TMI Blog1949 (12) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the applicant the partition was on 22nd February, 1940, which was reduced to writing on the 5th April, 1940 as evidenced by the partition deed of that date. The property of the family which was the subject-matter of partition consisted of businesses, houses and other immovable properties, jewels and shares. There were four businesses which were exclusively owned by the family and one in partnership with others. The sole businesses were Ipoh M.S.M.M., Sithiawan M.S.M.M., Rangoon M.S.M.M., and Karaikudi M.S.M.M. and the joint business was at Singapore M.S.M.M. On the 22nd February, 1940, the assessee wrote a letter to his agent at Ipoh directing him to make certain entries in the accounts to evidence the partition of the businesses. The sons being minors, the father, it was claimed, exercised his right under Hindu law of bringing about a division between himself and his sons and also between the sons inter se. The partition deed of 5th April, 1940, shows that the Rangoon business was allotted exclusively to the father, and that the other businesses at Ipoh and Sithiawan and the combined business at Singapore were divided equally between the three sharers. The Karaikudi busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inference to draw that this arrangement relating to the rubber estates and the houses was part of the partition arrangement and not a sale by the father to himself of the assets of the family at a value of 1 lakh dollars. This is also the view of the Appellate Tribunal, and there is no reason to differ from that conclusion. The position therefore is that the businesses were divided, though unequally, the jewels were not divided, and so far as the immovable properties are concerned, regarding 13 items, the division was only into three shares of each item, one share being allotted to each member. In some of these items the family itself owned a fraction of the interest in the property and was not the owner of the properties in their entirety. The question therefore is whether the partition so made satisfies the requirements of Section 25 A of the Income-tax Act. The question formulated by the Appellate Tribunal really covers more than one contention raised on behalf of the assessee, and the Appellate Tribunal in the statement of the case has made it clear that the four questions of law raised by the applicant in his application for reference are really covered by the question whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese principles have been well-recognised in the two decisions already referred to. It has never been held and no decision has been brought to our notice taking the view that in such circumstances the partition is wholly void and is of no legal effect. Whether it is an alienation under the Hindu law by a guardian on behalf of the minor or a partition effected by the father in the exercise of his peculiar power the transaction will be good until it is set aside; it is voidable and not void. The view therefore of the Appellate Tribunal that the partition us void and is of no legal effect so far as the businesses are concerned on the ground that it is an unequal division cannot be accepted as applying the law correctly. The ground therefore on which, the Tribunal held that the partition of the businesses was void cannot be sustained. There is therefore an effective division of the businesses. The next question is whether there is a partition of the immovable properties and the jewels which can be recognised under Section 25A. The interpretation of this section is the subject-matter of several decisions which are by no means reconcilable. The doubts and difficulties have been to a la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition of partition of the property among the various members and groups of members in definite portions is not satisfied, the family will be deemed to be undivided for the purpose of the Act and will continue to be a Hindu undivided family. The important condition for the separation of the assessment in the manner provided by sub-clause (2) of Section 25A is proof of the fact that the joint family property has been partitioned among the various members or groups of members in definite portions. If this is satisfied under sub-clause (2) in respect of the income which was received by the family as an undivided family during the accounting year, each member will be liable to pay a share of the tax on the income in proportion to the joint family property allotted to him. Of course under the proviso to that clause the liability of the members who have partitioned the property continues to be joint and several in respect of the tax. If the crucial fact is not established, however, under sub-clause (3), the family is assessed as undivided, as it is deemed for the purpose of the Act to continue to be an undivided Hindu family. The distinction therefore under the section is between what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by metes and bounds. Meanwhile the family property will belong to the members as it does in a Dayabhaga family-in effect as tenants in common. Section 25A provides that if it be found that the family property has been partitioned in definite portions, assessment may be made, notwithstanding Section 14 (1), on each individual or group in respect of his or its share of the profits made by the undivided family, while holding all the members jointly and severally liable for the total tax. If, however, though the joint Hindu family has come to an end it be found that its property has not been partitioned in definite portions, then the family is to be deemed to continue-that is to be an existent Hindu family upon which the assessment can be made on its gains of the previous year. This last sentence, in my opinion is conclusive on the