ORDER
By the Court
I find it convenient to dispose of these six appeals of the assessee for assessment years 1996-97 to 2001-02 involving common issues, by this consolidated order. I have heard the parties and perused the record. The common issue involved in these appeals is as to whether the income by way of rent in respect of the house property is assessable in the hands of the HUF or in the hands of the members of the family.
2. The relevant facts, briefly stated, are that Shri B.R. Talwar is head of Hindu Undivided Family which comprises of himself, his wife Smt. Kailash Talwar, two sons Shri Sanjeev Talwar and Shri Vikram Talwar (both married) and one daughter Vandana Talwar, who got married in 1988 as stated by the assessee. The Hindu Undivided Family owned and possessed a residential House No. 105, Navjivan Vihar, New Delhi. A memorandum of family arrangement was executed on 10-10-1990 amongst the persons being members of the HUF named hereunder :
(i) Shri B.R. Talwar, son of Shri Basantlal Talwar, resident of House No. 250, Sector 10, Panchkula;
(ii) Smt. Kailash Talwar, wife of Shri B.R. Talwar, resident of Panchkula;
(iii) Shri Sanjeev Talwar, son of Shri B.R. Talwar, resident of Panchkula;
(iv) Shri Vikram Talwar, son of Shri B.R. Talwar, resident of Panchkula; and
(v) Kumari Vandana Talwar, daughter of Shri B.R. Talwar, resident of Panchkula.
3. By virtue of the said agreement, executed on stamp paper of Rs. 3 but not registered with any authority, it was agreed that the house property would belong to first party and second party and joint Hindu Undivided Families of 3rd and 4th parties respectively as equal co-owners. No share in the said property was allotted to 5th party, namely Miss Vandana Talwar. It was however, agreed that each member would contribute towards her marriage expenses at the appropriate time. It was also decided by virtue of the agreement that Shri B.R. Talwar and his wife Smt. Kailash Talwar would control, supervise, maintain and collect the rental income of the said property. It was also decided that Smt. Kailash Talwar will retain the total income of the said property with herself as trustee/custodian of the remaining parties. She was authorized to use and utilize the funds for the welfare of the parties and marriage of the fifth party with consent of the remaining parties. She was also declared to have a right of residence in the property during her life time. The claim of the appellant is that the terms and conditions of the agreement were further modified by another agreement executed on plain paper and not registered with any authority. As per the second agreement, all the five members of the family-three male and two female members were described to be the owners of the property having 1/5th share each. Rental income was derived from the said property. Shri B.R. Talwar was also deriving some income by way of pension. His income exceeded the maximum non-taxable limit. He had accordingly filed the return of his income for the respective assessment years. 1/5th share-in the rental income from the property was also disclosed. The other members of the family also filed the returns of income for assessment year 1996-97 onwards declaring 1/5th rental income notwithstanding the fact that their income did not exceed the non-taxable limit. No scrutiny of the returns was undertaken by the assessing officer either in the case of Shri B.R. Talwar or in the case of other members of the family. The returns filed had been processed under section 143(1)(a) of the Income Tax Act but no regular assessment was made under section 143(3) in case of any of the members of the family.
4. Subsequently the assessing officer issued notice under section 148 in the name of Shri B.R. Talwar (HUF) in respect of the rental income derived from the house property No. 105, Navjiwan Vihar, New Delhi. The appellant filed nil returns. Before the assessing officer it was claimed that the property as well as the income in respect of the property belongs to five persons as per the family arrangement and, therefore, the income from the house property is to be assessed in the hands of the respective individuals. The notices issued under section 148 were also claimed as invalid on the ground that the same were issued on mere change of opinion.
5. The assessing officer rejected the claim of the assessee on the ground that the property has not been partitioned amongst the members of the family by metes and bounds and that the rental income continues to belong to the HUF as per the provisions of Income Tax Act. Reference has been made to the Explanation to section 171 to the effect that there should be total physical division of the property and evidence to establish that the agreement was followed by actual physical division of the property. The assessing officer further held that the physical division of the income without a physical division of property shall not be deemed to be a partition within the meaning of section 171. The assessing officer also referred to the decision of the Supreme Court in the case of ITO v. Smt. N.K. Sarada Thampatty (1991) 187 ITR 696 in support of the view. The income from the house property was assessed in the status of HUF. Interest under sections 234A, 234B and 234C was also charged.
