1. One Bheema Naidu died on 25-11-1953, leaving behind him his widow, a widowed daughter-in-law and several grand-children. An account of the estate duty with regard to the property passing on the death of the said Bheema Naidu was furnished by his widow and daughter-in-law as accountable persons under the Estate Duty Act, 1953 (hereinafter referred to as the Act) to the Deputy Controller of Estate Duty, Madras. The Deputy Controller determined the principal value of the estate at Rs. 19,34,884, which included, inter alia, (1) Rs. 1,20,826 representing the deceased's 1/6th share of the goodwill in the managing agency firm of M/s. Rangaswami Naidu and Sons and (2) Rs. 57,168 representing the deceased's one twelfth share of goodwill in the managing agency firm of M/s. R. Bheema Naidu and Co. This was objected to by the accountable persons and they preferred an appeal to the Central Board of Direct Taxes under Section 63 of the Act.
2. It was contended before the Board that the Deputy Controller erred in attributing any goodwill to the Managing agency firms of M/s. Rangaswami Naidu and Sons and M/s. Bheema Naidu and Co., in which the deceased was a partner, that the goodwill was an element relating to the business and could not therefore attach to a managing agency which was a contract of personal service, and, that, in any event, as goodwill had no saleable value nor was it transferable, no value could be said to attach to it. It was also contended that the managing agents were prohibited by law from transferring their office without the approval of the company, that any change in the constitution of the managing agency firm should also have the approval of the Central Government, that the managing agency has no goodwill at all and that in any event it cannot be taken as property passing on death. The accountable persons also urged that the basis of valuation of goodwill adopted by the Deputy Controller was erroneous in so far as it relates to the deceased's share of remuneration, for the unexpired term of the managing agency agreement.
3. The Board by its order dated 31-10-1961 rejected the contentions advanced on behalf of the accountable persons and held that in view of the decision of the Supreme Court in J. K. Trust Bombay v. Commr. of Income-tax, Bombay, , goodwill in the two managing agency firms was undoubtedly property passing on the death of the deceased and therefore it has been rightly included in the principal value of the estate. As regards the question of valuation of the goodwill of the managing agency firms, the Deputy Controller, taking into account the fact that the managing agency would terminate by 15-4-1960, valued the goodwill at the present value of the future maintainable profits per annum, for seven years and taking the future maintainable profits at the average net profit of the three years immediately before the death of the deceased and determining the present value by adopting the multiple factor from the interest tables. Before the Board it was pointed out by the accountable persons that the goodwill determined by the Controller worked out nearly 89 per cent of the actual profits earned by the managing agency firms of Messrs. Rangaswami Naidu and Sons and 74 per cent of the actual profits earned for the seven years by the managing agency firm of Messrs. Bheema Naidu and Co. and that, therefore, the valuation made by the Deputy Controller was very excessive. The Board accepted the contention of the accountable persons in this regard and revalued the goodwill of the two managing agency firms on the basis of the actual profits earned by the two firms during the seven years as against the estimated profits adopted by the Deputy Controller. On this basis the deceased's one-sixth share of the goodwill in Messrs. Rangaswami Naidu and Sons was determined at Rs. 94,402 and the deceased's one-twelfth share of the goodwill in Messrs. R. Bheema Naidu and Co, was determined at Rs. 53,707.
4. At the instance of the accountable persons, the following two questions have been referred to us for decision under Section 64(1) of the Act.
1. Whether on the facts and in the circumstances of the case, the department is justified in attributing any goodwill or any value to any such goodwill to the managing agency firm of Messrs. R. Bheema Naidu and Co. and B. Rangaswami Naidu and Sons and in attributing to the estate of R. Bheema Naidu, any share in such goodwill?
2. Whether on the facts and in the circumstances of the case, the basis adopted for the valuation of the goodwill is in accordance with the law?"
Before us, it was contended that the share of the deceased in the two managing agency firms has no goodwill at all as the managing agency agreements entered into by the firms with the two mills were only contracts of personal service having no saleable value, that the managing agency rights cannot be transferred without the approval of the mills in general meeting and that, any change in the constitution of the firms should also have the approval of the Central Government. It was also contended that the managing agency firms have no goodwill at all, that even if they have any goodwill, it cannot be taken as 'property' passing on death and that it has no saleable value which could properly be evaluated.