point that mere division of interest and the disruption of the joint family status without a partition in definite portions is ineffective under sub-section (2) of Section 25A to justify an assessment in the manner provided under that clause. Under sub-section (3) the family is deemed in such circumstances to be an undivided Hindu family. This decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w seriously maintained. Further, the section refers to partition of the property and not to the status of the members, which is also an indication that mere division of status or disruption of the family is not enough to constitute a partition. It no doubt creates a division in the right, not a division of the property. In this connection what was said by the Privy Council in the well-known case of Appoovier v. Rama Subba Aiyar [1867] 11 M.I.A. 75 may be borne in mind. Partition under Hindu law comprises both a division of a right and a division of property. A division of the right is concerned only with the division of the status while something more is required to constitute a division of the property. What is it then that constitutes partition into definite portions? The other extreme view is that it requires a physical division, that is, division by metes and bounds in the case of immovable property, and separation of the properties themselves in the case of movables and other kinds of property. It is however conceded by those who take such an extreme view that in the case of a business such a physical division is impossible. In the case of business the only kind of division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consisted in allotting to each member a third share in the houses which the family owned exclusively and a third share in the fractional share which the family owned in houses jointly along with others. In respect of houses in which the family owned only a fractional interest it is not possible for the members without the concurrence and consent of the other sharers to divide them physically. As the nature of the property admits only a division in the manner adopted in the deed of partition, it may be taken that in respect of those properties the division was in definite portions. In the case of houses owned by the family exclusively the position is somewhat different. No doubt the division in respect of those properties is carried a step further. It is not merely the ownership of an undivided one-third share in all the items by the members but in each item a member was allotted a third share. If a suit for partition by metes and bounds were to be instituted, this division of each item into three shares will be binding on the parties. It will not be open to them to go behind that division and claim that instead of one house another house in its entirety should be allotted to his s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. Partition contemplated by Section 25A is not necessarily a partition by metes and bounds. This view finds further support from the proviso to sub-section (2). He also observes at page 178: In spite of a partial partition of the kind assumed, they continue to remain members of the same joint family possessed of joint family property left after the disposition of apart. For these reasons I am of opinion that Section 25A was not applicable to the circumstances disclosed by the assessees' objection taken before the Assistant Commissioner, and I answer the first question in the negative. It is this aspect of the matter that was referred to by the Privy Council in the judgment in Sundar Singh Majithia s case (supra) . The view of the learned Judge regarding the interpretation of Section 25A that no partition by metes and bounds is necessary and that a division in status would be sufficient is opposed to the decision of the Privy Council. In the same volume (at page 448) there is a decision of the Lahore High Court in Saligram Ramlal s case (supra) , which takes the view that actual partition by metes and bounds of the property is necessary. The property in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . J., has to be construed with regard to the nature of the property concerned, and the learned Judge concedes that a business cannot be divided into parts as in the case of land, and the only mode of division possible in the case of a business is division in the books. Kania, J., expressed his view at page 199 that the word portion when read in conjunction with partition of joint family property would ordinarily mean a physical division and not a definition or ascertainment of shares only. I respectfully agree with the observations of the learned Judge that ordinarily it would be so; but as conceded in that very decision, in the case of a business, a physical division is impossible, and the nature of the division required must therefore vary with the nature of the property. The learned Judge also construes the Privy Council decision in Sundar Singh Majithia s case (supra) as authority for the view that mere division in status which brings about a disruption of the family is ineffective to constitute a partition under Section 25A. I respectfully agree with this view of the learned Judge regarding the decision of the Privy Council. There is another decision in the Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h have not been partitioned. It will still continue to be joint for the purpose of the income-tax in respect of properties still retained by the family. In respect of the properties parted under the partial partition, however, those assets can no longer be considered as assets of the family. From this point of view in the present case as there is an undoubted partition of the businesses which I have held to be valid, the income attributable to those businesses must be excluded from the total income of the family from 3rd March, 1940, till 