1991 (6) TMI 58 - HC - Income Tax

Summary

Issues Involved:
The judgment involves issues related to partial partition of a Hindu undivided family, tax liability on capital gains arising from land acquisition, validity of partial partition under section 171 of the Income-tax Act, and assessment of share income from a partnership firm.

Partial Partition and Land Acquisition:
The case involved a partial partition of a Hindu undivided family resulting in the transfer of certain lands to another family member. Subsequently, the acquired lands were transferred to the Gujarat Housing Board. The Income-tax Officer contended that the family had earned income through capital gains and was liable to pay tax under section 139 of the Income-tax Act. The Officer argued that the partial partition was not valid as it was not by metes and bounds, leading to tax assessment on capital gains.

Validity of Partial Partition under Section 171:
The Income-tax Officer invoked section 171 of the Act, which requires a partition to be by metes and bounds for validity. The Officer held that since the partial partition was not by metes and bounds, it was not genuine, leading to tax liability on capital gains and interest income. The Appellate Assistant Commissioner, however, held that section 171 did not apply as the family was not assessed prior to 1971-72, thus allowing the appeal of the family against the Officer's order.

Assessment of Share Income from Partnership Firm:
The Income-tax Officer included the share income received by a family member from a partnership firm in the hands of the Hindu undivided family, contending that the investment was made using family funds. The Tribunal, however, held that the share income did not belong to the family as the partial partition was valid, and section 171 did not apply due to no prior assessment of the family.

Conclusion:
The High Court upheld the Tribunal's decision, ruling in favor of the Hindu undivided family. It held that section 171 did not apply as the family was not previously assessed, making the partial partition valid. Consequently, capital gains and interest income were not taxable in the family's hands. The share income from the partnership firm was also deemed not assessable in the family's hands. The Court answered all referred questions against the Revenue, concluding the reference with no costs awarded.