6. The assessee appealed to the Commissioner (Appeals) and the latter disposed of the appeals for the six years vide consolidated order dated 7-5-2004. The Commissioner (Appeals) has passed a detailed order rejecting the claim of partition of the HUF on various grounds as under :
(i) That reopening of assessment under section 148 read with section 147 was valid.
(ii) That there was no physical division of the property or of income in respect of the said property.
(iii) That there was no-registered deed executed for partition of the house property.
(iv) That the family arrangement was claimed to have been executed for family peace and that it was understood as to why retrospective effect was given with effect from 1-4-1984.
(v) That the assessee had claimed that the family arrangement was made on 10-10-1990 which was changed with another document on which no date has been given. According the Commissioner (Appeals) the assessee has claimed the income in the hands of five individuals.
(vi) That the rent is coming to the assessee’s name and not in the names of five individuals.
(vii) That the house cannot be-physically divided into five parts but atleast the rental income should have been divided and received by five different beneficiaries and not divided for the purpose of income-tax assessment.
(viii) That the document does not speak of any date and hence, the bona fide of the document is not proved.
(ix) That the assessee is using the family arrangement as an evidence for partition and, therefore, its registration was compulsory.
Relying upon the decision of the Chandigarh Bench in the case of ITO v. Naresh Batra, HUF (1996) 58 ITD 23 (Chd), it was held that the family arrangement which is not registered cannot be used as piece of evidence. It was pointed out that in that case the Tribunal had expressed the view as under :
That intimation given under section 143(1)(a) is not to be treated as regular assessment and, therefore, the assessing officer was justified in issuing notices under section 148.
That any decision which is manifestly wrong or proceeds upon a mistaken assumption in regard to the existence or continuance of a statutory provisions or is contrary to another decision of the court the revenue is justified in taking a different view that taken in earlier years. For this, reliance has been placed on the decision of the Supreme Court in the case of Distributors (Baroda) (P.) Ltd. v. Union of India (1985) 155 ITR 120 (SC).
The appeals of the revenue were accordingly dismissed.
7. The assessee is in appeal against the decision of the Commissioner (Appeals).
8. The learned counsel for the assessee contended that in this case, the revenue have proceeded on the wrong assumption that there was a partition of the HUF. Since there was a dispute amongst the members of the family including those who are not the coparceners of the family, the said dispute was settled by way of family arrangement. Therefore, the provisions of section 171 are not attracted in this case. The family arrangement has been acted upon insofar as the income has been distributed amongst the rightful owners as per the family arrangement. The returns of income in the name of individuals filed earlier were accepted by the department. Therefore it was not open to the revenue to issue notices under section 148 to the 146F on mere change of opinion. It was further contended that since the status of the ownership of the property was not an established status of HUF and since there were claims and counter claims, therefore, the family settlement of the property does not amount to partition of HUF. Reliance has been placed on the decision of the Supreme Court in the case of M.N. Aryamurti v. M.L. Subbaraya Setty AIR 1972 SC 1279-1285 in support of the contention that the family arrangement was valid if the following conditions are satisfied:
“(1) There must be an agreement amongst the various members of the family intended to be generally and reasonably for the benefit of the family.
(2) The agreement should be with the object either of compromising doubtful or disputed rights, or for preserving the family property, or the peace and security of the family by avoiding litigation, or for saving its honour.
(3) Being an agreement, there is consideration for the same, the consideration being the expectation that such an agreement or settlement will result in establishing or ensuring amity and goodwill amongst the relations.”
9. Relying upon the decision of the Supreme Court in the case of Kale v. Dy. Director of Consolidation AIR 1976 SC 807-812, it was contended that the following propositions of law have been laid down by the Supreme Court for the validity of the family settlement:
“(1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family.
