TMI Blog1983 (5) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the HUF thereby including the asset in question and the income therefrom, in the net wealth and total income of the assessee. On appeal, the AAC accepted the contention of the assessee that in spite of the provisions of sections 171(9) and 20A, there was no warrant for assessing the asset or the income which no longer belongs to the HUF as that of the HUF. 3. The revenue is in appeal to contend that the intention of the statutory provisions was to create a fiction by ignoring the partial partition, the effect of which was to treat the asset or income which was sought to be taken out of the HUF as continuing to be that of the HUF and, therefore, the assessments were valid and should be restored. On the other hand, the contention of the assessee was that on the wording of the sections there could only be an assessment in the status of HUF and in the absence of a further provision deeming the asset and income which has gone out of the HUF to continue to be that of the HUF, there cannot be an assessment including such asset or income in the net wealth or total income of that HUF. 4. On a consideration of the rival submissions, we are of the opinion that the order of the AAC ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 partial as regards the persons constituting the Hindu undivided family, or the properties belonging to the Hindu undivided family, or both." Simultaneously, section 20A was introduced in the 1957 Act in the following terms : "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) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place, (b) 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, (c) the several liability of any member or group of members aforesaid shall be compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived therefrom shall be deemed to arise to the individual and not to the family and thirdly, such converted property and the income derived therefrom if received by spouse or minor child shall be deemed to belong or arise to them from assets transferred indirectly by the individual to them so that such assets and income will be added to the net wealth and total income of the individual. 6. The consequent position remains as it was under the Indian Income-tax Act, 1922 ('the 1922 Act') when under section 25A of the 1922 Act only a total partition of the entire family property could be recorded and a partial partition could not be recorded by the ITO. In such a situation, the question arises whether the income arising from property which has been given to a coparcener on a partial partition could still be assessed in the hands of the HUF because there was no provision for recognising such a partial partition. The answer was given by the Madras High Court in the case of M. S. M. M. Meyyappa Chettiar v. CIT [1950] 18 ITR 586. The High Court held that the partial partition was valid in Hindu law, though it could not be recorded under section 25A and further that an assessment on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court because though the partition was not recognised for the purpose of assessment, it was recognised for the purpose of collection of tax as the properties taken out of the HUF were held to be outside the charge of the assessment. This decision of the Supreme Court has also been distinguished by the Kerala High Court in the case of ITO v. Smt. N. K. Sarada Thampatty [1976] 105 ITR 67, by pointing out that the question, as in this case, whether income accruing from properties which had in fact been divided could be included in the total income of the HUF, the partition of which is not recognised, did not fall for consideration in that case. The Kerala High Court also contrasted this decision of the Supreme Court with another decision of the Supreme Court in the case of Kalwa Devadattam v. Union of India [1963] 49 ITR 165 which states that the provisions of section 25A was a machinery provision for recovery of the tax in cases where the HUF exists and income accrued to it when the liability to pay the tax arose. Viewed from this light even the later decision of the Supreme Court in the case of Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 must be considered to be a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case, we are concerned with the situation where in fact and in Hindu law a partial partition had taken place and the asset belongs to and the income actually accrues only to the coparcener to whom the property is allotted. In that context it falls for consideration whether the effect of not recognising the partial partition is that the HUF is deemed to be the owner of the property which is the subject-matter of partition and also the recipient or the income from such property. As we have noted before, there is a direct answer to this question in the Madras High Court judgment which has not been overruled so far. To understand this question, we may take an illustration. Supposing there is a joint family holding certain shares in companies and on a partial partition the shares are allotted to a coparcener. Thereafter the dividend income accrues only to the coparcener and under section 4 has to be assessed in his hands. No doubt, under section 171(9), a partial partition will have to be ignored and the assessment continued to be made on the HUF, but when there is no specific provision deeming the dividend income which has accrued to the coparcener as having accrued to the jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The new sub-section seeks to provide that notwithstanding anything contained in the other provisions of section 171, where any partial partition has been effected after 31st December, 1978, in relation to a Hindu undivided family which had been assessed as undivided, certain consequences will follow. Clause (a) of sub-section (9) provides that it will not be competent for the Income-tax Officer to inquire into any claim of such partial partition which has taken place and no finding will be recorded under sub-section (3) of section 171 that such partial partition had taken place. Where any such finding has been recorded under sub-section (3) of section 171 to that effect either before or after 18th June, 1980 (the date of introduction of this Bill in the House of the People) it will be treated as null and void. Clause (b) of sub-section (9) provides that the family will continue to be liable to be assessed as a Hindu undivided family as if no partial partition had taken place. Clause (c) of sub-section (9) provides that each member or group of members of such family immediately before such partial partition and the family will be jointly and severally liable for any tax, penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndivided family. A partial partition, on the other hand, may be partial as regards the persons constituting the joint family or as regards the properties belonging to the joint family, or both. In a partial partition as regards the persons constituting the joint family, one or more coparceners may separate from others and the remaining coparceners may continue to be joint. In a partial partition as regards the property, a joint family may make a division and severance of interest in respect of a part of the joint estate while retaining their status as a joint family and holding the rest of the properties as joint and undivided family. 