of Estate Duty, Kerala Vs. Nalini V. Saraf  INSC 1759 (25 November 2009)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.8247 OF
2004 Controller of Estate Duty, Kerala ...Appellant(s) Versus Nalini V. Saraf
...Respondent(s) With Civil Appeal No.1700 of 2006, Civil Appeal No.5812 of
2005, S.L.P. (C) No.16981/2006, S.L.P. (C) No.16985/2006 and S.L.P. (C) No.9233
Appeal No.8247 of 2004:
learned counsel on both sides.
civil appeal is filed by the Controller of Estate Duty, Kerala, against the
decision dated 18th July, 2003, delivered by the Kerala High Court in Tax
Reference No.62 of 1998.
Saraf passed away on 18th October, 1984.
He was a
partner in M/s. Saraf Trading Corporation, a partnership Firm carrying on
business as commission agents and as exporters of Tea. The Firm was constituted
under Deed of Partnership dated 27th November, 1963. The Firm had three
partners. The deceased had fifty per cent shares in profit and loss. On 16th
September, 1981, the ...2/- - 2 - Firm was re-constituted with the admission of
one more partner and a minor. The Assistant Controller of Estate Duty, inter
alia, held that, for determining the value of goodwill, there were two methods
of valuation, namely, super-profit method and total capitalization method. The
Assistant Controller preferred the super-profit method.
It may be
noted that, in this case, the method is not in dispute. What is in dispute is
the application of the super-profit method to the facts of the present case.
the super-profit method, the Assistant Controller applied the multiplier of
three years' purchase whereas the assessee-respondent contended that 3X was
Assistant Controller further held that refund of income tax, which became due
after the demise of V.G. Saraf, constituted property of the Deed, which was
also disputed by the legal representatives of the deceased.
concerned, therefore, with the valuation of the goodwill and the refund of
income tax in this appeal.
partnership Firm, as stated above, was engaged in the business of exporting
Tea. It exported Tea to U.S.S.R. On facts, the Income Tax Appellate Tribunal
[for short, "the Tribunal"] found that, at the relevant time, the
market conditions in U.S.S.R. were not congenial; that there was huge
volatility in the Tea export business;
export of Tea had huge volatility even otherwise;
the circumstances, the Tribunal applied the multiplier of one year's purchase
instead of three years' purchase. This finding was rightly upheld by the High
Court. In any event, there is no hard and fast rule regarding multiplier to be
applied for evaluating the ...3/- - 3 - goodwill of the Firm. It all depends on
the nature of the business and the prevailing market conditions. Hence, we are
of the view that this aspect is a pure question of fact and does not call for
interference by this Court. In this connection, one more point needs to be
to determine the super profits, the Assistant Controller and the Appellate
Authority took the average income at Rs.76,79,673/- and deducted there from
Rs.4,61,784/- as Interest on average capital employed fixed at twelve per cent
on the basis of Bank rates as they existed at the relevant time. However, the
Tribunal and the High Court came to the conclusion that the rate of twelve per
cent was on the lower side as there is a difference between rate of Interest
and rate of Return on the capital employed.
question as to whether refunds in question which became payable after the
death, the Tribunal and the High Court concurrently held that refunds had not
become due (crystallized) on 18th October, 1984, when V.G. Saraf passed away.
In fact, on that day, the claim for refund under the Act was pending
adjudication. Such refund stood determined only after the demise of the
deceased. Hence, such refund cannot be considered to be a property available at
the time of the death. [See Estate of Late General Sir Shankar S.S.J.B. Rana
vs. Controller of Estate Duty  (186 I.T.R.578)].
afore-stated reasons, we see no reason to interfere with the impugned order of
the High Court, hence, this appeal filed by the Department stands dismissed
with no order as to costs.
Appeal No.1700 of 2006, Civil Appeal No.5812 of 2005, S.L.P. (C) No.16981/2006,
S.L.P. (C) No.16985/2006 and S.L.P. (C) No.9233 of 2006:
of the order passed in Civil Appeal No.8247 of 2004, these appeals and special
leave petitions are dismissed.
......................J. [S.H. KAPADIA]
......................J. [H.L. DATTU]
November 25, 2009.