Patna H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that there had been no disposition made by the deceased in favour of a relative when he retired from the partnership and the provisions of s. 9 r/w s. 27 were not attracted ?

Counsel Appeared

B. P. Rajgarhia & S. K. Sharan, for the Revenue : K. N. Jain, Nawal Kishore Agrawal & M. Nath, for the Accountable Person

BY THE COURT

This is a reference under s. 64(1) of the ED Act, 1953 (hereinafter to be referred to as “the Act”). The question referred to us for our opinion is as follows :

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that there had been no disposition made by the deceased in favour of a relative when he retired from the partnership and the provisions of s. 9 r/w s. 27 were not attracted ?”

In this reference, we are concerned with the estate of late Shri Lalchand Agrawal, who died on 16th Jan., 1972. He happened to be a partner of a firm, M/s Lalchand Nawal Kishore, in which there were three partners, viz., Lalchand Agrawal, Smt. Shanti Devi and B. P. Dalmia. The deceased had 50per cent share in the firm. The deceased retired from the partnership on 18th Oct., 1971, leaving Smt. Shanti Devi and B. P. Dalmia as partners of the firm and the firm continued as such. On 19th Oct., 1971, the firm was reconstituted by inducting three new partners, namely, Shri Bharat Prasad, Shri Nawal Kishore Prasad and Shri Raj Kishore Prasad, grandsons of the deceased. Shortly after reconstitution of the firm, Sri Lalchand Agrawal died on 16th Jan., 1972. Hari Lal Agrawal, the son of the deceased Lalchand Agrawal, was given notice in the capacity of an accountable person. In this reference, we are concerned only with regard to the disposition of the goodwill of the firm and whether estate duty could be levied thereon. We need not, therefore, go into the various contentions advanced before the estate duty authorities. In this reference, we are only concerned with whether the share of the deceased in the goodwill of the firm could be added to the estate of the deceased. The Appellate CED and the Tribunal have held that there was no disposition and, therefore, there could be no question of levy of estate duty on the share of goodwill of the deceased. To be precise, the conclusion of the Tribunal was as follows :

“In our opinion, however, there is no material on record to show that there has been any disposition made by the deceased in favour of a relative. From the facts before us, it appears, the new partners, who happened to be grandchildren of the deceased, entered into an agreement with the other partners and became partners. In such circumstances, there is nothing to establish that there has been any disposition made by the deceased in favour of a relative.”

Having heard learned senior standing counsel, we are of the view that the Tribunal was justified in the view that it took. The partnership agreement between the original partners is annexure X to the statement of facts. Clause 10 of the agreement reads as follows : “10. That any partner may retire from the partnership after giving three months’ notice and in that case the partnership business shall not be closed and the goodwill of the same will belong to the surviving partners. Accounts will be taken and any sum found due to the outgoing partner shall be paid to him/her and in case of a debit balance, the same shall be recouped by the retiring partner.”

In the face of the terms contained in the above clause, there cannot be any doubt that there was no disposition in favour of the three grandsons of the deceased. That being the clear position, it is obvious that the Tribunal was justified in holding that there had been no disposition by the deceased. The provisions of s. 9 r/w s. 27 of the Act, therefore, are not attracted.

For the reasons mentioned above, we are of the view that the Tribunal was justified in holding that there had been no disposition by the deceased in favour of any relative when he retired from the partnership and the provisions of s. 9 r/w s. 27 of the Act were not attracted. The reference is thus answered in favour of the assessee and against the Revenue. However, there will be no order as to costs.

Let a copy of this judgment be transmitted to the Assistant Registrar, Tribunal, Patna.

[Citation : 171 ITR 278]