TMI Blog1991 (1) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... the other half as belonging to the individual. The Wealth-tax Officer accepted the returns and assessed only half of the wealth as that of the Hindu undivided family. The Commissioner of Wealth-tax was of the view that the order of the Wealth-tax Officer was erroneous and prejudicial to the interests of the Revenue. He invoked the provisions of section 25(2) of the Wealth-tax Act to which the assessee objected. The Commissioner did not accept the objections of the assessee. He held that the properties of the Hindu undivided family will remain with the family till a partition is effected ; since no partition is effected, all the properties of the family are assessable to wealth-tax as belonging to the family. Accordingly, he set aside the assessment and directed the Wealth-tax Officer to redo the same bringing to tax the entire wealth of the family. In the appeal filed by the assessee, the Appellate Tribunal found that the deceased had left surviving female relative specified in class I of the Schedule to the Hindu Succession Act (for short "the Act"), that is the widow of the deceased and hence the proviso to section 6 would apply ; thus the property shall not devolve by survivors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dying. Therefore, on the death of Ramaswamy Setty, the share of the joint family in the two firms is reduced from 13/17th to 9/17th share." In the concluding paragraph, the Bench again stated that (at p. 354): "The joint family, notwithstanding the death of one of its male members, continues for the purpose of income-tax but the share of that joint family is diminished as in the case of alienation of any of the joint family properties." The ratio of this decision is quite clear. On the death of a male member, whenever the proviso to section 6 of the Act applies, the joint family is not disrupted ; to compute the share of the deceased which will devolve on the heirs, a notional partition is resorted to by virtue of the said provision of law. The share that is succeeded to by the heirs is not by virtue of any partition but by virtue of the operation of law. To the same effect is the Bench decision of the Gujarat High Court in CWT v. Kantilal Manilal [1973] 90 ITR 289. Chief Justice Bhagwati, as he then was, speaking for the Bench, accepted the statement of this court in Nagarathnamma's case [1970] 76 ITR 352 (Mys) as a correct proposition of law. It was pointed out by the Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not. It would, therefore, appear to be obvious that when the proviso says that the interest of a deceased coparcener in coparcenary property shall devolve by intestate succession, what is meant is that the share in the coparcenary property which would have been allotted to him on partition, if a partition had taken place immediately before his death shall devolve on the heirs. The concept of a notional partition is brought in for the purpose of defining the nature and quality of the interest which devolves by succession. It is the share which would have been allotted to the deceased coparcener on partition, if a partition had taken place at that time. The quantum of share is fixed : the proportion in which the share is to be counted are also crystallized. This specific share in definite ascertained properties, subject of course to payment of proportionate share of the debts and liabilities, devolves on the heirs by intestate succession. But, that does not affect the continuance of the Hindu undivided family. The fiction of partition is introduced for the limited purpose of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth-tax Act. Learned counsel referred to a few decisions to point out that the concept of partition of a Hindu undivided family for the purpose of taxation is a statutory concept and gets validity and enforceability so as to disrupt the Hindu undivided family when an appropriate order is made under the relevant legislation. Learned counsel referred to section 171 of the Income-tax Act. Similarly, section 20 of the Wealth-tax Act was referred to point out that a Hindu undivided family continues as Hindu undivided family until the Assessing Officer after enquiry is satisfied that the joint family property has been partitioned as a whole among the various members or groups of members in definite portions and he shall record an order to that effect. In this regard, though learned counsel cited several decisions, it is sufficient if reference is made to the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690, AIR 1982, SC 760, 767. The Supreme Court traced the history of the legislation commencing with section 25A of the earlier Income-tax Act leading to the present section 171 of the Income-tax Act and held that until a partition is accepted an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a partial partition as to property, the family ceases to be undivided as regards properties in respect of which such partition has taken place but continues to be undivided with regard to the remaining family property. After such partial partition, the rights of inheritance and alienation differ according as the property in question belongs to the members in their divided or undivided capacity. Partition can be brought about, (1) by a father during his lifetime between himself and his sons by dividing properties equally amongst them, (2) by agreement, or (3) by a suit or arbitration. A declaration of intention of a coparcener to become divided brings about severance of status." The Supreme Court further pointed out in page 768 of AIR 1982 SC that (at P. 702 of 133 ITR): "A physical division of the property which is the subject-matter of the partition is not necessary to complete the process of partition in so far as that item of property is concerned under Hindu law. The parties to the partition may enjoy the property in question as tenants-in-common." Coming to section 171 of the present Income-tax Act, it is stated at page 769 of AIR 1982 SC that (at p. 704 of 133 ITR) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een partitioned as a whole in definite portions among