5. We are not inclined to accept the above contentions put forward by the accountable persons. The question whether the managing agency could be regarded as business was considered by their Lordships of the Supreme Court in Lakshminarayana Ram Gopal and Sons Ltd. v. Govt. of Hyderabad, , where the question arose with reference to the assessment of excess profits tax on the remuneration received by the managing agents, tax being leviable under that Act only on business income, and it was held that it was business and that the profits therefrom were rightly assessed to tax under that Act. This was re-affirmed by the Supreme Court in , by saying that "the law must, therefore, be taken to be settled beyond controversy that managing agency is itself business." In the latter case the Supreme Court also considered the question as to whether such a business can be held to be 'property' within Section 4(3)(i) of the Income-tax Act, 1922, and held that 'property' is a term of widest import, and subject to any limitation or qualification which the context might require, it signified every possible interest which a person can acquire, hold and enjoy and that business would undoubtedly be property unless there is something to the contrary in the enactment. Though that decision was rendered with reference to the wording in Section 4(3)(i) of the Income-tax Act, 1922, the observations therein will equally apply here. In Dharma Vijaya Agency v. Commr. of Income-tax, Bombay City, , the business of principal agents of insurance company appointed under the Insurance Act was held to be 'business' and therefore property within the meaning of Section 4(3)(i) of the Income-tax Act, 1922. It cannot be disputed in this case that the deceased had a right to receive the share of income from the managing agency business and that is clearly property. It has been clearly held in M. E. Molla Sons Ltd. v. Official Assignee Rangoon, 63 Ind App 340 = (AIR 1936 PC 230) that a right to receive income from property is itself property. Therefore the contention of the accountable persons that the managing agency agreements are only contracts of personal service and therefore they had no goodwill cannot be accepted. As a matter of fact the Supreme Court while dealing with a similar contention held in that--
"................ even an office of trusteeship was held to be property especially when emoluments were attached to it, and that must a fortiori be the position in the case of office of managing agency, which is clearly one of managing agency, which is clearly one of profit and even alienable under certain circumstances. The office requires no doubt the performance of services; but there is no antithesis between service and business, as there are several kinds of business which involve the performance of services, such as insurance and commission agency. The true test is whether the services are a regular source of income."
6. The learned counsel for the accountable persons would, however, contend that the decision in might require
reconsideration by the Supreme Court in view of its later decision in K. A. Hyderabad, . But we are unable to appreciate the above decision. According to the learned counsel the basis for holding that a contract of personal service can be property was the decision in the Commissioner Hindu Religious Endowments Madras v. Sri Lakshmindra Thirthaswamiar of Shirur Mutt, , and the correctness of that decision is open to doubt view of the decision in K. A. Samajam v. Commissioner, H. R. and C. E. Hyderabad, . In K. A. Samajam's case, it was held that a bare right to manage an institution or an endowment cannot be treated as property within Article 19(1) and Article 31 of the Constitution and that does not run counter to the decision in , holding that an office of trusteeship when emoluments were attached to it was property. In Narayanan Nambudripad v. State of Madras, this court had
"We are accordingly of opinion that hereditary trusteeship is within the protection afforded by the Article 19(1)(f) even though there were no emoluments attached to the office."
A somewhat similar observation was made by the Supreme Court in Samabamurthi Mudaliar v. State of Madras, , that the office of a hereditary trustee is in the nature of 'property' and this is so whether the trustee has beneficial interest of some sort or not. The above observations were considered to be obiter, in K. A. Samajam's case, and the correct position of law was held to be that hereditary trustees who have only a bare right to manage and administer the institution or endowment without any proprietary or beneficial interest either in the corpus or in the usufruct therefrom cannot be said to be property. The observations of the Supreme Court in that even an office of trusteeship was a property especially when emoluments were attached to it and that must be a fortiori the position in the case of managing agency stand unaffected. We, therefore, hold that the deceased's share in the two managing agency firms and rightly been included in his estate.
7. On the question of valuation, as already stated, the Deputy Controller valued the good-will by estimating the profits which would have been earned for the period of seven years. But the Board, on appeal, revalued the good-will on the basis of actual profits. Therefore the accountable persons cannot validly raise any objection to the method of valuation. As a matter of fact the learned counsel for the accountable person was not in a position to suggest any other alternative method of valuation of the good-will. In this view both the questions have to be and are answered in the affirmative and against the accountable persons. The accountable persons will pay the costs of the Revenue. Counsel's fee Rs. 250.
8. Reference answered accordingly.