(2) The family settlement must be voluntary and should not be induced by fraud, coercion or undue influence.
(3) The family arrangements may be even oral in which case no registration is necessary.
(4) It is well-settled that registration would be necessary only if the terms of the family arrangement are reduced into writing. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any right in immovable, properties and therefore does not fall within the mischile of section 17(2)(sic), [section 17(i)(b)] of the Registration Act and is, therefore, not compulsorily registrable.
(5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if, one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledge him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same.
(6) Even if bona fide disputes, present or possible which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement.”
10. It was contended that the above tests are satisfied in the present case. It was accordingly pleaded that the re-assessment made by the assessing officer in the case of HUF may be cancelled. It was further reiterated that even otherwise, notices issued under section 148 are invalid insofar as the same have been issued on mere change of opinion.
11. The learned counsel further contended that there has been double taxation in respect of the house property income. Firstly, in the hands of the individuals, and now in the hands of the HUF. It has accordingly been pleaded that the re-assessment framed by the assessing officer in the hands of the HUF may be cancelled.
12. The learned departmental Representative, on the other hand, contended that the Commissioner (Appeals) has passed a detailed order rejecting the contention on behalf of the assessee. It was further contended that earlier partial partition of Hindu Undivided Family was being used as a source of tax planning. However, the Legislature had modified section 171 not to recognise partial partition in respect of the HUF. My attention was invited to the decision of the Ahmedabad Bench of the Tribunal in the case of Chandulal Gulabchand Mehta, HUF v. ITO (1986) 16 ITD 671 wherein provisions of section 171 are stated to have been elaborately discussed. It was further contended that in case of any partition of the HUF property an application has got to be filed with the Income Tax Officer for registration of the same. The assessing officer is required to pass an order under section 171 accepting or rejecting the claim of the partition. According to the learned departmental Representative, in this case, the claim of the partition by means of family arrangement has been rejected by the assessing officer and the Commissioner (Appeals) has further elaborated the reasons for rejecting the claim of the assessee. It was contended that the family settlement is only a means of effecting the partition and it is not separately recognised anything other than the distribution of property amongst the coparceners who are legally entitled to the same. It was pointed out that there was no registered document for effecting the partition. As per deed dated 10-10-1990, it was provided that the HUF property will go amongst four persons including the wife of the Karta. A subsequent agreement is claimed to have been executed by virtue of which the property is stated to have been divided amongst the five persons i.e., the Karta, his wife, unmarried daughter and two sons. According to the learned Departmental Representative, the entire exercise by the assessee has been to divide the income of the property and not to effect the partition amongst the coparceners. Referring to the map of the building, it was stated that the property has not been divided by metes and bounds.
13. Replying to the contention advanced on behalf of the assessee that proceedings for re-assessment under section 147 are invalid, the learned Departmental Representative contended that the assessee had filed the returns in his individual capacity. It had been processed under section 143(1)(a). No regular assessment was made in the case of Shri B.R. Talwar in his individual capacity. The other members have also filed the returns and in most of the assessment years, their income was not liable to tax. Therefore, the claim of the double taxation is not well-founded. In the subsequent years, there is some tax effect with the enhancement of the rental income but then the assessing officer has simply accepted the returns filed by the assessee under section 143(1)(a) as the law does not give him any option for making scrutiny in such cases unless selected for deep scrutiny. Reliance was placed on the decision of the Supreme Court in the case of Smt. N.K. Sarada Thampatty (supra) in support of the contention that under section 171, the assessing officer will accept the partition of the joint family property only if there is proof of physical division of the property. Since in this case, there was no physical division of the property and no registered instrument was executed, the assessing officer was justified in not recognizing the partition. It was accordingly, pleaded that the appeals of the assessee may be dismissed.
