Kalloomal Tapeswari Prasad (HUF),
Kanpur Vs. The C. I. T., Kanpur [1982] INSC 1 (12 January 1982)
VENKATARAMIAH, E.S. (J) VENKATARAMIAH, E.S.
(J) PATHAK, R.S.
CITATION: 1982 AIR 760 1982 SCR (3) 9 1982
SCC (1) 447 1982 SCALE (1)11
CITATOR INFO :
R 1983 SC 409 (13,22) R 1991 SC2035 (6,7)
ACT:
Income Tax Act 1961, S. 171-Scope of.
Hindu Undivided Family-Oral partition in
respect of immovable properties-Properties incapable of physical division in
equal shares-Capable of division by apportionment and equalisation by payment
of money-Mere severance of status-Not sufficient to record finding of
partition-Whether entitles the inclusion of income from an asset which has
ceased to belong to the joint family in the assessment of joint Hindu family.
Hindu Law-Partition-What is-How brought
about-Partition may be total or partial.
HEADNOTE:
The assessee, a Hindu Undivided Family was
deriving income from various sources such as income from property, income from
money-lending business, income from speculation business and cloth business
etc. There was a partial partition in the family in the year 1951, which was
accepted and acted upon by the Income tax department, whereafter the cloth
business was treated as the business of a firm consisting of most of the coparceners
as partners. On December 1, 1963 which fell within the assessment year 1964- 65
there was another partial partition orally, as a result of which eighteen
immovable properties were divided amongst the ten members of the family, who
held those properties as tenants-in-common from that date. These eighteen
immovable properties were situated in different places and their valuation was
about Rs. 7 lacs.
In the course of assessment proceedings; the
assessee claimed that the members of the family had commenced to maintain
separate accounts with regard to the income from the eighteen immovable
properties and to divide the net profits amongst themselves according to their
respective shares at the end of the year. When required by the Income- tax
Officer to explain as to why the properties were not divided in definite
portions as required by section 171 of the Income Tax Act 1961, the assessee
stated that physical partition of the properties amongst the ten members was
impossible and the only way to partition those properties was to define the
respective shares and to enjoy the income from them separately. In support of
his contention that the properties did not admit of physical division the
assessee relied on an arbitration award. The Income-tax Officer did not agree
with the assessee's contention that it was not possible to divide the
properties in definite portions. He rejected the claim of partial partition in
respect of the eighteen immovable properties and proceeded to assess the income
derived therefrom in the hands of the assessee.
10 The assessee filed an appeal before the
Appellate Assistant Commissioner. During the pendency of the appeal the
assessee appointed another arbitrator to examine the possibility of physical
division of each of the eighteen properties into ten portions. The arbitrator
by his award stated that the properties were not capable of physical division
into ten shares by metes and bounds and that any practical division was that of
allocation of proportionate shares in all the eighteen properties. The
Appellate Assistant Commissioner held that the case of the assessee that it was
not possible to divide the properties physically as untenable and dismissed the
appeal.
In further appeal to the Tribunal, the
Tribunal held that the contention of the assessee that if the properties had
been divided into ten shares they would have been either destroyed or would
have lost their values was not correct, and that the claim of the assessee
under section 171 of the Act that there was a partial partition was to be
rejected.
On an application by the assessee under
section 256 (1) of the Act, the Tribunal referred two questions to the High
Court : (1) Whether the Tribunal was right in holding that the properties in
dispute were capable of division in definite portions amongst the ten
coparceners as contemplated in Explanation (a) (i) to section 171 of the Act,
and (2) whether the Tribunal was justified in holding that the income from the
properties in dispute which were accepted to have been partitioned under the
Hindu Law but with regard to which an order accepting the claim of partial
partition was not made was liable to be included in the computation of the
assessee's income ? The High Court held : (1) that even though the eighteen
properties could not individually be divided into ten shares without destroying
their utility but after assessing the value of the properties they could be
apportioned between the ten members and the difference in the allocations could
be equalised by payment of cash amounts by one to the other and in view of
clause (a) (i) of the Explanation to section 171, mere severance of status was
not sufficient for recording a finding of partition; and (2) that the income
accruing from the eighteen immovable properties after December 11, 1963 was not
liable to be included in the computation of the joint Hindu Family's income.
Dismissing the Assessee's appeal and allowing
the Department's appeal :
HELD : 1. (i) The law relating to assessment
of Hindu undivided family underwent a change when the 1961 Act came into force.
Section 171 of the Act provided for the assessment after partition of a Hindu
undivided family. [24- D] (ii) A finding to the effect that partition has taken
place has to be recorded under section 171 by the Income-tax Officer. He can
record such a finding only if the partition in question satisfies the
definition of the expression 'partition' found in Explanation to section 171. A
transaction can be recognised as a partition under section 171 only if, where
the property admits of a physical division a physical division of the property
has taken place. In such a case mere physical 11 division of the income without
a physical division of the property producing income cannot be treated as a
partition.
Even where the property does not admit of a
physical division then such division as the property admits of should take
place to satisfy the test of a partition under section 171. Mere proof of
severance of status under Hindu Law is not sufficient to treat such a
transaction as a partition.
If a transaction does not satisfy the above
additional conditions it cannot be treated as a partition under the Act, even
though under Hindu Law there has been a partition- total or partial. The
consequence will be that the undivided family will be continued to be assessed
as such by reason of sub-section (1) of section 171. [30-A-D] (iii) It is
common knowledge that in every partition under Hindu Law unless the parties
agree to enjoy the properties as tenants-in-common, the need for division of
the family properties by metes and bounds arises and in that process physical
division of several items of property which admit of such physical division
does take place. It is not necessary to divide each item into the number of
shares to be allocated at a partition. If a large number of items of property
are there, they are usually apportioned on an equitable basis and if necessary
by asking the parties to make payments of money to equalise the shares. Such a
partition is also a kind of physical division of the properties and is
contemplated in the Explanation to section 171. [34-C-E] In the instant case no
attempt to divide the properties was made. The case clearly falls under
sub-clause (i) of clause (a) of the Explanation to section 171 of the Act but
does not satisfy the requirement of that sub-clause as no physical division of
the properties was made even though they could be conveniently so divided.
