ITA NO.30 OF 2006 [1]
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
ITA NO.30 OF 2006
Date of decision: 20.01.2009
M/s Tirlochan Singh .......Appellant
versus
Commissioner of Income Tax and another ......Respondents
CORAM: HON'BLE MR. JUSTICE J.S.KHEHAR
HON'BLE MR. JUSTICE NAWAB SINGH
Present: Mr. Akshay Bhan, Advocate
for the appellant.
Ms. Savita Saxena, Advocate
for the respondents.
J.S.Khehar, J.
A notice under Section 148 of the Income Tax Act
1961(herein after referred to as the “Act”) was issued to the
appellant on 14.03.2002, the same came to be served on the
appallent on 21.03.2002. The claim of the Assessing Officer was
that the appellant was assessable as a Hindu Undivided Family.
On the contrary, the claim of the appellant-assessee was that a
partial partition had taken place on 30.04.1978 whereby
immovable as well as movable assests of the Hindu Undivided
Family were divided by metes and bounds between the co-
parceners, and as such, there was no question of assessing the
appellant as a Hindu Undivided Family.
After 30.04.1978, i.e. after the partial partition had
taken place amongst the members of the Hindu Undivided
Family, the property in question was sold, and the proceeds
ITA NO.30 OF 2006 [2]
thereof were invested as Fixed Deposit Receipts in the name of
the appellant-assessee i.e. in the capacity of the appellant as a
as a Hindy Undivided Family. The Fixed Deposit Receipts
eventually matured on 8.09.1996, whereafter, monetary shares
were allegedly apportioned amongst the members of the
appellant-assessee i.e. the members of the Hindu Undivided
Family. The facts narrated herein are undisputed and are in fact
acknowledged by the learned counsel for the rival parties.
The question which arises for consideration at the
hands of this Court, while disposing of the present appeal relates
to the Assessment Year 1997-1998. The appellant-assessee as a
Hindy Undivided Family maintains that no assessment can be
made for the Assessment Year in question. It is the submission
of the learned counsel for the appellant that the original property
in the hands of the Hindu Undivided Family, after partial partition
thereof on 30.04.1978 could not be assessed to tax under
Section 171 of the Act. It is the alternative contention of the
learned counsel for the appellant, that even if the partial
partition referred to above is not taken into consideration, that
would not effect assessment in the hands of the appellant as a
Hindu Undivided Family. In this behalf it is pointed out that the
appellant as a Hindu Undivided Family could have been subjected
to tax only if it had earlier been assessed to tax as a Hindu
Undivided Family. Accordingly, the submission of the learned
counsel for the appellant, that since the appellant-assessee had
never hitherto before(i.e., prior to the Assessment Year 1997-98)
ITA NO.30 OF 2006 [3]
ever been assessed as a Hindu Undivided Family, there was no
question of the appellant-assessee being assessed as a Hindu
Undivided Family.
In response to a query posed by the Court, learned
counsel for the appellant states that the propertry in the hands of
the Hindu Undivided Family, besides the property which was
subjected to partial partition, is not subject matter of
consideration in this appeal. The veracity of the instant answer
at the hands of the learned counsel for the appellant-assessee is
not subject matter of contest at the hands of the learned counsel
for the respondents.
It is in the factual background noticed hereinabove
that we must decide the claim raised by the appellant in this case
in terms of the mandate of Section 171 of the Act. Section 171 of
the Act is being extracted hereunder:
Section 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,
ITA NO.30 OF 2006 [4]
the [Assessing] Officer shall make an inquiry
thereinto after giving notice of the inquiry to all the
members of the family.
(3) On the completition of the inquiry, the
[Assessing] Officer shall record a finding as to
whether there has been a total or partial partititon of
the joint family property, and, if there has been such
a partition, the date on whic h it has taken place.
(4) Where a finding of total or partial partitition has
been recorded by the [Assessing] Officer under 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
anything 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[Assessing] Officer under this
section, and the partition took place after the expiry
of the previous year, the total income of the previous
ITA NO.30 OF 2006 [5]
year of the joint family shall be assessed as if no
partition had 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[Assessing] 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[Assessing] Officer shall proceed to
recover the tax from every person who was a member
of the family before the 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 any
penalty, interest, fine or other sum in respect of any
period up to 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.