13th April, 1940, the end of the accounting year and in the subsequent assessment. Lastly there is a decision of our Court in Medam Gurumurthi Setty v. Commissioner of Income-tax, Madras [ 1944] 12 I.T.R. 176, by Leach, C. J., and Patanjali Sastri, J. The only point decided was that the partition in the section means completed partition . If any assets remain undivided or are left for future division, it will not be a completed partition and therefore would be ineffective under the section. No doubt there is an observation in the judgment that Section 25A refers only to partition of the property and not to separation of status. What constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Excess Profits Tax Act. The result is that the question referred to us by the Appellate Tribunal must be answered in the affirmative and against the assessee, and the assessee will pay the costs of the Income-tax Commissioner which is fixed at ₹ 250. Viswanatha Sastri, J. The question that has been referred to us is in these terms:- Whether in the circumstances of the case the finding of the Appellate Tribunal that there has been no partition within the meaning of Section 25A of the Income-tax Act is right ? This comprises and compresses the following four questions :- (1) Whether by the deed of partition dated 5th April, 1940, a partition has taken place among the members of the family of M. S. M. M. ? (2) Whether the Income-tax Officer has power under Section 25A to ignore a partition on the ground that there has been an unequal distribution of the family properties among minor coparceners ? (3) Whether the members of the M.S.M.M. family are divided in status, and (4) Whether the joint family properties have been partitioned among the various members in definite portions within the meaning of Section 25A. We have tried to dissect th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5A of the Act. Under the Hindu law, a physical division of the properties of a joint family is not necessary to constitute a partition. Once the shares of the members are defined and fixed, there is a severance of the joint status. The sharers may then make a physical division of the property, or they may decide to enjoy it in common. But the property ceases to be joint immediately the shares are defined and thenceforward the sharers hold it as tenants-in-common. A partition whether by means of a physical division of property or by a definition of shares therein, may be either total or partial. The partition of a portion of the joint family properties does not necessarily imply a division in status among the members and whether there has been a severance in status in the case of a partial division must be gathered from the terms of the instrument effecting the partition or the conduct of the parties. In a joint Hindu family consisting of a father and his sons, the father has power, irrespective of the consent of his sons, to effect a division not only between them and himself but also between the sons inter se (vide Kandaswami s case (supra) ; Aiyavier s case (supra); Venkatapat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the partition arrangement. Even if the division of properties effected by the father were prejudicial to his minor sons and therefore liable to be set aside at their instance, a division in status between the father and his sons would have resulted from the transaction (Venkateswara v. Mankayammal [1935] 69 M.L.J. 410, at 424; Veerappa Chettiar v. Annamalai Chetty [1935] 68 M.L.J. 157; Kuppan Chettiar v. Masa Goundan [1937] 1 M.L.J. 243 Thirumalai v. Subramania [1937] 1 M.L.J. 243; Ramanathan Chetty v. Shanmugam [1945] I.T.R. 1945 Mad. 138). For these reasons, I hold that the revenue authority has no right to constitute itself as the self-appointed guardian of minor coparceners and, in that assumed role, avoid a partition arrangement effected by their father in the exercise of his powers under the Hindu law, on the ground of an inequality in the partition and the resultant prejudice to the interests of the minors. The inequality in the allotments is no doubt a circumstance relevant to the determination of the question whether the partition is real or fictitious. An unequal partition can nevertheless be a real partition and there may be reasons of sentiment, gratitude, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ma has been divided into three shares as between the father and his two sons by appropriate entries in the accounts showing a division of capital and menpanam (further contributions). In the Singapore firm the family had only a share along with other partners, but the business of the firm had been closed. No entries relating to the partition of the assets pertaining to the share of the family in the Singapore firm have been made in the Singapore accounts or in the Ipoh accounts where the receipts from the Singapore firm are credited. In respect of thirteen items of the family immovable properties situated here, as well as in respect of silverware and jewels valued at Es. 1,50,000, there has been no physical division but each of the three sharers is allotted an one-third share. The Tribunal has held that there has not been a partition of the family properties into definite portions as required by Section 25A of the Act. This section has been the victim of conflicting interpretation not only by the different High Courts but by the Judges of the same Court. It is agreed on all hands that Section 25A has no application to a Hindu family which is an undivided family in the year of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (supra); Gordhandas Mangaldas's case (supra); Bansidhar Dandhania's v. CIT [1944] 12 I.T.R. 126; I.T.R. 23 Patna 68; Medam Gurumurthi Setty's case (supra)). The contention of Mr. V. K. Thiruvenkatachari, the learned Advocate for the assessee, is that the