45. While under the Hindu law, a joint family may make a division and severance of interest in respect of the joint estate while retaining their status as a joint family, the Income-tax Act does not recognise a partition in status alone and where a Hindu undivided family has been assessed to income-tax as such, it continues to be regarded as Hindu undivided family unless the property has been partitioned by metes and bounds. This provision applies equally in the case of total as well as partial partition. 46. In spite of the measures taken in rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to be assessed under the Wealth-tax Act as if no such partial partition has taken place. Each member or group of members of such family immediately before such partial partition and the family will be jointly and severally liable for the tax, penalty, interest or any other sum payable under this Act by the family in respect of any period, whether before or after the partial partition. The liability attributable to any member or group of members will be computed according to the portion of the joint family property which has been allotted to him at the time of partial partition. For this purpose, the expression 'partial partition' will have the same meaning as in clause (b) of the Explanation below section 171 of the Income-tax Act, that is to say, 'partial partition', will mean a partition which is partial as regards the persons constituting the Hindu undivided family or the properties belonging to the Hindu undivided family, or both. 128. This amendment is similar to the amendment proposed to be made in section 171 of the Income-tax Act referred to in paragraphs 44 to 47. 129. This amendment will take effect from 1st April, 1980, and will accordingly apply in relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the tax or other sums payable under the Act from the coparceners even if the family is divided, but assessed in the status of an undivided family. This provision is sufficient to indicate that the section takes note of the factual division of the properties of the HUF even if such a partial partition is not recognised. This is because, according to clause (d) of sub-section (9), the several liability of the members of the family is to be computed according to the portion of the joint family property allotted to him on the partial partition. Therefore, instead of there being a necessary implication of a deeming provision to regard the income accruing from the divided properties as that of the undivided HUF, there is in fact an internal evidence in the section itself to show that even if the assessment is made in the name of the undivided family, the factual partial partition cannot be ignored and the tax due on the income accruing from the divided properties is to be collected from the coparcener to whom the share is allotted. We may recall that even in the 1922 Act there was a similar provision in proviso to section 25A(2) which states that the members shall be jointly and severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng provision is made under section 64(2) of the 1961 Act and section 4(1A) of the 1957 Act. Under the Transfer of Property Act, any transfer of property vests legal title on the transferee and the right of the transferee is a right in rem. In order to counter any attempt at tax avoidance through the medium of transfer to interested persons, the Legislature has provided deeming provision under sections 64(2) and 4(1A). These provisions show that the revenue law, being a special law, prevails over the general law. 3. The HUF is an assessable person in terms of section 2(31) of the Act. The right of members entitled to claim partition in the property of the HUF is a joint and unascertained at any point of time. Partition is an act of volition. On partition the inchoate right by birth becomes right in possession. Thus, partition is not transfer of property as per the Transfer of Property Act but division of property among members entitled to it. The joint ownership is converted into an individual ownership by the act of disruption of HUF as a unit of assessment and consequent distribution of property by metes and bounds to its members. The income-tax law recognises the partition of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation where partial partition has taken place after 31-12-1978 among the members of the HUF hitherto assessed as undivided. Clause (a) prohibits enquiry into claim of partial partition and recording of any finding and declares any finding already recorded on partial partition whether before or after 18-6-1980 as null and void. Therefore, clause (a) restores the position that obtained before the partial partition of the HUF, i. e., status quo ante has been restored so far as the claim of partial partition is concerned. This shows the intention of Legislature is to derecognise the claim of partial partition. 5. Clause (b) of sub-section (9) of section 171 is very significant and reads as under : "such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place ;" [Emphasis supplied] The words 'to be liable' appearing between the words 'shall continue' and 'to be assessed' show that these words are not mere words of surplusage but manifest that the scope and extent of liability is same as that of the HUF before partial partition has taken place. If this is not the intention of the Legislature, there is no need to include t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 171(1) itself. Prior to amendment, the joint and several liability of members was confined to the liability of the family arising till the date of partition and not thereafter as obviously they will have several liability to the extent of property allotted to them. As per clause (c), for the liability payable by the family not only for the period before partial partition but also thereafter, members of the family are also jointly and severally liable along with family which shall be deemed to continue by way of legal fiction. In other words, joint and several liability of members extends to liability of the family arising by including the divided asset and the income arising therefrom by prohibiting the ITO to recognise partial partition that has in fact taken place. 