1981 (7) TMI 40 - HC - Income Tax

Summary

Issues Involved
1. Whether a Hindu father can effect a partial partition of HUF assets at his own volition.
2. Validity of partial partition when minors are given unequal shares.
3. Competence of the Income-tax Officer (ITO) to challenge the partition under section 171 of the I.T. Act, 1961.
4. Whether the partial partition can be treated as a family arrangement.

Issue-wise Detailed Analysis

1. Whether a Hindu father can effect a partial partition of HUF assets at his own volition.
The court examined the ancient Hindu law and subsequent customary and judge-made law, concluding that partial partitions were not recognized by traditional Hindu law. The Madhya Pradesh High Court in CIT v. Seth Gopaldas (HUF) held that a Hindu father does not have the power to effect a partial partition of HUF assets. The court concurred with this view, stating that the extraordinary power of a Hindu father to disrupt the status of an HUF and divide the assets must be strictly construed and cannot be enlarged by implication. The court emphasized that such partial partitions could only be recognized if made with the consent of all coparceners, which is not feasible when minors are involved.

2. Validity of partial partition when minors are given unequal shares.
The court held that the father's power to effect a partition is subject to the condition that he must give equal shares to his minor sons. This condition is mandatory and non-compliance would vitiate the partition. The ITO has the power to refuse to recognize a partition if it is patently unequal and contrary to law. The court disagreed with the view that the ITO cannot challenge the partition on the grounds of inequality, asserting that the ITO must ensure the transaction's validity and fairness, especially when minors' interests are at stake.

3. Competence of the Income-tax Officer (ITO) to challenge the partition under section 171 of the I.T. Act, 1961.
The court affirmed that the ITO has the statutory duty to inquire into the validity and genuineness of the partition under section 171 of the I.T. Act, 1961. The ITO must record a finding on whether the partition is genuine and in accordance with law. The court rejected the argument that the ITO should not act as a guardian for the minors, emphasizing that the ITO must protect the minors' interests and ensure that the partition is fair and legal.

4. Whether the partial partition can be treated as a family arrangement.
The court dismissed the argument that an invalid partial partition could be treated as a family arrangement. The powers conferred on the ITO by section 171 are specific to the partition of HUF for tax assessment purposes. If a partition is found invalid, it cannot be validated by recharacterizing it as a family arrangement. The court also noted that there is no authority or principle supporting the proposition that a Hindu father can unilaterally bring about a family arrangement binding on his sons.

Conclusion
The court answered all the questions in the affirmative, holding against the assessee. The court upheld the view that a Hindu father cannot effect a partial partition of HUF assets at his own volition, especially when minors are involved and given unequal shares. The ITO is competent to challenge such partitions under section 171 of the I.T. Act, 1961, and an invalid partition cannot be treated as a family arrangement. The reference was answered accordingly with no order as to costs.