reference to partition in defined portions in Section 25A is wide enough to include an agreement to hold the family property in defined shares, which is a well-recognised form of partition under the Hindu law. He states that Section 25A is a mere machinery section and does not in any way abrogate the rule of Hindu law that the holding of family property in definite shares without a physical division amounts to a partition. Mr. Rama Rao Saheb for the Department maintains that Section 25A does not recognise a mere division in status as effecting a partition and to this extent it is a deliberate departure from the rule of Hindu law. The further contention of Mr. V. K. Thiruvenktachari is that there has been something more than a mere division in status in the present case, because the three members of the family have been given each an one-third share in the items of immovable and movable property kept in common. This i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital and profits to the different sharers. Any other mode of division will result in an extinction of the business as an asset of the family which is not required by Section 25A. The balance of authority is also in support of this view. In Sundar Singh Majithia's case (supra) the Judicial Committee, after referring both to Mitakshara and Dayabhaga families, observed: If, however, though the joint Hindu family has come to an end, it is found that its property has not been partitioned in definite portions, then the family is to be deemed to continue that is to be an existent Hindu family upon which assessment can be made on its gains of the previous year. In the context the reference to definite portions is not to a mere definition of shares but to a physical division. In Gordhandas T. Mangaldas's case (supra) Beaumont, C. J., and Kania, J., came to the conclusion that the expression definite portions in Section 25A referred to a physical division of the property and not to a mere definition or ascertainment of shares in the property. The word portion was construed as a separate part of the property and not a share therein. Beaumont, G.J., observed :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms to me clear that in the case of a business at any rate, the only reasonable meaning of the words 'partitioned in definite portions' must be partitioned in definite shares . The dictionary gives the word share as a synonym for the word ' portion ' and similarly it gives ' portion ' as a synonym for the word 'share'. I am not able to see why the word should not take its natural meaning rather than the somewhat forced meaning that partition in definite portions means a partition by metes and bounds. Where the family property consists only of a business, the above observations would hold good; but if they go further and were meant to apply even to properties capable of a physical division, I must respectfully express my dissent. In Biradhmal Lodha's case (supra) the point now under consideration did not directly arise for decision but Niamatullah, J., in the course of his judgment expressed the opinion that a division by metes and bounds was not an indispensable requirement of Section 25A and that a disruption of the joint family by a division in status was enough. The words a separation of the members of the family has taken piece wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily are finally and completely partitioned. An order under Section 25A (1) could be made only when, in addition to a severance in status, there has been a partition of all the family properties among the members and until such an order is made, the family is deemed to be an undivided Hindu family for purposes of income-tax, notwithstanding the severance in status) and a partition of some of the properties. In the case of property that admits of a physical division or division by metes and bounds, such division is necessary to satisfy the requirement of a partition in definite portions found in Section 25A. In the case of trades and businesses, there need not be a winding up and division of the goods, outstandings and assets in order to satisfy the section. An allotment of a business exclusively to one member or a division of the capital and outstandings of the business in definite shares among the members in the books, coupled with the crediting of the receipts and debiting of the expenses pertaining to the share of each member, would be a sufficient compliance with Section 25A. The divided members would then be in the position of partners of a firm. If, having regard to the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gue that if a joint family becomes divided in status, all its assets must be deemed to be the assets of the joint family and all the income derived therefrom must be deemed to be the total income of the joint family till the final or physical partition of every item of the family property is completed. It may be that between the division in status and the partition of the last item of the family properties, as a result of intermediate arrangements among the members of the family, some part of the assets has been parted with to a stranger or even to one of the members of the family as his own separate and exclusive property. It may be that the divided members enter into a partnership with reference to a family business after dividing it by book entries. In such cases, though the family which is divided in status is deemed to be an undivided family under Section 25A (3) by reason of the fact that the actual division of the properties has been partial and not total, as required by Section 25A (1), still the family is deemed to be joint for purposes of income-tax only to the extent of those assets that have not been partitioned. To the extent the family assets have been actually partit ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