[(9) Notwithstanding anything contained in the
ITA NO.30 OF 2006 [6]
foregoing provisions of the 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
ITA NO.30 OF 2006 [7]
property alloted to him or it at such partial
partition,
and the provisions of this Act shall apply accordingly.]
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 a partial
as regards the persons constituting the Hindu undivided
family, or the properties belonging to the Hindu undivided
family, or both.
Relying on clause(1) of Section 171 of the Act, it is
contended on behalf of the appellant-assessee that the
assessment permissible under Section 171 of the Act envisaged
certain pre-requisites. Firstly, the aforesaid assessment must be
in respect of property of a Hindu Family. Secondly, the
assessment must be in respect of such a Hindu Undivided Family
which has hitherto been assessed as a Hindu Undivided Family.
Although, the facts in this case depict that at some point in time
ITA NO.30 OF 2006 [8]
the appellant-assessee was a Hindu Undivided Family but there is
no dispute whatsoever, that the appellant-assessee has not been
assessed as a Hindu Undivided Family prior to the Assessment
Year 1997-98. In view of the fact, that the conditions pre-
requisite for the application of Section 171 of the Act are not
fulfilled by the appellant-assessee. In the present case, it is the
submission of the learned counsel for the appellant that it was
not open to the Assessing Officer to assess the appellant-
assessee as a Hindu Undivided Family, and as such the
assessment rendered by the Income Tax Officer vide order dated
6.03.2003 is liable to be set aside.
We have carefully examined the ingredients of Section
171(1) of the Act. We have no hesitation in accepting the plea
advanced by the learned counsel for the appellant so as to
conclude, that Section 171 of the Act caters to a situation where
a Hindu Undivided Family has been partitioned. We are also
satisfied that Section 171 of the Act deals with assessment after
the division of the Hindu Undivided Family. In our considered
view before Section 171 of the Act can be invoked, so as to
assess the property of the Hindu Undivided Family even after
partition, as a Hindu Undivided Family, it should have been
assesed as a Hindy Undivided Family before such partition. A
similar conclusion was also expressed by the Gujarat High Court,
as well as, by the Andhra Pradesh High Court. In this behalf
reference may be made to the decision rendered by the Gujarat
High Court in Commissioner of Income-Tax vs. Kantilal Ambalal
ITA NO.30 OF 2006 [9]
(HUF),(1991)192 ITR 376 wherein the Court observed as under:-
“The argument of the Revenue proceeds on
the assumption that section 171 of the Act applies to
the facts of the present case. Section 171 of the Act
has no application to a case of a Hindu family which
has never been assessed before as a joint family i.e.,
as a unit of assessment. In other words, this section
has application to a Hindu family which has been
assessed before as a joint family and if the Hindu
undivided family has never been assessed to tax, this
section has no application. The Hindu undivided family
of Kantilal Ambalal, admittedly, was never assessed to
income-tax in the past. Therefore, section 171 of the
Act has no application at all to the facts of the instant
case. A similar view has been taken by the Andhra
Pradesh High Court in Addl. CIT v. P.Durgamma[1987]
166 ITR 776.”
It would be pertinent to mention that after the
passing of the assessment order dated 6.03.2003 the appellant
preferred an appeal before the Commissioner of Income Tax
(Appeals). The Commissioner of Income Tax(Appeals) vide his
order dated 27.06.2003 accepted the appeal by holding that the
appellant could not have been assessed as a Hindu Undivided
Family, under Section 171 of the Act. The aforesaid finding
rendered by the Commissioner of Income Tax(Appeals) dated
27.06.2003, was assailed by the Revenue before the Income Tax
Appellate Tribunal. The Income Tax Appellate Tribunal agreed
that the Revenue vide order dated 10.06.2005. In other words,
the Income Tax Appellate Tribunal arrived at the conclusion that
the property in question was liable to be assessed in the hands of
the appellant as a Hindu Undivided Family under Section 171(9)
of the Act. It is pertinent to mention that sun-section(9) of
Section 171 of the Act is in the nature of an exception to sub-
ITA NO.30 OF 2006 [10]
Section(1) of Section 171 of the Act(relied) upon by the
appellant. The order passed by the Income Tax Appellant
Tribunal dated 10.06.2005 has also been challenged at the hands
of the appellant by asserting that the same is inapplicable in this
case.