Sub-clause (ii) therefore does not apply to this case. [35-B]
2. (i) The High Court having held that the
assessee was not entitled to claim that a partial partition had taken place
under section 171, fell into an error in holding that the income of the
properties which were the subject-matter of partial partition could not be
included in the total income of the assessee by relying upon the decisions
which had been rendered on the basis of section 25A of the 1922 Act which had
been construed as not being applicable to partial partition. [35-D] (ii) The
true effect of section 171 (1) is that property, which is the subject-matter of
partial partition would continue to be treated as belonging to the family and
its income would continue to be included in its total income until such a
finding is recorded. [35-G] (iii) Sub-section (1) of section 171 contains a
'deeming' provision. It says that a Hindu family hitherto assessed as undivided
shall be deemed for the purpose of the Act to continue to be a Hindu undivided
family except where and in so far as a finding of partition has been recorded
in respect of it under section 171. The partition referred to in the section
can include a partial partition also either as regards the persons constituting
the undivided family or the properties belonging to it or both, in view of the
provisions contained in the other subsections and the Explanation to the
section. [29-F-G] 12 (iv) Where there is no claim that a partition-total or
partial-had taken place made or where it is made and disallowed a Hindu
undivided family which is hitherto being assessed as such will have to be
assessed as such notwithstanding the fact a partition had in fact taken place
as per Hindu law. A finding to the effect that partition had taken place has to
be recorded under section 171 by the Income-tax Officer. He can record such a
finding only if the partition in question satisfies the definition of the
expression 'partition' found in Explanation to section 171.
The transaction can be recognised as a
partition under section 171 only if where the properties admit of a physical
division, a physical division of the property has taken place. In such a case
mere physical division of the income without a physical division of the
property producing income cannot be treated as a partition. Even where the
property does not, admit of a physical division then such a division as the
property admits of should take place to satisfy the test of a partition under
section 171. Mere proof of severance of status under Hindu Law is not
sufficient to treat such a transaction as a partition. If a transaction does
not satisfy the additional condition it cannot be treated as a partition under
the Act even though under Hindu Law there has been a partition total or
partial. The consequence will be that the undivided family will be continued to
be assessed as such by reason of sub-section (1) of section 171. [29 G-H,30
A-D] Govinddas & Ors. v. Income-tax Officer & Anr., [1976] 193 I.T.R.
123; Charandas Haridas & Anr. v. Commissioner of Income-tax, Bombay North,
Kutch & Saurashtra, Ahmedabad & Anr., [1960] 39 I.T.R. 203; A. Kannan Chetty
v. Commissioner of Income-tax, Madras, [1963] 50 I.T.R. 601; referred to.
(v) As long as a finding is not recorded
under section 171 that a partial partition had taken place the Hindu undivided
family should be deemed for the purposes of the Act to be the owner of the
property which is the subject matter of the partition and also the recipient of
the income from such property. The assessment should be made as such and the
tax assessed can be recovered as provided in the Act. [36 F-G]
3. Under section 25A of the 1922 Act, a Hindu
undivided family which had been assessed to tax could be treated as undivided
and subjected to tax under the Act in that status unless and until an order was
made under section 25A (1) and if in the course of the assessment proceedings
it is claimed by any of the members of the Hindu undivided family that there
has been total partition of the family property resulting in physical division
thereof as it was capable of, the assessing authority should hold an enquiry
and decide whether there has been such a partition or not. If he held that such
a partition had taken place, he should proceed to make an assessment of the
total income of the family as if no partition had taken place and then proceed
to apportion the liability as stated in section 25A amongst the individual
members of the family. If no claim was made or if the claim where it was made
was disallowed after the enquiry, the Hindu undivided family would continue to
be liable to be assessed as such.
[23 G-H, 24 A-C]
4. When Parliament enacted section 171 it
took note of the decisions which had taken the view that a partial partition
did not fall within the scope of section 25A. It expressly stated in section
171 of the Act that the said provision 13 was applicable to both kinds of
partitions-total or partial.
It has also defined partial partition as one
which is partial as regards persons constituting the undivided family or as
regards the properties belonging to the undivided family or both. It deals with
all kinds of partitions, the nature of which sometimes may be difficult to
predicate correctly. [31 D-E] Sir Sunder Singh Majithia v. The Commissioner of
Income-tax. C.P. & U.P., [1942] 10 I.T.R. 457, Gordhandas T. Mangaldas v.
Commissioner of Income-tax Bombay, [1943] 11 I.T.R. 183, Waman Satwappa
Kalghatgi v. Commissioner of Income-tax [1946] 14 I.T.R. 116, M.S.M.S. Meyyappa
Chettiar v. Commissioner of Income-tax, Madras, [1950] 18 I.T.R. 586,
Lakhmtchand Baijnath v. Commissioner of Income-tax West Bengal, [1959] 35 I.T.R.
416, Kalwa Devadatta and Ors. v. Vnion of India and Ors., [1963] 49 I.T.R.
[S.C.] 165, Additional Income-tax Officer, Cuddapah v. A. Thimmayya and Anr.,
[1965] 55 I.T.R. 666, Joint Family of Vdayan Chinubhai etc. v. Commissioner of
Income-tax, Gujarat, [1967] 63 I.T.R. 416, referred to.
5. Partition may be several kinds. It may be
a total partition or a partial partition. A partition can be called partial
both as regards persons and as regards properties.
The next kind of partition may be one where
all the members divide amongst themselves only some of the family properties
and continue as members of an undivided family owing the remaining family
properties. This is called a partial partition as regards property. Even here
the division of the property which is subject matter of partial partition may
be groupwise also. In the case of a partial partition as regards property, one
thing noticeable is that after such partition, the property which is
subject-matter of partition is held by the members of the family as
tenants-in-common and the rest of the family properties continue to be held by
them as members of the undivided family.
[31 F-H, 32 A-E]
6. After a partial partition as regards
property, the property divided is held by the members of the undivided family
as divided members with all the incidents flowing therefrom and the property
not so divided as members of an undivided family. Section 171 (1) of the Act
can, therefore operate in such a case also because the family which has become
divided as regards the property which is the subject matter of partial
partition is deemed to continue as the owner of that property and the recipient
of the income derived from it except where and in so far as a finding of
partition has been given under section 171. [32 F-G]
7. Partition can be brought about, (1) by a
father during his life time between himself and his sons by dividing properties
equally amongst them, (2) by agreement, or (3) by a suit or arbitration. A
declaration of intention of a coparcener to become divided brings about
severance of status. [27 E 8. A physical division of the property which is the
subject matter of partition is not necessary to complete the process of
partition in so far as the item of property is concerned under Hindu Law. The
parties to the partition may enjoy the property in question as
tenants-in-common. [27 G Appovier v. Rama Subba Aiyan [1866] 11 M.I.A, 75,
referred to.
