TMI Blog1984 (11) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... . dated 29-9-1979, Shri Sharadkumar Pujalal Shah took 5 per cent share out of 32 per cent share of the assessee-HUF in Pipe Dealers along with a part of money standing in the account of the assessee-HUF in the said firm. (e) By a deed of partial partition, dated 3-10-1979, Shri Atulkumar Pujalal Shah took 5 per cent share out of 30 per cent share of the assessee-HUF in Tube Dealers along with a part of money standing in the account of the assessee-HUF in the said firm. (f) By a deed of partial partition, dated 4-10-1979, Shri Pujalal Lallubhai Shah took 4 per cent share out of 39 per cent share of the asses see-HUF in Pipe Distributors along with a part of money standing in the account of the assessee-HUF in the said firm. (g) Consequent upon the aforesaid partial partitions, fresh deeds of partnerships were executed in respect of the aforesaid three firms on 3-10-1979, 5-10-1979 and 5-10-1979, respectively, incorporating necessary changes. (h) The family consisting of four members filed returns declaring Rs. 29,150 being 27 per cent share from Pipe Dealers, Rs. 31,250 being 25 per cent share from Tube Dealers and Rs. 45,679 being 35 per cent share from Pipe Distributors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the HUF." 6. The assessee forwarded its objections as under : " (1) That you have not given a due consideration to the decision of the Gujarat High Court delivered in the case of CIT v. Shantikumar Jagabhai [1976] 105 ITR 795 inasmuch as their Lordships have crystally held that there can be an existence of the HUF more than one. (2) That in our case, our HUF is consisting of five members and the income which you proposed to be included in our hands belongs to four co-members of three different HUFs from three different partnership firms wherein from all the three firms one member got separated. (3) That the karta of our present HUF is no longer continued as a partner in the capacity of karta of the present HUF in the partnership firms of whom you proposed to include the income in the hands of our HUF as a new deed of partnership has been executed amongst the partners of the said respective partnership firms and, therefore, at the time of closing of the accounting year of the respective partnership firms, the karta of our HUF has no share income in all the three firms on the date of closing of the accounting year and, therefore, the said income cannot be included in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butors, Jaipur 45,679 And, therefore, I humbly request you to drop the inclusion of the said income in the hands of my present HUF and my return of income filed should be accepted in toto." 7. Thereafter, the ITO referred the matter to the IAC, who after hearing the assessee and tracing the legislative history regarding section 171 gave the following directions to the ITO : " In view of the foregoing discussion, the ITO's proposed action to include share income from the firm in the total income of the assessee-HUF is confirmed. The ITO is directed to complete the assessment in the case of the assessee, accordingly." 8. On 20-7-1983, the ITO finalised the assessment with the following remarks : " 9. It is, therefore, contended by the assessee that income received from Pipe Dealers, Ahmedabad, Tube Dealers, Bombay and Pipe Distributors, Jaipur, does not belong to the HUF of Pujalal L. Shah with the members as stated above. 10. Accordingly, HUF excluding separated members has filed separate returns showing partnership share income of Pipe Dealers, Ahmedabad, Tube Dealers, Bombay and Pipe Distributors, Jaipur, as belonging to the separate entity of the HUF, from which one m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V of 1983-84, dated 19-7-1983, has after hearing the assessee's representative and after considering the draft assessment order and the assessee's objection, etc., issued directions under section 144B(4) of the Act, and a copy of which is also enclosed with this order, a copy of which was forwarded to the assessee also. In view of the directions contained in the letter of the IAC, referred to above, contention of the assessee that the income from various partnership firms, viz. Pipe Dealers, Ahmedabad, Tube Dealers, Bombay and Pipe Distributors, Jaipur, belongs to different group of HUF is rejected and income from these partnership firms is added in the total income of the assessee, as belonging to HUF." However, in computing the total income of the assessee, the ITO included Rs. 29,150, Rs. 31,250 and Rs. 45,679 being 27 per cent, 25 per cent and 35 per cent, respectively, share of profit from Pipe Dealers, Tube Dealers and Pipe Distributors instead of 32 per cent, 30 per cent and 39 per cent, respectively, in the total income of the assessee-HUF. 9. In appeal before the Commissioner (Appeals), the assessee once again urged that its stand regarding partial partitions of the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tube Dealers, Bombay, the ITO has assessed the share of profits at 27 per cent, 37 per cent and 25 per cent respectively, in your hands for the assessment year 1980-81. As all the three partial partitions of 29-9-1979, 3-10-1979, and 4-10-1979 have not been recognised by the Income-tax Officer principally because of sub-section (9) of section 171 of the Income-tax Act, 1961, the Income-tax Officer appears to have made a mistake in not assessing the entire share income from the above firms, namely, 32 per cent, 35 per cent and 39 per cent. The result of non-recognition of the factum of partial partition, in your case, would be that the entire share income from the abovementioned three firms as it stood prior to the execution of the partial partition deeds shall have to be assessed in your hands. By not assessing the entire share income from the aforesaid firms in your hands, the Income-tax Officer has committed a mistake. I, therefore, propose to enhance your income by adding 5 per cent of share of profit from Pipe Dealers, Ahmedabad, 5 per cent share of profit from Tube Dealers, Bombay and 4 per cent share of profit from Pipe Distributors, Jaipur. Before I do so, I hereby give an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership and what we submitted in para 1 above and the above decision of Prem Bhai Parekh's case will apply with equal force to this point also, though it may be clarified that this paragraph is not in respect of your enhancement notice but is in respect of the original grounds of appeal. 