TMI Blog2005 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... rt: "Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in upholding the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to work out the capital gains on 2/3rds of the sale consideration of Rs. 64,80,000 amounting to Rs. 43,20,000?" The dispute relates to the assessment year 1983-84. Briefly stated, the facts giving rise to the present reference are as follows: The assessee is a Hindu undivided family and it is assessed as such. It consisted of Sri Dharam Pal Singh (karta), Yadavendra Pal Singh (son), Laxmi Kumari (wife) and Usha Agrawal (unmarried daughter). The karta died on September 2, 1982. The assessee-Hindu undivided family had entered into an agreement on May 26, 1982, to sell a property owned by it and known as "Castle Grant" for a total consideration of Rs. 65 lakhs. After the death of the karta, namely, Dharam Pal Singh, who died on September 2, 1982, a sale deed was executed by his son on March 5, 1983, as karta of the Hindu undivided family. A sum of Rs. 20,000 by way of brokerage was paid and the net sale proceeds were shown at Rs. 64,80,000 before the Assessing Officer. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndu law, such as joint family, adoption and maintenance, and lays down rules of far reaching consequences. The assessee on the basis of the aforesaid Explanation submitted before the Tribunal that where a coparcener dies, the Mitakshara coparcenary ancestral property becomes disrupted and there is a deemed partition between the surviving coparceners. The basic contention of the assessee is that on account of Explanation 1, which provides for deemed partition, 1/3rd share of the deceased is liable to be excluded and is not taxable for the purpose of computation of capital gains at the hands of the assessee/respondent (HUF). In order to examine the validity of this submission, it is necessary to refer to some of the relevant features of the Hindu undivided family and to consider the effect of the provisions of section 6 of the Hindu Succession Act on such family. Under the Hindu law an undivided Hindu family is ordinarily joint not only in estate but in food and worship, but it is not necessary that the joint family should own joint family property. There can be a joint family without joint family property. A Hindu coparcener is a narrower body than the joint family. Only males acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in her husband's share and second, her husband's own share in the coparcenary property. The proviso to section 6 contains the formula for fixing the share of the applicant, while Explanation 1 contains a formula for deducing the share of the deceased. Interpreting the scope and width of Explanation 1, the Supreme Court has observed that the fiction created by Explanation 1 has to be given its due and full effect as the fiction created by section 18A(9)(b) of the Indian Income-tax Act, 1922, was given by it in CIT v. S. Teja Singh [1959] 35 ITR 408 (SC); AIR 1959 SC 352. The relevant portion is quoted below (page 446 of [1981] 129 ITR): "In our case, it is not necessary, for the purposes of working out the fiction, to assume and supply a missing link which is really what was meant by Lord Asquith in his famous passage in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 at page 132. He said: 'If you are bidden to treat an imaginary state of affairs as real, you must also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it; and if the statute says that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the interest which the deceased had in the coparcenary property at the time of his death, in addition to the share which he or she received or must be deemed to have received in the notional partition." The above case is the sheet anchor of the assessee's contention, as noticed by the Tribunal. On a close reading of the aforesaid case law, we find that in para. 11 of the report Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum [1981] 129 ITR 440 (SC); AIR 1978 SC 1239 the Supreme Court clarified the matter by making an explicit observation that it is not concerned as to whether in reality a partition had taken place between the plaintiffs husband and his sons. The relevant portion is quoted below: "Whether a partition had actually taken place between the plaintiffs husband and his sons is beside the point for the purposes of Explanation 1. That Explanation compels the assumption of a fiction that in fact 'a partition of the property had taken place', the point of time of the partition being the one immediately before the death of the person in whose property the heirs claim a share." The real controversy in the above case before the Supreme Court was about the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 has held that to claim a partition within the four corners of the Income-tax Act, certain additional requirements as provided under section 171 of the Act are required to be fulfilled. Interpreting section 171 of the Act, it has been held by it that Hindu law does not require that the property 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 recognised under Hindu law and it is open to the parties to enjoy their share of the property as tenants in common in any manner known to law according to their desire. But, the income-tax law introduced certain additional conditions of its own to give effect to the partition under section 171 of the Act. A transaction can be recorded as a partition under section 171 only if, where the property admits of a physical division, a physical division of the property has taken place. In such a case mere physical division of the income without a physical division of the property producing the income cannot be treated as a partition. Even where the property does not admit of a physic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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