9. Hindu Law does not require that the
property must in every case be partitioned by metes and bounds or physically
into different portions to complete a partition. Disruption of status can be
brought about and it is open to the parties to enjoy their shares of property
as tenants-in-common in any manner known to law according to their
desire.[28-C]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 1370/74 and 1768 of 1975.
From the judgment and order dated the 29th
September, 1972 of the Allahabad High Court in Income-Tax Reference No. 47 of
1971.
S.T. Desai J.B. Dadachanji and K.J. John for
the Appellant in C.A. 1370/74 and for Respondent in C.A. 1768/75.
V.S. Desai, Miss A. Subhashini, K.C. Dua and
S.P. Nayar for the Respondent in CA. 1370/74 and for the Appellant in CA.
1768/75.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. These two appeals by certificate-one by the assessee and the
other by the Commissioner of Income- tax, Kanpur are filed against the judgment
and order dated September 29, 1972 of the High Court of Judicature at Allahabad
in Income-tax Reference No. 47 of 1971 under section 256(1) of the Income-tax
Act, 1961 (hereinafter referred to as 'the Act') made by the Income tax
Appellate Tribunal. Allahabad Bench, Allahabad (for short 'the Tribunal'). The
two questions which were referred by the Tribunal for the opinion of the High
Court were:
"(1) Whether on the facts and in the
circumstances of the case the Tribunal was right in holding that the properties
in dispute were capable of division in definite portions amongst the 10
coparceners as contemplated in Explanation (a) (i) to section 171 of the Income
tax Act, 1961 and that even otherwise the mere severance of status was not
sufficient to entitle the assessee to succeed in its claim for partial
partition ? (2) Whether on the facts and in the circumstances of the case the
Tribunal was justified in holding that the 15 income from the properties in
dispute which were accepted to have been partitioned under the Hindu law but
with regard to which an order accepting the claim of partial partition was not
made was liable to be included in the computation of the assessee's income
?" The assessee is a Hindu undivided family known as M/s.
Kalloomal Tapeshwari Prasad and the year of
assessment is 1964.65. The assessee is governed by the Mitakshara school of
law. The following genealogical tree represents the relationship amongst the
members of the family:
Phakki Lal
________________________________________________ | | | | | | Chandoolal
Bishambhar Nath Sitaram (His Wife Rampiari (dies issueless (wife-kripa died on
17.9.63) on 1940-wife Devi) | | | | | | | ______________ | | | | | | | Gopalji
Ramji ___________________________________________ | | | | | Jagat Roop Swarup
Shyam Bimal Narian Narain Narain Narian Narian During the relevant previous
year, the family consisted of Chandoolal, Sitaram and his wife Kripa Devi,
Jagat Narain, Roop Narain, Swarup Narain, Shyam Narain and Bimal Narain who
were the five sons of Chandoolal and Gopalji and Ramji, the two Sons of
Sitaram. The assessee (Hindu undivided family) was deriving income from various
sources such as income from property, income from money lending business,
income from speculation business and cloth business etc. There was a partial
partition in the family in the year 1951 when a sum of Rs. 5,00,000 out of its
total capital of Rs. 12,85,423 was divided amongst the coparceners at the rate
of Rs. 41,666110/8 amongst members of Chandoolal's branch and at the rate of
Rs. 83,333/5/4 amongst the members of Sitaram's branch. Kripa Devi did not
receive any share at that partition. The said partial partition was accepted
and acted upon by 16 the Income-tax Department where after the cloth business
was treated as the business of a firm consisting of most of the coparceners as
partners. Again on December 11, 1963 which fell within the previous year
relevant for the assessment year in question i.e. 1964-65, according to the
assessee, there was another partial partition orally as a result of which its
eighteen immovable properties were divided amongst the ten members of the
family and that they held those properties as tenants-in-common from that date.
It was claimed by the assessee in the course of the assessment proceedings that
the members of the family had commenced to maintain separate accounts with
regard to the income from the said eighteen properties and to divide the net
profits amongst themselves according to their respective shares at the end of
each year. The eighteen immovable properties were situated in different places
and their valuation was as follows:
S. No. Municipal number of Value the property
1. 75/2 1,78,875/-
2. 76/162 27,000/-
3. 76/169 45,000/-
4. 47/110 13,500/-
5. 47/26 20,700/-
6. 48/203 16,200/-
7. 55/124 90,000/-
8. 55/36}
9. 55/37} 41,400/-
10. 70/87 1,57,500/-
11. 71/150 8,100/-
12. 71/89 3,600/-
13. 71/112 19,800/-
14. 63/61 7,425/-
15. 51/68 17,100/-
16. s 51/73 14,400/-
17. 86/37 20,520/-
18. 1/301A 45,000/- ---------- 7,26,120/-
---------- 17 When required by the Income-tax Officer to explain as to why the
properties were not divided in definite portions as required by section 171 of
the Act, the assessee stated that physical division of the properties in
question amongst the ten members was impossible and the only possible way to
partition those properties was to define their respective shares and to enjoy
the income from them separately. In support of the above claim the assessee
relied upon a copy of an award dated April 15, 1964 made by one S.B. Tandon
which was made into a decree in Suit No. 60 of 1964 on the file of the Court of
the First Civil Judge, Kanpur dated September 21, 1964. In that award the
arbitrator had stated that the properties did not admit of physical division.
The Income-tax Officer did not agree with the assessee's contention that it was
not possible to divide the properties in question in definite portions.
Accordingly he rejected the claim of partial partition in respect of the
eighteen immovable properties and proceeded to assess the income derived
therefrom in the hands of the assessee. Against the order of the Income-tax
Officer, the assessee filed an appeal before the Appellate Assistant
Commissioner of Income-tax. During the pendency of that appeal the assessee
appointed another arbitrator by the name Lakhsman Swaroop, a retired Chief
Engineer to examine the possibility of a physical division of each of the
eighteen properties into ten portions and if that was not possible to suggest
any other mode or modes to divide them into ten parts in accordance with the
share allotted to each of the parties to the partition. By his award dated
February 3, 1965, Lakshman Swaroop stated that the aforesaid properties were
"not capable of physical division into ten shares by metes and bounds and
that any practical division is that of allocation of proportionate shares in
all the 18 properties in question." It may be mentioned here that out of
the ten shares, six shares were 1/12th each and four shares were 1/8th each.
