PETITIONER:
KALLOOMAL TAPESWARI PRASAD (HUF), KANPUR
Vs.
RESPONDENT:
THE C. I. T., KANPUR(AND VICE VERSA)
DATE OF JUDGMENT12/01/1982
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
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 nett
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.
14
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]
JUDGMENT:
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/- ---------- 17When 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 re-
actment 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 upto 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
thereinto 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
thereunder 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 can not 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 the 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.
38