the various members or groups of members, he shall declare that the family shall be deemed to be a Hindu undivided family for the purposes of the Act and liable to be assessed as such. The purpose of section 20, subsection (2), is thus clear, i.e., that it preserves the status of the Hindu undivided family as a unit for taxation under the Wealth-tax Act. At the same time, it is clear that it does not declare or specify the properties to be deemed as belonging to the Hindu undivided family for the purpose of the assessment, while section 20 identifies the person to be assessed, the subject of charge under the Act will have to be identified by reference to other provisions such as the charging section. If this distinction is borne in mind, there should not be any difficulty in applying the provisions of the Act reasonably. The charging section is section 3 under the Wealth-tax Act. Under section 3, there shall be charged for every assessment year, wealth-tax in respect of the net wealth (on the corresponding valuation date) of every individual, Hindu undivided family and company at the rate or rates specified in Schedule I. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include the said share in the assets of the Hindu undivided family for the purpose of valuation under the Act ? The answer to these questions will have to be necessarily in the negative. In Nagarathnamma's case [1970] 76 ITR 352 (Mys), the penultimate paragraph has conveyed the idea very neatly when it said that the joint family, notwithstanding the death of one of its male members, continues for the purpose of income-tax but the share of that joint family is diminished as in the case of alienation of any of the joint family properties. A decision of the Supreme Court in Gurupad Khandappa Magdum V. Hirabai Khandappa Magdum [1981] 129 ITR 440 ; AIR 1978 SC 1239 was cited. In the said decision, the question involved was the mode of computing the share of the members at a partition of the family in which, earlier, a coparcener had died. The widow of the deceased had 1/4th right in case of a partition during the lifetime of her husband. The deceased husband also had 1/4th share by virtue of the Act. The 1/4th share of the deceased member devolved on the widow and five children. In the partition suit filed by the widow, the question was the quantum of share of the widow. Her conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption which the statute requires to be made that a partition had in fact taken place must permeate the entire process of ascertainment of the ultimate share of the heirs, through all its stages. To make the assumption at the initial stage for the limited purpose of ascertaining the share of the deceased and then to ignore it for calculating the quantum of the share of the heirs is truly to permit one's imagination to boggle. Al the consequences which flow from a real partition have to be logically worked out, which means that the share of the heirs must be ascertained on the basis that they had separated from one another and had received share in the partition which had taken place during the lifetime of the deceased. The allotment of this share is not a processual step devised merely for the purpose of working out some other conclusion. It has to be treated and accepted as a concrete reality, something that cannot be recalled just as a share allotted to a coparcener in an actual partition cannot generally be recalled. The inevitable corollary of this position is that the heir will get his or her share in the interest which the deceased had in the coparcenary property at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes for which it is enacted but it cannot be carried beyond that. It is no doubt true that the right of a female heir to the interest inherited by her in the family property gets fixed on the death of a male member under section 6 of the Act but she cannot be treated as having ceased to be a member of the family without her volition as otherwise it will lead to strange results which could not have been in the contemplation of Parliament when it enacted that provision and which might also not be in the interest of such female heirs." (emphasis supplied) This decision in fact points out the difference between the status of the Hindu undivided family as a legal entity and its assets. CWT v. Chander Sen [1986] 161 ITR 370 ; AIR 1986 SC 1753, has to be noted. There was a partition between the father and the son. Thereafter, the father and the son formed a partnership firm and continued the business. The son formed a joint family of his own with his sons. The father died. The amount standing to the credit of the deceased father devolved on the son. This sum was included in the son's Hindu undivided family while computing the wealth. The Supreme Court held that such a computati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 389, the scope of section 20 of the Wealth-tax Act was considered and the Bench held that: "In our opinion, the question that has to be considered by the Wealth-tax Officer is not whether there has been a disruption in status according to notions of Hindu law but whether there has been a partition by metes and bounds and whether there has been a physical partition of properties of the Hindu undivided family amongst the different members ; and it is only after that test of a physical partition by metes and bounds is satisfied that the necessary consequences for the purposes of assessment under the Wealth-tax Act will follow." The decision of the Andhra Pradesh High Court in CWT v. Tatavarthi Rajah and Satyanarayana Murthy [1983] 143 ITR 441, again is similar to the above case before the Gujarat High Court. The scope of section 20 was considered by the Bench which held that it was mandatory. The Andhra Pradesh High Court also pointed out that a mere division in status does not indicate which member is entitled to which of the properties and, therefore, it is not possible to hold that the joint family properties are divided into definite portions and allotted to each individu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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