During the course of hearing of the instant appeal,
learned counsel for the respondent has solely relied on sub-
section(9) of Section 171 of the Act to defeat the claim of the
appellant. It is the vehement contention of the counsel for the
respondent that partition of the Hindu Undivided Family in the
present case must be deemed to have taken place on 8.09.1996,
and that, the same cannot be deemed to have taken place prior
thereto, because after the sale of the property of Hindu
Undivided Family the sale proceeds came to be deposited in as
Fixed Deposit Receipts in the name of the Hindu Undivided
Family. It is submitted that on maturity of the Fixed Deposit
Receipts on 8.09.1996, the proceeds thereof were divided
amongst the members of the Hindu Unidivided Family. It is
therefore, the submission of the learned counsel for the
respondents that it is not open to the appellant to claim partial
partition of the property in question on 30.04.1978. Learned
counsel for the respondent further submitted, that the partition
of the Hindu Undivided Family in respect of the assessment which
is a subject matter of consideration in the instant appeal, can be
deemed to have taken place after 8.09.1996 i.e., after the
maturity of the Fixed Deposit Receipts, and the distribution
ITA NO.30 OF 2006 [11]
thereof in the hands of the co-parceners.
Under the mandate of sub-section(9) of Section 171 of
the Act(extracted above) a partial partition which has taken place
after 31.12.1978 is not recognised, and as such, the partial
partition alleged to have taken place on 8.09.1996 cannot be
recognised for purpose of taxing the appellant-assessee.
We have considered the submission advanced by the
learned counsel for the respondent based on sub-section(9) of
Section 171 of the Act. There can be no doubt that sub-section
(9) of Section 171 of the Act, is an exception to sub-Section(1) of
Section 171 of the Act, as such, if the Revenue can establish the
applicability of sub-section(9) of Section 171 of the Act, that
would completely negate the submission advanced by the learned
counsel for the appellant. We shall therefore, in the first instance,
determine the applicability of sub-section(9) of Section 171 of
the Act, to the facts and ciucumstances of the present case. We
are satisfied that for the applicability of sub-section(9) of the
Section 171 of the Act, two pre-requisites are essential. Firstly,
the partial partition should have taken place after 31.12.19978.
And secondly, such partial partition must have taken place in a
Hindu Undivided Family which hitherto before was assessed as a
Hindu Undivided Family. It is not a matter of dispute, that the
appellant-assessee had not been assessed as a Hindu Undivided
Family ever before the Assessment Year in question, namely
1997-98. We are, therefore, of the firm view, that the second
essential ingredient for the applicability of sub-section(9) of
ITA NO.30 OF 2006 [12]
Section 171 of the Act cannnot be treated to have been fulfilled
in the facts and circumstances of the present case. As such we
are of the view that sub-section(9) of Section 171 of the Act
would be clearly inapplicable to the facts of the present case.
In view of the above, we are of the view that the
following substantial question of law framed at the time of
admission of the instant appeal deserves to be answered in
favour of the appellant-assessee and against the Revenue:
“Whether in the facts and circumstances of
the present case, the action of the authorities below in
invoking the provision of Section 171, when the
appellant was never assessed before the issuance of
notice under Section 148 of the Act on 14.3.2002 for
assessment year 1997-98, is illegally sustainable in
the eyes of law?”
Answered accordingly. Resultantly, the instant appeal
is allowed and the order passed by the Income Tax Appellate
Tribunal 10.6.2005 assessing the appellant-assessee under
Section 171 of the Income Tax Act is hereby set aside.
[J.S.KHEHAR]
JUDGE
[NAWAB SINGH]
JUDGE
20.01.2009
SKaushik