Chandoomal and his five sons had been allotted 1/12th each and Sitaram his wife
and his two sons had been allotted 1/4th each. Lakshman Swaroop was also
examined as a witness before the Appellate Assistant Commissioner by the
assessee and cross-examined by the Income tax Officer. The Appellate Assistant
Commissioner on a consideration of the material before him including the decree
of the court referred to above and the evidence of Lakshman Swaroop held that
the case of the assessee that it was not possible to divide the properties
physically into ten shares referred to above was not tenable and dismissed the
appeal. The assessee, thereafter took up the matter before the Tribunal in
appeal. The Tribunal also was of the view that the contention of the assessee
that if the properties had 18 been divided into ten shares, they would have
either been destroyed or would have lost in value was not correct.
Accordingly the claim of the assessee under
section 171 of the Act that there was a partial partition was rejected.
Thereupon on an application of the assessee
made under section 256(1) of the Act, the two questions set out above were
referred by the Tribunal to the High Court for its opinion.
After hearing the parties, the High Court
recorded its answer to the first question in the affirmative and in favour of
the Department and in reaching that conclusion, it observed thus:
"We have seen the evidence of the
arbitrator as well as the Chief Engineer, and it is apparent there from that
even though the 18 properties could not individually be divided into 10 shares
without destroying their utility but after assessing the value of the
properties, they could be apportioned between the ten members and the
difference in the allocations could be equalised by payment of cash amounts by
one to the other. In our opinion, it cannot, in such a situation, be said that
these 18 properties were incapable of physical division in 10 shares, and so,
in view of clause (a) (i) of the Explanation, mere severance of status was not
sufficient for recording a finding of partition." The High Court answered
the second question in favour of the assessee holding that the income accruing
from the eighteen immovable properties after December 11, 1963 was however not
liable to be included in the computation of the joint Hindu family's income. In
recording this answer, the High Court observed thus:
"Sec. 171 of the 1961 Act in essence, is
a reactment of Sec. 25A with the difference that it applies not only to cases
of total partition but also to cases of partial partition. There are some
incidental changes as well, e.g. sec. 171 applies also for purposes of levying
and collecting penalty, fine or interest and in addition requires the
Income-tax Officer to record a finding as to the date on which total or partial
partition took place. The fact that sec. 171 applies to a partial partition
(meaning a partition which is partial as 19 regards the persons or as regards
the properties of the family or both) as well shows that a finding of partial
partition can be recorded and on such a finding being recorded under
sub-section (4) the total income of the joint family in respect of the period up
to the date of partition is to be assessed as if no partition had taken place
and each member of the family was to be liable, notwithstanding anything
contained in clause (2) of sec. 10, jointly and severally for the tax on the
income so assessed. Thus sec. 171, like sec. 25A, seeks to nullify the effect
of sec.
10 (2) under which a member was not liable to
be taxed on the income received as a member of Hindu undivided family. The
section does not entitle the inclusion of income from an asset which has ceased
to belong to the joint family, in the assessment of the joint Hindu family.
In the present case, on the findings, the
position is that the joint Hindu family stood disrupted in relation to the 18
immovable properties as a result of the oral partition dated 11th December,
1963. Thereafter the income of these properties belonged to the individual
members and not to the joint family. It could not be included in the assessment
of the family." Aggrieved by the answer to the first question, the
assessee has filed Civil Appeal No. 1370 of 1974 and aggrieved by the answer to
the second question, the Revenue has filed Civil Appeal No. 1768 of 197.
It is necessary to refer to the history of
the relevant provisions in order to decide the questions raised before us.
Under the Indian Income-tax Act, 1922 (for short 'the 1922 Act') a Hindu
undivided family could be assessed on its income. Section 3 of the 1922 Act
laid down that where any Central Act enacted that income-tax should be charged
for any year at any rate or rates, tax at that rate or those rates should be
charged for that year in accordance with and subject to the provisions of that
Act in respect of total income of the previous year of every individual, Hindu
undivided family etc. But section 14 (1) of the 1922 Act provided that no tax
was payable by an individual assessee in respect of any sum which he received
as a member of a Hindu undivided family where such sum had been paid out of the
income of the family. Section 25-A was 20 inserted in the 1922 Act in the year
1928 providing for the machinery for assessment after partition of a Hindu
undivided family. That section immediately before the repeal of the 1922 Act
read as follows:
"25A. Assessment after partition of a
Hindu undivided family-(1) Where, at the time of making an assessment under
section 23, it is claimed by or on behalf of any member of a Hindu family
hitherto assessed as undivided that a partition has taken place among the
members of such family, the Income-tax Officer shall make such inquiry
there-into as he may think fit, and, if he is satisfied that the joint family
property has been partitioned among the various members or groups of members in
definite portions he shall record an order to that effect:
Provided that no such order shall be recorded
until notices of the inquiry have been served on all the members of the family.
(2) Where such an order has been passed, or
where any person has succeeded to a business, profession or vocation formerly
carried on by a Hindu undivided family whose joint family property has been
partitioned on or after the last day on which it carried on such business,
profession or vacation, the Income-tax Officer shall make an assessment of the
total income received by or on behalf of the joint family as such, as if no
partition had taken place, and each member or group of members shall, in
addition to any income- tax for which he or it may be separately liable and
notwithstanding anything contained in sub- section (1) of section 14, be liable
for a share of the tax on the income so assessed according to the portion of
the joint family property allotted to him or it; and the Income-tax Officer
shall make assessments accordingly on the various members and groups of members
in accordance with the provisions of section 23:
Provided that all the members and groups of
members whose joint family property has been partitioned 21 shall be liable
jointly has severally for the tax assessed on the total income received by or
on behalf of the joint family as such.
(3) Where such an order has not been passed
in respect of Hindu family hitherto assessed as undivided, such family shall be
deemed, for the purposes of this Act, to continue to be a Hindu undivided
family".
Section 25-A of the 1922 Act as it stood then
(subsequent modifications in it being immaterial for the purposes of this case)
came up for consideration by the Judicial Committee of the Privy Council in Sir
Sunder Singh Majithia v. The Commissioner of Income-tax, C.P. and U.P..
The Privy Council held that section 25-A of
the 1922 Act provided that if it be found that the family property had been
partitioned in definite portions, assessment might be made, notwithstanding
section 14(1) on each individual or group in respect of his or its share of the
profits made by the undivided family, while holding all the members jointly and
severally liable for the tax. It was further held that if, however, though the
joint Hindu family had come to an end, it be found that its property had not
been partitioned in definite portions then the family was to be deemed to
continue-that is, to be an existent Hindu family upon which assessment could be
made on its gains of the previous year.
But it was of the view that section 25-A had
nothing to say about any Hindu undivided family which continued in existence
never having been disrupted. Such a case was held to fall outside sub-section
(3) of section 25-A and in effect, it held that the said section did not apply
to cases of partial partition.
