JUDGMENT
B.P. Jeevan Reddy, J.
1. Under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate tribunal, Hyderabad, has referred the following two question :
“(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that registration has to be granted to the assessee-firm for the assessment year 1980-81 ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the firm constituted consequent on partial partition of the Hindu undivided family effected after December 31, 1978, has to be granted registration for the assessment year 1980-81 though such partitions are hit by the provisions of section 171(9) of the Income-tax Act ?”
2. Sri Dalappa and his two sons, Mohan Rao and Jagadeswara Rao, constituted a Hindu joint family. They carried on a joint family business as cloth merchants till March 31, 1979. On that day, a partial partition was effected and the joint family business was divided among the father and two sons in certain specified shares. With effect from April 1, 1979, the father and two sons constituted a partnership and carried on the same business in partnership. A partnership deed dated May 15, 1979, was executed recording the terms and conditions of the partnership.
3. By an order dated November 29, 1979, the Income-tax Officer recognised the partial partition under section 171 of the Income-tax Act.
4. On March 22, 1980, an application in Form No. 11, along with the partnership deed dated May 15, 1979, was filed before the Income-tax Officer for registering the firm under section 185(1). By this date, sub-section (9) had been introduced in section 171. In view of the said sub-section, the Income-tax Officer refused registration by his order dated August 23, 1981. He held that his earlier order dated November 29, 1979, recording partial partition under section 171 of the Act became null and void by virtue of sub-section (9). He held that, in law, there was no firm in existence for the assessment year in question, i.e., 1980-81. On appeal, the Appellate Assistant Commissioner took a different view and granted registration. The Revenue went in appeal to the Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal dismissed the appeal observing that the combined effect of sections 143, 144 and 171 seemed to be that partial partitions effected on or after December 31, 1978, and before June 18, 1980, would be ineffective only for the purpose of assessments under sections 143 and 144 of the Act. Support for this reasoning was drawn from clause (b) of sub-section (9) of section 171. The Tribunal also noted that Chapter XVI of the Act contains special provisions relating to firms and that section 182(1) opens with a non-obstante clause “notwithstanding anything contained in sections 143 and 144”, which words, according to the Tribunal, indicated that the said special provisions alone should govern the assessment of firms. Thereupon, the Revenue applied for and obtained this reference.
5. Up to and inclusive of the assessment year 1979-80, the income derived from cloth business was assessed as the business income of the Hindu undivided family comprising Dalappa and his two sons. They effected a partial partition on March 31, 1979, which was also recognised and recorded by the Income-tax Officer under section 171 of the Income-tax Act on November 29, 1979. With effect from April 1, 1979, a partnership was constituted by the same three members of the family, the terms and conditions whereof were recorded later in a deed dated May 15, 1979. In the ordinary course, it would follow that the income from the said business should be assessed, for the assessment year 1980-81, as the income of the partnership firm. But this is not permissible in law, by virtue of sub-section (9) of section 171, inserted by the Finance (No. 2) Act, 1980, with effect from April 1, 1980. It would be appropriate to set out sub-section (9) in full. It reads thus :
“(9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided, –
(a) no claim that such partial partition has taken place shall be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition had taken place and any finding recorded under sub-section (3) to that effect whether before or after the 18th day of June, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall be null and void;
(b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place;
(c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition;
(d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition;
6. and the provisions of this Act shall apply accordingly.
7. Explanation. – In this section, –
(a) “partition” means –
(i) where the property admits 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 admit 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.”
8. According to this sub-section, notwithstanding anything contained in the preceding sub-sections of section 171, no partial partition effected after December 31, 1978, shall be recognised by the authorities under the Act. A claim to that effect will not be enquired into and no finding shall be recorded that such a partial partition has taken place. Any such finding recorded prior to the coming into force of the said sub-section will become null and void. Clause (b) specifically declares that such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place. Clause (c) declares that each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, and other sums payable under the Act. Clause (d) says that the several liability of any member or group of members shall be computed according to the portion of the joint family property allotted to him or it at such partial partition. In other words, the law refuses to recognise a partial partition, though, as a fact, such partial partition has taken place. The law further declares that notwithstanding such partial partition, the family shall be deemed to continue and shall be assessed as a Hindu undivided family as if no partial partition had taken place. If any amounts are payable under the Act, the same shall be recovered from the members of the joint family and their properties in the appropriate proportion. Of course, the liability is joint and several. We must make it clear that where no partial partition has taken effect, the sub-section has no application at all. Only where a partial partition has been effected as a matter of fact, does sub-section (9) step in and declare that it shall not be recognized or recorded. The law seeks to ignore partial partitions; it recognises only a complete and total partition. Even if a partial partition has taken place, it will ignore the same and continue to assess the Hindu joint family as a Hindu undivided family.
9. Now, in this case, the partition has taken place on March 31, 1979. It is a partial partition. It is thus clearly hit by sub-section (9). By virtue of clause (b) of sub-section (9), the Hindu undivided family, which was assessed as such for the assessment year 1979-80, shall continue to be liable to be assessed under this Act as Hindu undivided family as if no such partial partition had taken place. In such a situation, to say that the partnership between the members of the Hindu undivided family constituted on April 1, 1979, should be recognised, registered and assessed as such, would be plainly contrary to the express provision contained in sub-section (9), and, in particular, clauses (a) and (b) thereof. The income from the same business cannot be assessed in the hands of the Hindu undivided family and simultaneously in the hands of a partnership. It must be either Hindu undivided family or a partnership and by virtue of clauses (a0 and (b) of sub-section (9) of section 171, it should be Hindu undivided family alone. The view taken by the Appellate Assistant Commissioner is, therefore, plainly contrary to the clear language of the enactment.
10. We are not satisfied about the correctness of the reasoning adopted by the Tribunal. It is true that Chapter XVI contains special provisions applicable to form : it is equally true that a provision corresponding to sub-section (9) of section 171 does not find a place in Chapter XVI. Indeed, in our opinion, such a provision would be out of place in Chapter XVI. Sub-section (9) declares that no partial partition shall be recognised for the purpose of the Act and it is, therefore, rightly placed in section 171, which deals with assessment of a Hindu undivided family after partition. Moreover, one provision of an Act cannot be so construed as to defeat another provision of the Act. The interpretation placed by the Tribunal upon the provisions in Chapter XVI has the direct effect of nullifying clauses (a) and (b) of sub-section (9) of section 171. The several provisions in the Act must be read together and as parts of one larger scheme. One need not search for or evolve conflicts between one provision and another. Section 171, and in particular sub-section (9) thereof, relates to assessment of the Hindu undivided family and, as observed hereinbefore, in respect of the same income, there cannot be two entities liable to be assesses for the same assessment year – a Hindu undivided family and a partnership. According to section 171(9), it would be Hindu undivided family, which means that there can be no partnership at the same time.
11. For the above reasons, both the questions are answered in the negative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.