ORDER
J. Kathuria, Accountant Member
1. This appeal by the Revenue is directed against the order dated 16-4-1987 passed by the Commissioner of Income-tax (Appeals), Agra. The only substantive ground raised, reads as under: –
The learned CIT(Appeals) has erred in holding both on law and on facts that after the death of Shri D.P. Singh, karta of the HUF the HUF property stands reduced to the extent of his share, which is1/3rd of the total property and directing the ITO to work out the capital gain on this basis on the reduced property of the HUF after the death of karta.
2. Brief facts of the case are that the assessee is a HUF. It consisted of Shri Dharam Pal Singh (karta), Shri Yaduvendra Pal Singh (son), Smt. Laxmi Kumari (wife) and Usha Kumari (unmarried daughter). The karta died on2-9-1982, i.e. after coming into force of the Hindu Succession Act, 1956.
3. The assessee-HUF entered into an agreement to sell the property owned by it and known as “Castle Grant” for a sale consideration of Rs. 65,00,000 on 2-5-1982. An agreement of sale was drawn up on 26-5-1982 by Shri Dharam Pal Singh as karta along with his wife, son and unmarried daughter with purchaser SahkariAwas Samiti Ltd. Before the sale deed could be executed, the karta died. Ultimately the sale deed was executed on 5-3-1983 by Shri Y.P. Singh, the present karta along with other members of the HUF and also as heirs of late Shri Dharam Pal Singh. A sum of Rs. 20,000 was paid by way of brokerage and so the net sale proceeds amounted toRs. 64,80,000, The assessee claimed that only 2/3rds of the sale consideration of Rs. 64,80,000 amounting to Rs. 43,20,000 should be considered for the purpose of computing capital gains in the hands of the assessee-HUF. The assessing officer, however, did not agree with the contention of the assessee and computed the capital gains on the sale proceeds of Rs. 64,80,000.
4. The Commissioner of Income-tax (Appeals) after taking into consideration Mysore High Court decision in CIT v. Smt. Nagarathnamma [1970] 76 ITR352 and Supreme Court decision in Gurupad Khandappa Magdum v. Hirabai KhandappaMagdum[1981] 129 ITR 440 came to the conclusion that after the death of Shri Dharam Pal Singh, karta of the HUF, the HUF property stood reduced to the extent of his share which was1/3rd of the total property. He accordingly directed the assessing officer to work out the capital gains on this basis on the reduced property of the HUF. The Department has come up in further appeal.
5. Shri Amitabh Kumar, the learned Senior Departmental Representative, submitted that after the death of karta how much share the female member of the HUF was to get alone came to be determined, but it did not result in actual partition of the HUF either in fact or in law. It was submitted that so long as there was no partition the entire property had to be treated as belonging to the HUF and so the capital gains had been correctly computed on the total sale proceeds. It was emphasised that HUF would continue until there was partition by metes and bounds. Relying on the observations of the Supreme Court in the case of State of Maharashtra v. Narayan Rao Sham Rao Deshmukh [1987] 163 ITR 31 it was submitted that notwithstanding the death of Shri Dharam Pal Singh the remaining members of the HUF continued to hold the properties together, though the individual interest of the female members thereof in the family properties had become fixed.
6. Shri Ajay Vohra, the learned counsel for the assessee, relied on the following decisions :-
(i) Smt. Nagarathnamma (supra);
(ii) CWT v. Kantilal Manilal [1973] 90 ITR 289 (Guj.);
(iii) Third WTO v. Atul Manilal Shah.
It was also submitted that the decision in the case of Narayan Rao Sham Rao Deshmukh (supra) was rendered in a different context and did not support the case of the Revenue. According to him all that the case decided was that the female members of the HUF did not cease to be members of the HUF after the death of the karta. It was further submitted that partition of the HUF may result in two ways. It was explained that it may be by an act of the parties and it may be through the operation of law. It was submitted that in the instant case the partition should be deemed to have taken place by operation of law for which partition by metes and bounds was not necessary. It was also submitted that because of the proviso to Section 6 of the Hindu Succession Act, 1956 the interest of the deceased karta in the Mitakshara coparcenary property had to devolve by testamentary or intestate succession and not by survivorship. It was submitted that since the karta died intestate his share in the property by deeming a notional partition immediately before his death would have-to devolve on his heirs as per the Hindu Succession Act. It was vehemently argued that the Commissioner of Income-tax (Appeals) had correctly understood the position in law and had directed the assessing officer to compute the capital gains on the basis of the reduced property.