14. I have given my careful consideration to the rival contentions. Before I proceed to consider the issue involved in these appeals, it may be pertinent to mention that during the course of hearing of the appeal, when the learned counsel for the assessee (sic) to inform the Bench about the status in respect of the property before execution of memorandum of family arrangement, the learned counsel has given in writing as under:
“In continuation of my submission during the course of hearing, I hereby submit that the income from this property was being assessed in the status of HUF earlier to the execution of memorandum of family arrangement.”
15. From the above statement, there is no ambiguity about the fact that the property in respect of which income has been derived was being assessed in the status of HUF property. Even in the family arrangement, which has been executed on the stamp paper of Rs. 3, it is specifically mentioned as under:
“Whereas parties to this memorandum are members of the family headed by Shri B.R. Talwar.
Whereas apart from other movable and immovable assets owned and possessed by the members of the family in their individual or HUF capacity, they own and possess a residential house bearing No. 105, Navjiwan Vihar, New Delhi.
Whereas the said house had been acquired mainly with the funds of HUF headed by Shri B.R. Talwar and partly out of contribution from members of the family and other relatives.
Whereas there had been going on some misunderstanding over the clear title of the said house which could not be resolved in spite of partition in the said HUF. This misunderstanding resulted into dispute amongst the members which has now been settled with the intervention of family well-wishers.”
16. It is evident from the written statement by the learned counsel for the assessee as well as the contents of the memorandum of family arrangement that the dispute involved in these appeals relates to the house property which admittedly belonged to the Hindu Undivided Family before the execution of the memorandum of family arrangement. I, therefore, proceed on the basis that the property belonged to the HUF before the family arrangement. When the property belonged to the HUF, the income derived therefrom is assessable to income-tax in the status of HUF as per provisions of the Income Tax Act, 1961. Under the Hindu Law. HUF is entitled to effect a partition which may be total or partial. Where the HUF undergoes a total partition, the entire joint family property is divided among all coparceners of the family and the family ceases to exist as an undivided family. A partial partition, on the other hand may be partial as regards the persons consisting a joint family or as regards the property belonging to the joint family or both. In a partial partition as regards the persons consisting the family, one or more coparceners separate from others and the remaining coparceners may continue to be joint. In a partial partition as regards the property, a joint family may make a division of interest in respect of part and stay jointly while retaining their status as joint family. While under the Hindu Law the joint family is entitled to make a arrangement in respect of joint property while retaining their status as joint family, in respect of income-tax matters, the relevant provisions are contained in section 171. Section 171 applied equally in the case of total and partial partition. The Legislature however, felt that HUF status was being used as a medium for reduction of tax liability. The taxpayers were creating illegal HUF’s by effecting partial partition as regards the persons constituting the joint family or as regards the property belonging to a joint family or both, In other to curb the practice of creating illegal HUFs by making partial partition, the Finance (No. 2) Act, 1980 inserted sub-section (9) in section 171 with effect from 1-4-1980 whereunder partial partition of HUF effected after 31-12-1980 are not recognised for tax purposes. In this case, the memorandum of family arrangement executed on 10-10-1990, which has subsequently modified by virtue of another, written undated document on plain paper is in regard to single house property owned by the HUF, There is no reference to other properties, if any, owned by the HUF. The family arrangement does not indicate the total disruption of the family. The learned counsel for the assessee pleaded before us that the family arrangement has not to be taken as either partial or total partition of the HUF. According to the learned counsel provisions of section 171 have no application in respect of the family arrangement. In our considered view, the contention advanced on behalf of the assessee is bereft of substance. Their Lordships of the Supreme Court in the case of Smt. N.K. Sarada Thampatty (supra) held that ordinarily the decree of a Civil Court in a partition suit is good evidence of partition but under section 171, a legal fiction has been introduced according to which a preliminary decree of partition is not enough. Their Lordships further held that instead, there should be actual physical division of the property pursuant to a final decree, by metes and bounds. It was further held that Legislature has assigned a special meaning of partition under the Explanation to section 171 with the view to safeguard the interest of the revenue. Any assessee claiming partition of HUF must prove a disruption of the status of HUF in accordance with Explanation to section 171. Their Lordships further held that the assessee must prove that a partition effected by an agreement or through a court decree was followed by actual division of the property and in the absence of such proof partition is not sufficient to disrupt the status of HUF for the purpose of assessment of tax. Their Lordships further held that under the Hindu Law, members of a joint family may agree to partition of the joint family by private settlement, agreement, arbitration or through a court’s decree. Members of the family may agree to share the income from the property according to their respective shares. In all such eventualities the joint status may be disrupted but such disruption of family status is not recognized by the Legislature for the purposes of Income-Tax. (Emphasis supplied), section 171 of the Act and the Explanation to it prescribe a special meaning of partition, It is different from general principle of Hindu Law. It contains a provision under which partition of the property of the HUF is accepted only if there has been actual physical division of the property, in the absence of any such proof, the HUF shall be deemed to continue for the purpose of assessment of tax. Any agreement between the members of the joint family effecting the partition or a decree of the court for partition cannot terminate the status of a Hindu Undivided Family unless it is shown that the joint family property was physically divided in accordance with the agreement and decree of the court.
