TMI Blog1999 (7) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... . 164 and 165 of 1993. By a common judgment and order passed in various writ petitions filed before the Madras High Court (M. V. Valliappan v. ITO [1988] 170 ITR 238), the High Court struck down the provisions of section 171(9) of the Income-tax Act, 1961, as violative of article 14 of the Constitution of India and that it suffers from the vice of legislative incompetence. In the High Court, a number of writ petitions were filed involving questions relating to the validity, scope and interpretation of the provisions of section 171(9). For our purpose, it would suffice to mention the facts of Writ Petition No. 994 of 1984 for deciding the question involved in these appeals. In the said petition, it was the case of the petitioner that he was the karta of a Hindu undivided family consisting of himself, his wife, his minor son and minor daughter. It was his contention that the Hindu undivided family was a partner in a partnership firm in which its funds were invested. On April 13, 1979, a partial partition of certain assets belonging to the Hindu undivided family was effected with effect from that date by executing a deed of partition. An application under section 171(2) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n section 4 of the Income-tax Act, 1961, and purports to bring to charge the income which does not belong to the Hindu undivided family to be assessed in the hands of the Hindu undivided family. The provision thus enlarges the scope of sections 4 and 5 of the Act and is, therefore, invalid. (4) Section 171(9) of the Income-tax Act, 1961, has the effect of fastening a penal liability on the Hindu undivided family when in fact, in the case of a partial partition, the liability for concealment of income is that of the member of the Hindu undivided family who earned the income in his own right and not of the Hindu undivided family. (5) The effect of section 171(9) of the Income-tax Act, 1961, is that it virtually negatives the right of partition under the personal law only in certain cases of partition after December 31, 1978, and there is no valid basis or justification for treating the Hindu undivided families separately in a hostile manner with reference to the date December 31, 1978, the choice of the date being clearly arbitrary. (6) The operation of section 171(9) of the Income-tax Act, 1961, is restricted only to cases where a claim in respect of a partial partition which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1980-81. It is his further submission that those who have partially partitioned Hindu undivided family properties prior to the cut-off date and those who have done it subsequently are both distinct and different classes. As against this, learned counsel for the respondents submitted that the reasons recorded by the High Court for holding sub-section (9) to be invalid do not call for any interference. Before appreciating the contentions raised by learned counsel for the parties, it will be necessary to refer to the relevant part of section 171 of the Act which is as under : "171. (1) A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family. (2) Where, at the time of making an assessment under section 143 or section 144, it is claimed by or on behalf of any member of the Hindu family assessed as undivided that a partition, whether total or partial, has taken place among the members of such family, the Assessing Officer shall make an inquiry thereinto after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is that for the purposes of income-tax partial partitions taking place on or after January 1, 1979, are not to be recognised. If a partial partition has taken place after the cut-off date no inquiry as contemplated under sub-section (2) by the Income-tax Officer shall be held. Even if the inquiry is completed and the finding is given, it would be treated as null and void. In this view of the matter, the contention raised in some of the petitions by learned counsel for the respondents that partial partition took place on April 13, 1979, and that in the assessment year it was recognised and benefit was given to the assessee, has no significance in view of the crystal clear language used in the sub-section that partial partition taking place after the cut-off date is not to be inquired into and if inquired the findings would be null and void. Such a family is to be assessed under the Act as if no partial partition has taken place. The next question is whether the amendment to the aforesaid section can be said to be in any way beyond the legislative competence. In our view, it is difficult to comprehend that the said amendment can be termed as beyond the legislative competence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the profits of the firm received by the wife and/or minor children shall be included in the total income of the individual if he is the partner of the said firm. The court held that sub-section (3)(a)(i) and (ii) was enacted for preventing evasion of tax and was well within the competence of the Federal Legislature. On the question of legislative competence, the court referred to the earlier decision in the case of Sardar Baldev Singh v. CIT [1960] 40 ITR 605 and held as under : " 'So entry 54 (Government of India Act, 1935), should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances.' The decision holds that the said entry can sustain a law made to prevent the evasion of tax." The court also dealt with the question of constitutional validity on the ground of violation of the doctrine of equality and negatived the contention that the Legislature ought to have classified genuine and non-genuine cases of partnership by holding that demarcating a gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be arbitrary. The Amending Bill was introduced in June, 1980, and is given effect to from the assessment year 1980-81. It is settled law that the choice of a date as a basis for classification cannot always be dubbed as arbitrary even if no particular reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances; while fixing a line, a point is necessary and there is no mathematical or logical way of fixing it; precisely, the decision of the Legislature or its delegate must be accepted unless it is very wide of the reasonable mark. [Re : University Grants Commission v. Sadhana Chaudhary [1996] 10 SCC 536]. Learned counsel for the respondent was not in a position to point out any ground for holding that the said date is capricious or whimsical in the circumstances of the case. In this view of the matter, the finding given by the High Court that there is no valid basis of justification for treating Hindu undivided family separately in a hostile manner with reference to the date i.e., December 31, 1978, is on the face of it erroneous. The next reason given by the High Court is that it entrenches upon the charging provisions in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if no partition had taken place and then proceed to apportion the liability as stated in section 25A amongst the individual members of the family. If no claim was made or if the claim where it was made was disallowed after inquiry, the Hindu undivided family would continue to be liable to be assessed as such. This was the legal position under the 1922 Act. The court further held as under : "Hindu law does not require that the property must in every case be partitioned by metes and bounds or physically into different portions to complete a partition. Disruption of status can be brought about by any of the modes referred to above and it is open to the parties to enjoy their share of property as tenants-in-common in any manner known to law according to their desire. But the income-tax law introduces certain conditions of its own to give effect to the partition under section 171 of the Act. " The court also held : "If a transaction does not satisfy the above additional conditions, it cannot be treated as a partition under the Act even though under the Hindu law there has been a partition---total or partial. The consequence will be that the undivided family will be continued to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act, a Hindu undivided family can be liable to pay the tax without having control over the assets which are partitioned. (5) Considering this hardship and inequities resulting from section 171(9), the court has rightly held the provisions to be arbitrary and violative of article 14 of the Constitution. In our view, the aforesaid submissions are without any substance and similar contentions are dealt with and rejected by this court in the cases mentioned above, in Sardar Baldev Singh's case [1960] 40 ITR 605 (SC) and Balaji's case [1961] 43 ITR 393 (SC). It is for the Legislature to recognise or not to recognise partial partition of the Hindu undivided family property for the purpose of levy and collection of tax, it is also for the Legislature to decide whether only non bona fide partial partition undertaken for reducing the tax liability should not be recognised or not to recognise all partial partitions of the Hindu undivided family properties. Further, consideration of hardship is totally irrelevant for deciding the question of legislative competence. In the case of taxation, it is settled law that hardship or equity has no role to play in determining exig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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