In Gordhandas T. Mangaldas v. Commissioner of
Income- tax, Bombay, Kania, J. (as he then was) who agreed with Beaument, C.J.
explained the scheme of section 25-A of the 1922 Act (as it stood then) in his
concurring judgment thus:
"It is material to bear in mind the
scheme of the Income-tax Act, in the first instance. Under sections 2 and 3 the
different units stated therein are liable to be taxed as such. One of them is a
joint Hindu family. In order to avoid double taxation, Section 14 lays down 22
that when the individual member is being assessed, his income as member of a
joint family should not be assessed again. Then comes the stage, what happens
when a family, which has once been so assessed, comes to a partition. To meet
that contingency, Section 25-A has been enacted. In the section, as it existed
before the amendment of 1939, in terms the Income-tax Officer required proof,
(i) that a separation of the members of the joint family had taken place and
(ii) that the joint family property had been partitioned amongst the various
members or groups of members in definite portions. On being satisfied on those
points he had to record an order to that effect.
The effect of such a recording was that the
joint family income would be assessed and recovered in terms of sub-section
(2). In the absence of such order, under sub-section (3) the joint family
continued to be assessed as before." The same view was followed in Waman
Satwappa Kalghatgi v. Commissioner of Income-tax and in M.S.M.S. Meyyappa
Chettiar v. Commissioner of Income-tax, Madras.
This Court had to consider the true meaning
of section 25-A of the 1922 Act in Lakhmichand Baijnath v. Commissioner of
Income-tax, West Bengal. Venkatarama Aiyar, J. speaking for the Court observed
in the above case thus:- "Now, when a claim is made under section 25- A,
the points to be decided by the Income-tax Officer are whether there has been a
partition in the family, and if so, what the definite portions are in which the
division had been made among the members or groups of members. The question as
to what the income of the family assessable to tax under section 23 (3) was
would be foreign to the scope of and enquiry under section 25-A. That section
was, it should be noted, introduced by the Indian Income-tax (Amendment) Act,
1928 (3 of 1928) for removing a defect which the 23 working of the Act as
enacted in 1922 had disclosed. Under the provisions of the Act as they stood
prior to the amendment, when the assessee was an undivided family, no
assessment could be made thereon if at the time of the assessment it had become
divided, because at that point of time, there was no undivided family in
existence which could be taxed, though when the income was received in the year
of account the family was joint. Nor could the individual members of the family
be taxed in respect of such income as the same is exempt from tax under section
14 (1) of the Act. The result of these provisions was that a joint family which
had become divided at the time of assessment escaped tax altogether. To remove
this defect, section 25-A enacted that until an order is made under that
section, the family should be deemed to continue as an undivided family. When
an order is made under that section, the family should be deemed to continue as
an undivided family. When an order is made under that section, its effect is
that while the tax payable on the total income is apportioned among the divided
members or groups, all of them are liable for the tax payable on the total
income of the family. What that tax is would depend on the assessment of income
in proceedings taken under section 23, and an order under section 25-A would
have no effect on that assessment." The above view was reiterated by this
Court in Kalwa Devadattam and Ors. v. Union of India and Ors. in Additional Income-tax
Officer, Cuddapah v. Thimmayya and Anr. and in Joint family of Udayan Chinubhai
etc. v. Commissioner of Income-tax, Gujarat. The substance of all these
decisions was that under section 25-A of the 1922 Act a Hindu undivided family
which had been assessed to tax could be treated as undivided and subjected to
tax under the Act in that status unless and until an order was made under
section 25-A (1) and if in the course of the assessment proceedings it is
claimed by any of the members of the Hindu undivided family that there 24 has
been total partition of the family property resulting in physical division
thereof as it was capable of, the assessing authority should hold an enquiry
and decide whether there had been such a partition or not. If he held that such
a partition had taken place, he should proceed to make an assessment of the
total income of the family as if no partition had taken place and then proceed
to apportion the liability as stated in section 25-A amongst the individual
members of the family. If no claim was made or if the claim where it was made
was disallowed after enquiry, the Hindu undivided family would continue to be
liable to be assessed as such. This was the legal position under the 1922 Act.
The law relating to assessment of Hindu
undivided family, however, underwent a change when the Act came into force.
Section 171 of the Act which corresponds to section 25-A of the 1922 Act reads
thus:
"171.(1) A Hindu family hitherto
assessed as undivided shall be deemed for the purposes of this Act to continue
to be a Hindu undivided family, except where and in so far as a finding of
partition has been given under this section in respect of the Hindu undivided
family.
(2) Where, at the time of making an
assessment under section 143 or section 144, it is claimed by or on behalf of
any member of a Hindu family assessed as undivided that a partition, whether
total or partial, has taken place among the members of such family, the
Income-tax Officer shall make an inquiry there into after giving notice of the
inquiry to all the members of the family.
(3) On the completion of the inquiry, the
Income - tax Officer shall record a finding as to whether there has been a
total or partial partition of the joint family property, and, if there has been
such a partition, the date on which it has taken place.
(4) Where a finding of total or partial
partition has been recorded by the Income-tax Officer under 25 this section,
and the partition took place during the previous year:
(a) the total income of the joint family in
respect of the period up to the date of partition shall be assessed as if no
partition had taken place; and (b) each member or group of members shall, in
addition to any tax for which he or it may be separately liable and
notwithstanding any thing contained in clause (2) of section 10, be jointly and
severally liable for the tax on the income so assessed.
(5) Where a finding of total or partial
partition has been recorded by the Income-tax Officer under this section, and
the partition took place after the expiry of the previous year, the total
income of the previous year of the joint family shall be assessed as if no
partition has taken place, and the provisions of clause (b) of sub-section (4)
shall, so far as may be, apply to the case.
(6) Notwithstanding anything contained in
this section if the Income-tax Officer finds after completion of the assessment
of a Hindu undivided family that the family has already effected a partition,
whether total or partial, the Income-tax Officer shall proceed to recover the
tax from every person who was a member of the family before and partition, and
every such person shall be jointly and severally liable for the tax on the
income so assessed.
(7) For the purposes of this section, the
several liability of any member or group of members there under shall be
computed according to the portion of the joint family property allotted to him
or it at the partition, whether total or partial.
(8) The provisions of this section shall, so
far as may be, apply in relation to the levy and collection of 26 any penalty,
interest, fine or other sum in respect of any period up to the date of the
partition, whether total or partial, of a Hindu undivided family as they apply
in relation to the levy and collection of tax in respect of any such period.
