by the Full Bench of the Punjab and Haryana High Court in State v. Prem Nath  106 ITR 446 where it was observed that the view of the Gujarat High Court was opposed to the view of the Privy Council in the case of Perpetual Executors & Trustees Association of Australia Ltd. (supra). We may also mention that in an earlier decision of the Gujarat High Court in Sakarlal Chunilal v. CED  98 ITR 610, a view contrary to the view taken in the subsequent two decisions had been taken.
6. The learned counsel for the accountable person argued that in this case the deceased ceased to have interest in goodwill in his lifetime.
We are unable to agree with this contention. No clause in the partnership deed could be pointed out in support of this contention.
7. For the reasons already given, we hold that fair market value of goodwill on the date of death was includible in the value of property passing on death and that there was no legal justification for restricting its value to Rs. 50,000 because of the provisions in Clauses 3(b) and 3(c) of the partnership deed.