Natverlal Dahyabhai Mehta (Late) vs Controller of Estate Duty

G.T. Nanavati, J.—The following four questions have been referred to this court by the Income Tax Appellate Tribunal u/s 64 of the Estate Duty Act, 1953 :

"1. Whether, in view of the facts and circumstances of the case, the Tribunal was right in upholding the valuation of the open plot at Rs. 1,87,700, as adopted by the First Assistant Controller of Estate Duty, without reducing the value on account of prohibition in the Gujarat Vacant Land in Urban Area (Prohibition of Alienation) Act, 1972, as part of the condition existing in the open market ?

Whether, in view of the facts and circumstances of the case, the Tribunal was right in upholding the aggregation of properties u/s 34(1)(c) of the Estate Duty Act ?

Whether, in view of the facts and circumstances of the case, the Tribunal was right in inferring that there was goodwill of the business of the two firms in which the deceased was a partner ?

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the estate duty payable by the accountable person is not deductible in computing the net principal value of the estate of the deceased ?"

Briefly stated, the facts are that Natverlal D. Mehta died on April 24, 1973. In his individual capacity, he was assessed to income tax. He was also a member of a Hindu undivided family and that Hindu undivided family was also assessed to Income Tax. He was a partner in Piyushkumar Natverlal and Co. in his individual capacity. He was also a partner in Messrs Kantilal Natverlal & Co. in his capacity as karta. On his death, the accountable person delivered to the Controller an account in the prescribed form. As the Assistant Controller was not satisfied with the correctness of the account delivered to him, he issued a notice u/s 58 of the Estate Duty Act, 1953 to the person accountable. Before the Assistant Controller, a contention was raised that the lineal descendant''s share cannot be included in the dutiable estate for rate purposes. It was also contended that, in view of the Gujarat Vacant Land in Urban Areas (Prohibition of Alienation) Act, 1972, the value of sub-plot No. 8 of final plot No. 31 of T. P. Scheme No. 3 which belonged to the deceased should be taken at 50 per cent of the value determined by a qualified valuer. The third contention which was raised before the Assistant Controller was that the firms in which the deceased was a partner, either in his individual capacity or as a member of the Hindu undivided family, had no goodwill since the said firms were not having any quota rights, trade marks, etc., and the agency could have been terminated at any time by giving a notice.

All these contentions were not accepted by the Assistant Controller. The accountable person, therefore, preferred an appeal before the Appellate Assistant Controller of Estate Duty. The same three contentions were raised before the Appellate Controller also.

In addition, one more contention was raised and that was whether the estate duty payable was deductible while determining the net principal value of the estate. The Appellate Controller dismissed the appeal and, therefore, the assessee preferred Estate Duty Appeal No. 62/Ahd./1975-76 before the Income tax Appellate tribunal. All the four contentions which were raised before the Appellate Controller were raised before the Tribunal. As regards the valuation of the plot, the Tribunal held that, u/s 36 of the Estate Duty Act, the value of the property has to be taken to be the value it would fetch if sold in the open market. Thus, the value was required to be determined on the basis of a hypothetical sale and the restrictions put upon the right of the deceased by the Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972, were irrelevant. As regard the Application of section 34(1)(c) of the Act, the Tribunal held that the value of the share of the lineal descendants of the deceased could be included in the dutiable estate for rate purposes. As regards the value of the share of goodwill of the two firms, the Tribunal held that both the firms were entitled to carry on business other than the business of sole selling agency and that the firm were not constituted as sole selling agencies of Sarangpur Cotton Manufacturing Co. Ltd. and M/s. Ajit Mills Ltd. It further held that, considering their standing in the business, location, etc., both the firms had acquired goodwill. It may be stated that the only contention before the authorities was that the firm could not have acquired any goodwill and that there was no dispute regarding the valuation of the share of the deceased in the goodwill if it was found that the said firms had acquired goodwill. Regarding the claim for deduction of estate duty, the Tribunal held that the point was covered by their own decision in the case of Bhagwandas Krishnaram v. Asst. CED and, therefore, the claim made by the accountable person was rejected. As the assessee was not satisfied with the decision of the tribunal it applied to the Tribunal to refer the above-stated questions to this court.

