1981 (8) TMI 138 - AT - Income Tax

Summary

Issues:
1. Claim of exclusion of income from property deemed to belong to an HUF from total income of assessee.

Analysis:
The judgment pertains to appeals regarding the exclusion of income from a property deemed to belong to an HUF from the total income of the assessee. The case involved a family consisting of a Karta and his two brothers, who had business assets and an immovable property in Madras. A partition was recorded in a memorandum, stating that the house property was to be enjoyed by them as tenants-in-common with equal shares due to the property not being capable of physical division. The Income Tax Officer (ITO) held a partial partition and accepted it, leading to the two brothers returning their half share of income from the property as part of their total income. However, the assessee contended that the income should not be assessed in their hands due to the partition not being recorded for the house property. The Appellate Assistant Commissioner (AAC) rejected this argument, stating that the partition deed was not contested as being ineffective. The assessees appealed, highlighting that in subsequent years, the income was not assessed in their hands, indicating a partial partition recognized by the ITO under Section 171.

Further, it was argued that even if the larger HUF continued, the income from the property should be assessed only in the hands of the divided branches of the family. The Tribunal, after considering the submissions, concluded in favor of the assessees. It was noted that the ITO had recognized only a partial partition of business assets and not the house property. Under Section 171, an HUF is deemed to continue unless a finding of partition is given. Since only a partial partition was recorded, the HUF was deemed to continue with assets not recognized as partitioned. The Tribunal distinguished a previous case where a total partition was required for recognition, unlike in this scenario. Therefore, the income from the property had to be treated as belonging to the HUF and not the divided members, as long as the order under Section 171 stood. Consequently, the ITO was directed to recompute the total income after excluding the income from the house property not recognized as partitioned.

In conclusion, the appeals were allowed, and the assessees succeeded in their claim for the exclusion of income from the property deemed to belong to an HUF from their total income.