1976 (12) TMI 84 - AT - Income Tax

Issues Involved:
1. Assessment of dividend income from shares post partial partition.
2. Legality of multiple HUFs with the same Karta.
3. Validity and effect of partial partition under Section 171 of the Income Tax Act, 1961.
4. Inclusion of income from partitioned assets in the assessment of the bigger HUF.

Detailed Analysis:

1. Assessment of Dividend Income from Shares Post Partial Partition:
The Income Tax Officer (ITO) added Rs. 15,000 as income from other sources in the assessment of the bigger Hindu Undivided Family (HUF) for the assessment year 1971-72. The Appellate Assistant Commissioner (AAC) found that a partial partition had been effected on 26th March 1970, where Rs. 10 lakhs worth of shares were allotted to the minor son B. Srinivasan and the remaining Rs. 10 lakhs to Shri S. Balasubramanian, his wife, and minor daughters. Consequently, the AAC deleted the Rs. 15,000 from the bigger HUF's assessment, recognizing it as income of the new HUF consisting of Shri S. Balasubramanian, his wife, and minor daughters.

2. Legality of Multiple HUFs with the Same Karta:
The Revenue contended that under Mitakshara Law, it is not possible to have two separate HUFs with the same Karta. They argued that until there is a complete and total partition, the property should be deemed to belong to the HUF and assessed accordingly. However, the Tribunal rejected this contention, citing that a partial partition was accepted by the ITO under Section 171, and thus, the shares no longer belonged to the bigger HUF.

3. Validity and Effect of Partial Partition under Section 171 of the Income Tax Act, 1961:
The Tribunal noted that the ITO had accepted the partial partition claim under Section 171 after an enquiry, which became final. The explanation to Section 171 defines a partial partition as one that is partial regarding the persons constituting the HUF or the properties belonging to the HUF, or both. The Tribunal emphasized that the Rs. 20 lakhs worth of shares were divided between Shri S. Balasubramanian and B. Srinivasan, ceasing to belong to the bigger HUF.

4. Inclusion of Income from Partitioned Assets in the Assessment of the Bigger HUF:
The Tribunal held that the income from the Rs. 10 lakhs worth of shares allotted to Shri S. Balasubramanian should be assessed in the hands of the smaller HUF (consisting of Shri S. Balasubramanian, his wife, and unmarried daughters) and not the bigger HUF. The Tribunal referred to various rulings, including the Supreme Court's decision in CIT vs. Narendranath, which supported the view that the smaller HUF could exist within the larger HUF and hold property separately. The Bombay High Court's decision in CIT Bombay City-I vs. M.N. Khanna was also cited, which clarified that smaller HUFs could exist within a larger HUF and possess property exclusively.

Conclusion:
The Tribunal dismissed the Revenue's appeals, affirming the AAC's decision to exclude the Rs. 15,000 dividend income from the assessment of the bigger HUF and recognizing it as the income of the smaller HUF. The Tribunal also rejected the contention that multiple HUFs with the same Karta could not exist, emphasizing the legal recognition of partial partitions under Section 171 of the Income Tax Act, 1961.

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