Though the assessee is served, unfortunately no one has appeared on behalf of the assessee and, therefore, we are required to answer the questions with the help of learned counsel appearing for the respondent. He pointed out that the question of non-aggregability of the interest of the lineal descendants in the joint family property is now covered by the decision of this court in Gunvantlal Keshavlal Vs. Controller of Estate Duty, Gujarat, . In that case, this court has observed that, on a plain reading of section 34(1)(c) of the Estate Duty Act, 1953, it is clear that the interest of all the lineal descendants of the deceased in the joint family property of Hindu undivided family property has to be aggregated so as to form one estate and estate duty has to be levied thereon at the rate or rate applicable in respect of the principal value thereof. Following that decision, we hold that the interest of all the lineal descendants of the deceased in the joint family property or Hindu undivided family property had to be aggregated and the estate duty had to be levied thereon at the rate of rates applicable in respect of the principal value thereof. In view of this decision, question No. 2 will have to be answered in the affirmative.

In Estate Duty Ref. No. 6/79 Minal A. Mehta Vs. Controller of Estate Duty, , we have held, following the judgment of this court in the case of Gunvantlal Keshavlal Vs. Controller of Estate Duty, Gujarat, , that estate duty payable on the estate passing on death is not deductible from the value of the estate. In P. Leelavathamma (Smt) Vs. Controller of Estate Duty, Andhra Pradesh, Hyderabad, , the Supreme Court has also held that estate duty falling upon property passing on the death of the deceased is not deductible in computing the net principal value of the estate for the Estate Duty Act. Therefore, question No. 4 will have to be answered in the affirmative, in view of the settled legal position.

With respect to the question of valuation of the plot, it was submitted by learned counsel for the respondent that the point raised on behalf of the assessee is more or less covered by the decision of this court in Sumatilal Chimanlal Shah Vs. Controller of Estate Duty, Gujarat, . In that case, this court, after referring to the principles digested from different cases under the title "if sold" in section 36 of the Estate Duty Act, observed that the principal value does not postulate that there should be an actual sale in the open market. What is envisaged under the said section 36 is that there is an open market and the property could be sold in such market. This principle has been enunciated by a majority of the House of Lords in Crossman''s case [1937] AC 26 : 2 EDC 537 and confirmed unanimously in Duke of Buccleuch v. IRC [1967] 1 AC 506 (HL) and Lynall''s case [1972]. While confirming the above principle, it has been held that in fact it is irrelevant in arriving at the valuation to consider what would have been the circumstances attending an actual sale. It is not necessary to assume an actual sale; a hypothetical market must be assumed for all the items of property at the date of death. The impossibility of putting the property on the market at the time of death or of actually realising the open market price is irrelevant.

In Dymond''s Death Duties, 15th Edition, 1973, at page 717, the following principles have been digested from different cases under the title "if sold" :

"It makes no difference that an actual sale may be necessary because a compulsory sale is prescribed by the articles of association of the company in which the deceased held shares. Nor does it matter that an actual sale would fetch a much lower price or a much higher price, where the executors had confidential in information." After referring to the decision in In re Aschrott : Clifton v. Strauss [1927] 1 Ch 313 : 2 EDC 336 (Ch D), this court observed that it shows that restriction on free sale, even though imposed by statute, may have to be ignored.

Though the decision of this court in Sumatilal Chimanlal Shah Vs. Controller of Estate Duty, Gujarat, is not on all fours, the correct position of law pointed out therein goes to show that, even if there is a restriction or a prohibition imposed by a statute, the property of the deceased has to be valued as if it is sold in the open market. Learned counsel also drew our attention to the decision of the Supreme Court in Purshottam N. Amarsay and Another Vs. The Commissioner of Wealth Tax, Bombay, . This decision, to some extent, supports the contention raised by him. In that view of the matter, question No. 1 will have to be answered in the affirmative.

Question No. 3 which is referred to us is really a question of fact, but it appears that the Tribunal has refused the same to this court possibly thinking that it has become a mixed question of law and fact as the law laid down by the Supreme Court in Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 has been applied for the purpose of holding that the two firms had acquired goodwill even though they were carrying on agency business only. As pointed out by the Tribunal, the two firms were not constituted for doing that business only. Moreover, business was carried on by those two firms since a long time and both had made profits. Even though the agency agreements provided that the agencies could be terminated at any time, the very fact that it was not disputed that if the share of the sharers in the goodwill had to be evaluated, then the value of the share in the goodwill was Rs. 28,000 and Rs. 10,000, respectively, clearly implied that both those firms had in fact acquired goodwill. The Tribunal was, therefore, right in inferring that the two firms in which the deceased was a partner had acquired goodwill. Therefore, the answer to question No. 3 also will have to be in the affirmative.

In the result, all the four questions are answered in the affirmative, i.e., against the assessee and in favour of the Revenue. No order as to costs.