4. We have refrained from stating here the arguments advanced before you orally at the time of the hearing of the appeal by your goodself, so please note." 12. In his order under appeal, the Commissioner (Appeals) overruled the assessee-HUF's contentions and directed the ITO to include 32 per cent, 30 per cent and 39 per cent share of profit, respectively, from the said firms in the total income of the assessee-HUF, in the following manner : " 18. I have given a careful thought to, the submissions made in the appellant's reply dated 7-1-1984. It may be mentioned that the Supreme Court's decision in the case of Prem Bhai Parekh was rendered under section 16 of the Indian Income-tax Act, 1922, which is in pari materia with section 64 of the Income-tax Act, 1961. In the said decision the Supreme Court had to interpret the provisions of section 16 and to decide whether any income of a minor chil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich had 32 per cent share in Pipe Dealers came to have 27 per cent share in the said firm and the remaining 5 per cent share went to Shri Sharadkumar P. Shah. Similarly, in the case of Tube Dealers, the original share of 30 per cent was substituted by 25 per cent share for the HUF and 5 per cent share for Shri Atulkumar P. Shah. In the same manner, the original share of 39 per cent in Pipe Distributors was reduced to 35 per cent in the hands of the HUF and 4 per cent went to Shri Pujalal Lallubhai Shah. When the law says that partial partitions have not to be recognised after 31-12-1978, then the natural consequence would be that the partial partitions effected after that date shall have to be ignored for the purpose of income-tax assessments. Whether the old manner representing the HUF in the aforementioned partnership firms continues to represent the appellant-HUF or not after reconstitution of the firms as a result of partial partitions to my mind would not be relevant for the purposes of section 171(9). 20. It is also not correct to say that the ITO has not processed the source of income which is the subject-matter of enhancement in this case. The ITO has already assessed 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere made before the Commissioner (Appeals), the learned counsel for the assessee vehemently argued that after the partial partitions, the original HUF consisting of five members no longer remained in existence but a smaller-HUF consisting of four members came into being which, according to him, was entirely different from the ' bigger-HUF ', i.e., the original HUF consisting of five members. It was this HUF consisting of four members which became partner in each of the three said firms. Therefore, even the share of profits of 27 per cent, 25 per cent and 35 per cent, respectively, considered by the ITO in the hands of the assessee-HUF was unwarranted. He further went on to argue that since the share of profits received by each of the separated members was assessed in their individual smaller-HUF hands, the same cannot be touched by the Commissioner (Appeals). In other words, he wanted to impress upon the Tribunal that since the share of profits in each of the said three firms could not be and was not processed by the ITO, the Commissioner (Appeals) clearly had no power to enhance the assessment in the manner he did. In this connection, he invited the attention of the Tribunal to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made on behalf of the assessee-HUF that three new and different ' truncated HUF's came into being should be rejected outright. According to the learned representative for the revenue, there was only one source of income and not more than one or different sources of income as contended on behalf of the assessee-HUF. Thereafter, he invited the attention of the Tribunal to the relevant portions of the order of the ITO (reproduced above) and highlighted the fact that in view of the provisions of section 171(9), he had rejected the claim of partial partitions. Consequently, the ITO should have considered the assessee-HUF's share of profit of 32 per cent, 30 per cent and 39 per cent, respectively, from the said three firms. But inadvertently, he considered 27 per cent, 25 per cent and 35 per cent, respectively, which the Commissioner (Appeals) was competent to set right by enhancing the assessment in the manner he did. He further submitted that the decision in the cases of Shapoorji Pallonji Mistry and Rai Bahadur Hardutroy Motilal Chamaria would not be of much help to the assessee-HUF as the facts and circumstances obtaining in the present case are clearly distinguishable from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-HUF in respect of its share of profits from the aforesaid three firms. Now, the main issue to be considered is whether the Commissioner (Appeals) had exceeded his jurisdiction in directing the ITO to include the entire share of profit of 32 per cent, 30 per cent and 39 per cent, respectively, from the aforesaid three firms in the total income of the assessee. In giving decision on this issue, it would be necessary first to find out whether on the execution of the deeds of partial partition, the assessee-HUF ceased to exist in the eyes of law. Now, when we turn to the deeds of partial partitions, which are more or less similarly drafted, we find that one of the members of the assessee-HUF had ' asked for his separate share in the profit and capital invested ' in the firm(s). Further, we find from the recital that ' the remaining parties have agreed to carve out the share of and to hand it over to him and have also further agreed to continue between themselves as the joint Hindu family of them (four) qua the said property to be so partitioned '. Now, in the deeds of partnership executed after the partial partitions, the HUF consisting of four members is mentioned with a view to cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, as mentioned above, once the partial partitions are held to be not recognised under the Act, the source of income would remain the same as before the partial partition. Therefore, we are not prepared to accede to the submissions made on behalf of the assessee-HUF that in giving direction to the ITO to include the entire share of profit of the assessee-HUF in the aforesaid three firms in the hands of the assessee-HUF, the Commissioner (Appeals) had enhanced the assessment by discovering a new source of income not mentioned in the return of the assessee or considered by the ITO in the order appealed against. We have carefully gone through the aforesaid decision of the Hon'ble Supreme Court in the cases of Shapoorji Pallonji Mistry and Rai Bahadur Hardutroy Motilal Chamaria. We entirely agree with the submissions made on behalf of the revenue that the facts and circumstances obtaining in the instant case are clearly distinguishable from the facts and circumstances considered by the Hon'ble Supreme Court in those two cases. On the contrary, we are of the view that the discussion and the ratio laid down in the said two cases support the action of the Commissioner (Appeals). With a v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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