17. In this case, the assessee is placing reliance on the written family arrangement as evidence in support of the partition. The said document is admittedly unregistered document. It is not disputed before me by the learned counsel for the assessee that where there is a written agreement between the parties in regard to the immovable property, it is compulsorily to be registered under the Registration Act. So however, it is claimed that there was an oral understanding between the members of the family and as such there was no requirement of registration of the document which was written only to put on record the mutual agreement between the members of the family. In my considered view, the contention of the assessee is not well-founded. The only proof regarding the claim of partition is the written document dated 10-10-1990 on the stamp paper of Rs. 3, which has admittedly not been registered in the court of Law in accordance with the provisions of the Registration Act. This document provides that the arrangement was made to avoid disputes. So however, it was given retrospective effect from 1-4-1984. The other document is undated and is on plain paper. As per the first document, the immovable property was stated to belong to Shri B.R. Talwar head of the family, Smt. Kailash Talwar, wife of the Karta and joint Hindu Undivided Family of Shri Sanjeev Talwar and Shri Vikram Talwar, sons of Shri B.R. Talwar in equal proportion. Though Km. Vandana Talwar was a party to the agreement, but she was not declared to be the owner of the property. The income of the property as well as the control and supervision of the property was stated to be with Shri B.R. Talwar and his wife, Smt. Kailash Talwar. The funds were to be utilized for the welfare of the family and the marriage of the daughter of Shri B.R. Talwar. Clauses (5) to (7) of the agreement which are pertinent are reproduced hereunder :
“(5) That it is further decided that party of the first and second parts, Shri B.R. Talwar and Smt. Kailash Talwar, shall control and supervise and maintain the said residential house and collect rental income of the said property, if any.
(6) That it was also decided that party of the second parts will retain the total rental income of the said property with herself as trustee/custodian of the remaining parties and will also be authorized to make any addition/alteration and modification therein.
(7) That she was authorized to use and utilize the funds for the welfare of the family and marriage of party of the fifth part with the consent of remaining parties in the absence of which she will only be deemed to be a trustee of these funds.”
18. By a subsequent agreement which is undated, it is stated that the residential house property No. 105 would be deemed to be owned by Shri B.R. Talwar, his wife, two sons and a daughter in equal shares. By virtue of this agreement, it was provided that the interest of Shri B.R. Talwar and his wife would go to the surviver in case of death of any of them and that they would be free to dispose of the property as may be considered fit. The property is a residential building and as per the finding of the Commissioner (Appeals), is not capable of physical division amongst the members of the family. So however, there is no evidence on record to establish that the memorandum of understanding has been actually acted upon. The property has been let out to tenents. It would have been relevant to consider as to whether the tenents had been informed about the partition of the joint family property. So however, no evidence, whatsoever, has been produced before the assessing officer or any other authority to establish that the tenents had been informed about the partition of the property. On the other hand, there is evidence on record to establish that the rent has been received/collected by Shri B.R. Talwar in his own name insofar as tax deducted at source certificate is only in the case of Shri B.R. Talwar and not in the names of other members of the family. Originally, all the five members had claimed credit for the TDS from rental income. However, subsequently, returns have been revised and the credit of TDS claimed only in the name of Shri B.R. Talwar. It is, therefore, established that the property in question was neither divided by metes and bounds, nor was any evidence placed on record to establish that partition amongst the members of the family was actually acted upon. We are, therefore, of the considered view that the assessing officer was justified in rejecting the claim of the assessee of partition of the HUF property and the Commissioner (Appeals) is also right in law to uphold the assessment of the HUF as per provisions of section 171 of the Income Tax Act, 1961.