7. We have carefully considered the rival submissions as also the facts on record. Before proceeding further with the matter it would be useful to reproduce relevant portion of Section 6 of the Hindu Succession Act, 1956, which is as under : –
6. When a male Hindu dies after the commencement of this Act, having at that time of his death an interest in a Mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act:
Provided that, if the deceased had left him surviving a female relative specified in class I of the Schedule or a male relative, specified in that class who claims, through such female relative, the interest of the deceased in the Mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship.
Explanation 1. – For the purposes of this Section the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him, if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not….
8. In the case of Smt. Nagarathnamma (supra) the facts were that the karta died after the coming into force of the Hindu Succession Act, 1956. The HUF consisted of the karta, his wife and three minor sons. The karta died intestate. The question was whether karta’s share of income from the firm was assessable as joint family income or whether it had passed to his heirs. The High Court held that the joint family, notwithstanding the death of one of its members, continued for the purpose of income-tax, but the share of that joint family was diminished to the extent of die share of the member dying.
9. In the case of Kantilal Manilal (supra) a similar question arose and it was held that the Tribunal was right in taking the view that only 2/3rd share in the jewellery was liable to be taken into account in computing the net wealth of the undivided family. The High Court examined the provisions of the Hindu Succession Act in some detail. It noted that under Section 6 of the Hindu Succession Act the main part of the section provided that when a male Hindu dies after the commencement of the Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with the Act. The proviso to Section 6, however, set out certain exceptional cases in which the interest of a deceased coparcener in coparcenary property shall devolve not by survivorship, but by testamentary or intestate succession, as the case may be, under the Act. The High Court explained that when the proviso says that the interest of a deceased coparcener in coparcenary property shall devolve by intestate succession, what is meant is that the share in the coparcenary property which would have been allotted to him on partition, if a partition had taken place immediately before his death shall devolve on the heirs. According to the High Court the quantum of share is fixed; the proportions in which the share is to be counted are also crystallised. This specific share in definite ascertained properties devolves on the heirs by intestate succession. That, however, according to the High Court does not effect the continuance of the Hindu undivided family which continues with the surviving coparceners. The properties are thus clearly held by the Hindu undivided family and the heirs as tenants-in-common.
10. In the case of Atul Manilal Shah (supra) the karta died leaving behind him his wife and a minor son. The assessee’s case was that after the death of the karta even the remaining 2/3rd property was shared equally between the mother and the son. The Wealth-tax Officer, however, took the line that on the death of the karta, the HUF consisting of mother and son continued to exist as respects the remaining 2/3rd of the property. This action of the Wealth-tax Officer was upheld by the Tribunal.
11. We also find substance in the submission of the learned counsel for the assessee that the decision of the Supreme Court in the case of Narayan Rao Sham Rao Deshmukh (supra) was rendered in a different context. The said decision explained the earlier decision of the Supreme Court in Gurupad Khandappa Magdum’s case (supra) and the Supreme Court in the subsequent decision held that the earlier decision has to be treated as an authority for the position that when a female member who inherits an interest in a joint family property under Section 6 of the Hindu Succession Act files a suit for partition expressing her willingness to go out of the family, she would be entitled to get both the interest she has inherited and the share which would have been nationally allotted to her, but the earlier decision cannot be an authority for the proposition that she ceases to be a member of the family on the death of a male member of the family whose interest in the family property devolves on her without her volition to separate herself from the family.
12. The controversy which is before us in the instant case was not there before the Supreme Court in the case of Narayan Rao Sham Rao Deshmukh (supra). Since the assessee-HUF and the heirs of the deceased Shri Dharam Pal Singh continued to be tenants-in-common after the death of the karia1/3rd of the property could not be considered to be the property of the HUF and only 2/3rd of the property belonged to the HUF which continued to exist. Taking into consideration the entire facts and circumstances of the case and the position of law as discussed above, we uphold the order of the first appellate authority.