Explanation- In this section- (a) "partition" means- (i) where the
property admit of a physical division, a physical division of the property, but
a physical division of the income without a physical division of the property
producing the income shall not be deemed to be a partition; or (ii) where the
property does not admits of a physical division then such division as the
property admits of, but a mere severance of status shall not be deemed to be a
partition;
(b) "partial partition" means a
partition which is partial as regards the persons constituting the Hindu
undivided family, or the properties belonging to the Hindu undivided family, or
both." Section 4(1) of the Act which levies the charge of income-tax
states that where any Central Act enacts that income-tax shall be charged for
any assessment year at any rate or rates, income-tax at that rate or those
rates shall be charged for that year in accordance with, and subject to the
provisions of, the Act in respect of the total income of the previous year or
previous years, as the case may be, of every person. The expression 'person' is
defined in section 2(31) of the Act as including within its meaning a Hindu
undivided family. In order to avoid double taxation of the same income under
the Act, any sum received by an individual as a member of a Hindu undivided
family where such sum has been paid out of the income of the family is required
by section 10 (2) of the Act not to be included in computing the total income
of a previous year of any person. This requirement, however, is subject to
section 64 (2) of the Act with effect from April 1, 1971. Then follows section
171 of the Act which 27 provides for the assessment after partition of a Hindu
undivided family.
Under Hindu law partition may be either total
or partial. A partial partition may be as regards persons who are members of
the family or as regards properties which belong to it. Where there has been a
partition, it is presumed that it was a total one both as to the parties and
property but when there is a partition between brothers, there is no
presumption that there has been partition between one of them and his
descendants. It is; however, open to a party who alleges that the partition has
been partial either as to persons or as to property to establish it. The
decision on that question depends on proof of what the parties intended whether
they intended the partition to be partial either as to persons or as to
properties or as to both. When there is partial partition as to property, the
family ceases to be undivided so far as properties in respect of which such
partition has taken place but continues to be undivided with regard to the
remaining family property. After such partial partition, the rights of
inheritance and alienation differ accordingly as the property in question
belongs to the members in their divided or undivided capacity. Partition can be
brought about (1) by a father during his lifetime between himself and his sons
by dividing properties equally amongst them, (2) by agreement or (3) by a suit
or arbitration. A declaration of intention of a coparcener to become divided
brings about severance of status. As observed by the Privy Council in Appovier
v. Rama Subba Aivan" when the members of an undivided family agree among
themselves with regard to a particular property, that it shall thenceforth be
the subject of ownership, in certain defined shares, then the character of
undivided property and joint enjoyment is taken away from the subject-matter so
agreed to be dealt with, and in the estate each member thenceforth a definite
and certain share, which he may claim the right to receive and to enjoy in
severalty, although the property itself has not been actually severed and
divided".
A physical division of the property which is
the subject- matter of partition is not necessary to complete the process of
partition in so far as that item of property is concerned under Hindu law. The
parties to the partition may enjoy the property in question as tenants in
common. In Approvier's case (supra) the Privy Council further laid down that
"if there be a conversion of the joint tenancy of an 28 undivided family
into a tenancy in common of the members of that undivided family, the undivided
family becomes a divided family with reference to the property that is the
subject of that agreement, and that is a separation in interest and in right,
although not immediately followed by de facto actual division of the
subject-matter. This may, at any time, be claimed by virtue of the separate
right." It is thus clear that Hindu law does not require that the property
must in every case be partitioned by mates and bounds or physically into
different portions to complete a partition. Disruption of status can be brought
about by any of the modes referred to above and it is open to the parties to
enjoy their share of property as tenants-in-common in any manner known to law
according to their desire. But the income-tax law introduces certain conditions
of its own to give effect to the partition under section 171 of the Act.
Section 171 of the Act applies to a case
where there is a Hindu undivided family which had been assessed as such under
the Act until a claim is made under section 171(2) that there has been a
partition-total or partial in it. The partition contemplated under section 171
of the Act may be either total or partial. Here there is a departure made from
section 25A of the 1922 Act which was concerned with a total partition only. In
sub-sections (2) to (5) and (8) of section 171 of the Act, the word 'partition'
is qualified by words 'total or partial'. The Explanation to section 171 of the
Act to which we shall revert again also defines the expression 'partial
partition' as meaning a partition which is partial as regards the persons constituting
the Hindu undivided family, or the properties belonging to the Hindu undivided
family, or both. Subsection (2) of section 171 provides that where at the time
of making an assessment under section 143 or section 144 of the Act it is
claimed by or on behalf of any member of a Hindu undivided family assessed as
undivided that a partition, whether total or partial, has taken place among the
members of such family, the Income-tax Officer shall make an inquiry into the
said claim after giving notice to all the members of the family.
On the completion of the inquiry, the
Income-tax Officer is required by sub-section (3) of section 171 to record a
finding as to whether the claim of partition, total or partial is true or not
and if there has been such a partition, the date on which it has taken place.
Sub-section (4) of section 171 states that when a finding of total or partial
partition has been 29 recorded by the Income-tax Officer and the partition had
taken place during the previous year the total income of the joint family in
respect of the period upto the date of partition shall be assessed as if no
partition had taken place and each member or group of members shall in addition
to any tax for which he or it may be separately liable and notwithstanding anything
contained in clause (2) of section 10 be jointly and severally liable to the
tax on the income so assessed Where the finding recorded is that the partition
had taken place after the expiry of the previous year then the joint family has
to be assessed under sub-section (5) of section 171 as if no partition had
taken place and the tax shall be recoverable mutatis mutandis as provided in
clause (b) of sub-section (4) thereof. The several liability of a member or a
group of the undivided family has to be determined under sub-section (7) of
section 171 according to the share of family property allotted to him or to the
group, as the case may be. Sub-section (8) of section 171 extends the above
rules of assessment and liability to levy and collection of any penalty,
interest, fine etc. payable by the family upto the date of partition.
Sub-section (6) of section 171 which contains a non obstante clause empowers
the Income-tax Officer to recover the tax due from a family from every member
of the family before the partition even if he finds after the completion of
assessment that the family has undergone a partition already. The true effect
of this provision is discussed in Govinddas & Ors. v. Income-tax Officer
& Anr.
Now we come to sub-section (1) of section 171
of the Act which contains a 'deeming' provision. It says that a Hindu family
hitherto assessed as undivided shall be deemed for the purposes of the Act to
continue to be a Hindu undivided family except where and in so far as a finding
of partition has been recorded in respect of it under section 171. Partition
referred to here can obviously include a partial partition also either as
regards the persons constituting the undivided family or the properties
belonging to it or both, in view of the provisions contained in the other
sub-sections in and the Explanation to section 171. Where there is no claim
that a partition-total or partial had taken place made or where it is made and
disallowed a Hindu undivided family which is hitherto being assessed as such will
have to be assessed as such notwithstanding the fact a partition had in fact
taken place 30 as per Hindu law. A finding to the effect that partition had
taken place has to be recorded under section 171 by the Income-tax Officer. He
can record such a finding only if the partition in question satisfies the
definition of the expression 'partition' found in Explanation to section 171.