7. In this connection, it is to be mentioned that the amended law does not abrogate the right of the members of the HUF under personal law but on the other hand, it tacitly recognises the same which is evident from clause (d) of sub-section (9) inasmuch as only for the purpose of enforcing the several liability of member, it shall be computed according to the portion of the joint family property allotted to him in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... divided asset on account of partial partition shall be treated as if received by the erstwhile HUF which has hitherto been assessed as undivided. Clause (a) of section 5 which deals with scope of total income includes not only income received or deemed to be received by a person but also on behalf of such person. 9. In the case of Kalloomal Tapeswari Prasad the Supreme Court has observed as under : ". . . As long as a finding is not recorded under section 171 holding that a partial partition had taken place, the HUF should be deemed for the purposes of the Act to be the owner of the property which is the subject-matter of partition and also the recipient of the income from such property. The assessment should be made as such and the tax assessed can be recovered as provided in the Act . . . ." [Emphasis supplied] In my view, the amended law reflects the ratios of the Supreme Court in the cases of Kalloomal Tapeswari Prasad and A. Thimmayya and deems the income of the divided property as income of the HUF in the context of absence of any order recording the fact of partition of the HUF. On parity of reasoning the divided asset is to be included as the wealth of the HUF. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndivided family ?" The President having assigned the case to himself for disposal under section 255(4) of the Act, the matter has come up before me for hearing as a Third Member. 2. The facts have been fully and correctly stated by the learned members. However, for the sake of completeness, I propose to refer to the facts, in brief, once again. All the assessees herein are HUFs. There has been a partial partition in each family on 29-1-1980 as a result of which a sum of Rs. 1,50,000 was taken out of the family assets and held separately by the coparceners from that date. All the assessee-HUFs have claimed that the said amount as well as the income arising to the coparceners out of/or attributable to the said amount are not the income or the wealth of the assessee-HUFs. However, in view of the provisions of section 20A and section 171(9), providing that a partial partition if taken place after 31-12-1978 has to be ignored, the ITO/WTO has treated the said amount of Rs. 1,50,000 as well as the income arising out of/or attributable to the said amount in the hands of the different coparceners as the wealth or the income of the respective HUFs. The AAC having accepted the claim, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular date. I do not see the amendment has made any material change. Therefore, the question would still be whether the assets or properties which have gone out of the HUF nucleus, whether by way of partition, total or partial or otherwise, but when an order under section 171 has not been passed or could not be passed in the eye of law, would continue to belong to the HUF so much so that both for the purposes of income-tax and wealth-tax their income and/or wealth would be included in the assessment of the HUF. 5. In view of the Bombay High Court's decision in the case of Waman Satwappa Kalghatgi v. CIT [1946] 14 ITR 116, the Madras High Court's decision in the case of M. S. M. M. Meyyappa Chettiar and the Kerala High Court's decision in the case of Smt. N. K. Sarada Thampatty, I am inclined to agree with the learned Judicial Member that the provisions in question are machinery provisions and do not create a charge on those assets which have factually gone out of the HUF assets in general law. The Kerala High Court in its aforesaid decision having considered the implication of the Supreme Court's decisions in the cases of Kalwa Devadattam and A. Thimmayya. I may also agree with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is that the revenue did not dispute that in fact the members of the assessee family had on 11th December, 1963, effected an oral partition in respect of 18 immovable properties. The income of these properties was separately received by the individual member in accordance with their shares. Under Hindu law a disruption of a joint Hindu family can validly be brought about by an oral expression of an intention to separate. The oral partition effected on 11th December, 1963, was valid in Hindu law and it disrupted the joint status of the members in regard to the 18 immovable properties. Since that day the members will be deemed to hold these properties as tenants-in-common and not as joint tenants with the result that these properties ceased to belong to the coparcenary of the joint Hindu family. The income derived from these properties was not income received by the joint Hindu family, the assessee. In accordance with Hindu law, such income could not hence be included in the assessment of the Hindu undivided family. The share of the income of the individual members was liable to be assessed in their individual assessments." However, after relying on the Bombay and Madras High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court had proceeded on the assumption that there was no factual partition and the properties had not gone out of the HUF nucleus, the facts referred to by us from the Hon'ble High Court's decision, clearly indicate that it was not so. In fact, if we accept this submission of the learned counsel, it would appear that the Hon'ble High Court's decision on the second issue in favour of the assessee was given without any basis whatsoever and that the Hon'ble High Court had unnecessarily entered into the discussion. I am afraid that this contention is not tenable at all. Therefore, to my mind, the Supreme Court's decision in Kalloomal Tapeswari Prasad's case gives a complete answer to the problem before me in this case. This being so, there does not appear to me any scope for discussion on the question of specific charge, etc. 9. Section 171(9), as I have stated earlier, does not make material difference except for the fact that the statute debars the ITO from holding any enquiry and/or from passing any order with regard to partial partition after 31-12-1978. Therefore, I agree with the learned Accountant Member that the income from or attributable to the aforesaid sum of Rs. 1,50,0 ..... 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