19. The objection raised on behalf of the assessee about the re-opening of the assessment is also not well-founded insofar as in none of the individual cases, any assessment was made under section 143(3), The assessing officer had not expressed any opinion about the partition. Moreover, there is no estoppel against the statute. As held by their Lordships of the Supreme Court in the case of Smt. N.K. Sarada Thampatty (supra) a partition of HUF has got to be recognized under the provisions of section 171 of the Income Tax Act, 1961 for the purpose of assessment. The assessing officer may not accept the claim of partition if it does not conform to the provisions of section 171. The mere fact that the assessing officer had accepted the returns in the case of individuals under section 143(1)(a) would not act as an estoppel against section 171. It is not disputed before me that no order under section 171 had earlier been passed by the assessing officer in this regard. Without an order under section 171, the partition of the HUF property is not recognized under the provisions of the Income Tax Act. Therefore, the mere processing of the income-tax returns in the case of individuals was of no consequence. It has also rightly been pointed out by the learned Departmental Representative that in most of the years, the individual members of the family have filed the returns when their income did not exceed the maximum non-taxable limit and that the returns had been filed merely for creating an evidence. Processing of such returns are in consequential. There was no assessment in the case of HUF and no expression of opinion by the assessing officer about the claim of partition of the HUF property. Therefore, the case law relied upon by the assessee before the Commissioner (Appeals) as well as before me about the reopening of the assessment on mere change of opinion is inapplicable to the facts of this case. As held by their Lordships of the Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) (FB) that when a regular assessment is made, it is admitted that the assessing officer has expressed an opinion. However, in this case, firstly no assessment was made in the case of HUF under section 143(3) in fact no returns were filed in the status of HUF and, therefore, even the processing of the returns under section 143(1)(a) did not exist in the case of the HUF. The returns filed in the case of individual members of the HUF had been processed under section 143(1)(a) but admittedly no regular assessment was made by the assessing officer in the case of any of the members of the family. As such, there was no opinion expressed by the assessing officer prior to the issue of notice under section 148 in regard to the partition of. the HUF property. In such circumstances, as per the amended provisions of section 147, effective from 1-4-1989, the assessing officer was justified in issuing the notices under section 148 for assessing the income of the HUF for the first time for the respective assessment years.
20. The contention advanced on behalf of the assessee about the double taxation is also not well-founded insofar as in most of the years, there has been no double taxation. The returns filed by most of the members of the family are below taxable limit. Even otherwise, the assessing officer has not taxed the individual members according to his opinion. The returns of the members filed by them voluntarily have been processed under section 143(1)(a) and, therefore, the assessee should have no grievance for such returns having been processed in accordance with law. The assessing officer had no choice but to process the returns under section 143(1)(a) and, therefore, the claim of the assessee is without substance. It is also pertinent to mention that as per section 171 of the Income Tax Act, 1961 the income is assessable in the hands of the HUF. Therefore, relief, if any, permissible on account of double taxation would be permissible in the hands of those who would not be liable to tax in respect of the income of the HUF. Thus, members of the family would be at liberty to take appropriate action for redressal of their grievances, if any, against double taxation. As far as the assessee HUF is concerned, it is not entitled to any relief as its income is lawfully liable to tax.
20. Taking the totality of the facts and circumstances of the case into consideration, I am of the view that there is no merit in the appeals of the assessee. The same are accordingly dismissed,
21. In the result, the appeals of the assessee are dismissed.