A transaction can be recognised as a
partition under section 171 only if, where the property admits of a physical
division, a physical division of the property has taken place. In such a case
mere physical division of the income without a physical division of the
property producing income cannot be treated as a partition. Even where the
property does not admit of a physical division then such division as the
property admits of should take place to satisfy the test of a partition under
section 171. Mere proof of severance of status under Hindu law is not
sufficient to treat such a transaction as a partition. If a transaction does
not satisfy the above additional conditions it cannot be treated as a partition
under the Act even though under Hindu law there has been a partition total or
partial. The consequence will be that the undivided family will be continued to
be assessed as such by reason of sub-section (1) of section 171.
At this stage one contention urged on behalf
of the assessee needs to be considered. It is asserted on behalf of the
assessee that the fiction contained in section 171(1) of the Act does not at
all apply to an undivided family which continues to be in fact an undivided
family even after a partial partition as regards some of its properties had
taken place. The argument is that a 'deeming' provision can operate only where
the real state of affairs is different from what the law deems as existing and
it cannot where the real state of affairs is the same as the one which law by a
fiction treats as existing. It is urged that since the undivided family in fact
continues even after a partial partition as regards property, there is no need
to enact a rule declaring that it shall be deemed to continue as an undivided
family. Hence section 171(1) of the Act cannot be construed as being applicable
to such a case. In other words, it is urged that where all the members of an
undivided family continue to be members of such family owning the remaining
properties which are yielding income after a partial partition as regards some
properties has taken place, the undivided family is liable to be assessed as
such only in respect of the income derived by it from the remaining items of
property owned by it and the income derived properties which have gone out of
the ownership of the family by reason of the partial partition should be
excluded from the total income of the family. Reliance is placed on the
following obser- 31 vations of the Privy Council in the case of Sir Sunder
Singh Majithia (supra) where sub-section (3) of section 25-A of the 1922 Act
arose for consideration:
"The section has nothing to say about
the Hindu undivided family which continues in existence never having been
disrupted. Such a case is outside sub- section (3) because it is not within the
section at all. No sub-section is required to enable an undivided family which
has never been broken up to be deemed to continue. But it need not have the
same assets or the same income in each year and it can part with an item of its
property to its individual members if it takes the proper steps." It is
not necessary to make any comment on these observations as they had held the
field until the Act came into force with section 171 inserted in it. The
Parliament enacted section 171 after taking note of the above decision and
several other decisions following it which had taken the view that a partial
partition did not fall within the scope of section 25-A. It expressly stated in
section 171 of the Act that the said provision was applicable to both kinds of
partitions-total or partial, It has also defined partial partition as one which
is partial as regards persons constituting the undivided family or as regards
the properties belonging to the undivided family or both.
Virtually the present provision deals with
all kinds of partitions the nature of which sometimes may be difficult to
predicate correctly. Take a joint family consisting of a father, his sons and
grandsons as shown in the following genealogical tree:
A | | |
______________________________________________ | | | | | | B C D | | | | | |
______________ ___________ ___________ | | | | | | | | | | | | E F G H I J When
a partition takes place in the above family there may be a partition when all
of them-A, B, C, D, E, F, G, H, I and J 32 become divided each of them taking
his rightful share in the family property. In this case there is a total
partition.
The second kind of partition may be amongst
four groups, the first consisting of A only, the second consisting of B, E and
F, the third consisting of C, G and H and the fourth consisting of D, I and J
each group taking one fourth share in all the properties and the branch of B,
the branch of C, and the branch of D continuing as undivided families. The
third kind of partition may be a partition where any one of the three branches
the branch of B, or the branch of C, or the branch of D separates from the rest
of the family taking its share thus resulting in two undivided families one
family which has gone out of the family and the other consisting of the
remaining members. In these cases the partition can be called partial both as
regards persons and as regards properties. The next kind of partition may be
one where all the members divide amongst themselves only some of the family
properties and continue as members of an undivided family owning the remaining
family properties.
This is called a partial partition as regards
property. Even here the division of the property which is subject matter of
partial partition may be groupwise also. In the case of a partial partition as
regards property, one thing noticeable is that after such partition, the
property which is the subject matter of partition is held by the members of the
family as tenants-in-common and the rest of the family properties continue to
be held by them as members of the undivided family. This is the very principle
which is expounded by the Privy Council in Appovier's case (supra) in the two
passages extracted above.
After a partial partition as regards
property, the property divided is held by the members of the undivided family
as divided members with all the incidents flowing therefrom and the property
not so divided as members of an undivided family. The fiction enacted in
section 171(1) of the Act, therefore, operate in such a case also because the
family which has become divided as regards the property which is the
subject-matter of partial partition is deemed to continue as the owner of that
property and the recipient of the income derived from it except where and in so
far as a finding of partition has been given under section 171. In such a case
it is obvious the real state of affairs is in fact different from what is
created by the fiction and it cannot be said that there is no occasion for the
fiction to operate. That is the true meaning of section 171 (1) of the Act. In
view of the substantial changes that are brought 33 about in section 171, we
find it impossible to accept the contention that the fiction in section 171 (1)
of the Act does not operate in the case of partial partitions as regards
property where the composition of the family has remained unchanged.
The answer to the first question referred to
the High Court by the Tribunal depends upon the true construction of sub-clause
(i) of clause (a) of the Explanation to section 171 of the Act. The subject
matter of partial partition as mentioned earlier, consisted of eighteen items
of immovable property. The value of each of them is given in the earlier part
of this judgment. Under the partial partition in question, six persons were
allotted 1/12th share each in these eighteen properties and four persons were
allotted 1/8th share each. The total value of the eighteen properties was Rs.
7,26,120. Six of the members were, therefore, entitled to properties of the
value of Rs. 60,510/- each and four of them were entitled to properties of the
value of Rs. 90,765 each. Before the Tribunal two submissions were made on
behalf of the assessee in support of the plea that the arrangement entered into
amongst the parties providing for division of the income of the properties in
question without resorting to physical division of the properties was a
partition as defined by the Explanation to section 171 of the Act. The first
submission was that the word 'property' occurring in clause (a) (i) of the
Explanation to section 171 referred to an individual item of property which is
divided and not to all the properties which are divided at the partition-total
or partial-and hence as it had been accepted by the Department that each of the
eighteen items of property could not be divided conveniently into ten portion
without destroying its utility it had to be held that the properties did not
admit of physical division. The second submission which was urged in the
alternative was that even if it was possible to distribute the said properties
equitably amongst the shares by asking them to make necessary monetary
adjustment to equalise the shares as the Explanation to section 171 did not
contemplate any such monetary adjustment, the assessee could not be denied
under section 171 the recognition of the partial partition which had taken
place as per Hindu law. In support of this plea the assessee depended upon the
opinion of the arbitrator Tandon, on the basis of whose award the decree had
been passed and also the evidence of Lakshman Swaroop tendered before the
Appellate Assistant Commissioner. Taking into consideration all the material
before them and having regard to the shares allotted to each of the members,
the market value, situation, size and the age 34 of each of the items of the
property in question, the tax payable in respect of each of them and also the
fact whether an item of property is in the occupation of a tenant or not, the
Tribunal came to the conclusion that it was possible to divide the properties
in question physically into different lots so that each member could take his
rightful share in them. The High Court also has expressed the same opinion.
On the facts and in the circumstances of the
case, we approve of the above view of the High Court. We feel that the
properties involved in this case admitted of physical division into the
required number of shares and such division would not have adversely affected
their utility. It is common knowledge that in every partition under Hindu law
unless the parties agree to enjoy the properties as tenants in-common, the need
for division of the family properties by metes and bounds arises and in that
process physical division of several items of property which admit of such
physical division does take place. It is not necessary to divide each item into
the number of shares to be allotted at a partition. If a large number of items
of property are there, they are usually apportioned on an equitable basis
having regard to all relevant factors and if necessary by asking the parties to
make payments of money to equalise the shares. Such apportionment is also a
kind of physical division of the properties contemplated in the Explanation to
section 171. Any other view will be one divorced from the realities of life.
The case before us is not a case where it was impossible to make such a
division. Nor is it shown that the members were not capable of making payment
of any amount for equalisation of shares. We are of the view that there is no
material in the case showing that the assessee ever seriously attempted to make
a physical division of the property as required by law. All that was attempted
was to rely upon the arbitrator's award and Lakshman Swaroop's evidence which
were rightly held to be insufficient by the Tribunal to uphold the claim of the
assessee. The assessee cannot derive any assistance from the decision of this
Court in Charandas Haridas Anr. v. Commissioner of Income-tax, Bombay North.
Kutch and Saurarhtra, Ahmedabad, and Anr. There the item of asset which had to
be partitioned was the right in certain managing agency agreements. The Court
upheld the arrangement of division of commission amongst the members among whom
they said right was divided as a partition satisfying the test laid down by the
income-tax law as it was of the view that any physical division of that right
meant the dissolution of 35 the managing agency firms and their reconstitution
which was not altogether in the hands of the karta of the family. The Court
also was satisfied that the family took the fullest measure possible for
dividing the joint interest into separate interests. In the present case we are
satisfied that no such attempt to divide the properties was made. This case
clearly falls under sub-clause (i) of clause (a) of the Explanation to section
171 of the Act but does not satisfy the requirement of that sub-clause as no
physical division of the properties was made even though they could be
conveniently so divided. Sub-clause (ii) thereof does not apply to this case at
all. We, therefore, agree with the answer given by the High Court to the first
question in the affirmative. The appeal of the assessee is, therefore, liable
to be dismissed.
Having held that the assessee was not
entitled to claim a partial partition had taken place under section 171, the
High Court fell into an error in holding that the income of the properties
which were the subject matter of partial partition could not be included in the
total income of the assessee by relying upon the decisions which had been
rendered on the basis of section 25-A of the 1922 Act which had been construed
as not being applicable to partial partitions. We have already held that
section 171 of the Act applies to all partitions-total and partial-and that
unless a finding is recorded under section 171 that a partial partition has
taken place the income from the properties should be included in the total
income of the family by virtue of sub-section (1) of section 171 of the Act. To
put it in other words what would have been the position of a Hindu undivided
family which had claimed in an assessment proceedings under the 1922 Act that a
total partition had taken place and had failed to secure a finding to that
effect in its favour under section 25-A thereof would be the position of a
Hindu undivided family which has failed to substantiate its plea of partial
partition as regards property under section 171 of the Act. The property which
is the subject-matter of partial partition would continue to be treated as
belonging to the family and its income would continue to be included in its
total income until such a finding is recorded. That is the true effect of
section 171 (1). It was, however, urged on the analogy of the income from a
family property alienated by a karta in favour of a stranger that the income
which was not actually received by the family could not be taxed and in support
of 36 this plea reliance was placed on a decision of the Madras High Court in
A. Kannan Chetty v. Commissioner of Income- tax, Madras In that decision it is
observed thus:
"For instance, if the karta of a family
effects an alienation or even makes a gift. in so far as the taxing department
is concerned it is the income of the members of the Hindu undivided family that
can be assessed, and if by reason of an alienation, whether it is binding upon
the members of the joint family or not, an item of property ceases to be in the
hands of the joint family, it would not be open to the department to say that
they would ignore such an alienation, notwithstanding that the possession of
the properties and its income may pass into the hands of a stranger.
It may be different in cases where the joint
family deals with one or more items of property or converts it into a different
estate retaining both possession and income in its own hands. That may properly
be a case where the department may ignore such a transaction." It is
significant that in the passage extracted above the Madras High Court has
distinguished the case of an alienation in favour of a stranger from the case
where the joint family deals with one or more items of property or converts it
into a different estate retaining both possession and income in its own hands.
We do not consider that such a plea is available to the assessee because the
acceptance of such a plea would lead to the nullification of the scheme of
section 171 of the Act itself. As long as a finding is not recorded under
section 171 holding that a partial partition had taken place the Hindu
undivided family should be deemed for the purposes of the Act to be the owner
of the property which is the subject matter of partition and also the recipient
of the income from such property. The assessment should be made as such and the
tax assessed can be recovered as provided in the Act. In the circumstances, the
decision of the High Court on the second question has to be reversed. We
accordingly record our answer to the second question in the affirmative and in
favour of the Department.
37 In the result, Civil Appeal No. 1370 of
1974 is dismissed and Civil Appeal No. 1768 of 1975 is allowed. The assessee
shall pay the costs of the Department. Hearing fee one set.
N.V.K. Civil Appeal 1370/1974 dismissed and
Civil Appeal 1768/1975 allowed.
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