TMI Blog1987 (7) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... an (wife) (3) Bhavish Indravadan (son) (4) Kum. Sharda Indravadan (daughter) The HUF of Rashmikant Thakershi consists of the following co-sharers : (1) Shri Rashmikant T. (self) (2) Haresh Vina T. (wife) (3) Rupal Rashmikant (minor son) (4) Kum. Sejal Rashmikant (minor daughter) The HUF of Rajeshkumar Thakershi (HUF) consists of : 1. Rajeshkumar T. (self) 2. Bharatiben R. (wife) 3. There had been a partial partition during the previous year S.Y. 2034 relevant to the A.Y. 1979-80 in respect of a sum of Rs. 1,20,000. The partial partition has been effected as under : Amt. Partitioned Rs. (1) Thakershi Chunilal T.I. Rajesh (HUF) 16,000 Indravadan T. Parikh 4,000 (2) Thakershi Chunilal T.I. Rajesh (HUF) 16,000 Rashmikant T. Parikh 4,000 (3) Thakershi Chunilal T.I. Rashmikant (HUF) 16,000 Rajesh Thakershi Parikh 4,000 (4) Thakershi Chunilal T. Rajesh (HUF) 12,000 Indravadan Rashmikant (HUF) 8,000 (5) Thakershi Chunilal T. Rashmikant (HUF) 12,000 Indravadan Rajesh (HUF) 8,000 (6) Thakershi Chunilal T. Indravadan (HUF) 12,000 Rashmikant Rajesh (HUF) 8,000 4. The above partial partition has been accepted by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has become a partner with 10 % in the firm of M/s. Mahipatrai Thakershi Co. assessed by ITO I.D. (No. 548-M)." 4. On the aforesaid facts, the assesses filed its return declaring the status therein as "HUF". The ITO, vide his letter dated 16-3-1983, called upon the assessee to show cause why its status should not be taken as "AOP" and its income should not be assessed in the individual hands of the co-sharers as he was of the view that the arrangements in which the distribution of the funds have been made "are in equally in the hands of individuals and the partial partition is sham and in the eye of law there cannot be separate joint family status of separate HUF". 5. In its letter dated 22-3-1983 addressed to the ITO, assessee took up a stand that once the partial partition has been accepted by the revenue after due enquiry, the same was binding on it. Therefore, it was not correct for the ITO to state that the arrangements amongst the co-sharers was sham and in the eye of law, there cannot be separate joint family status of separate HUF. Reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Shantikumar Jagabhai [1976] 105 ITR 795, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in all properties belong to the family. The Hindu Law does not contemplate a situation where a member of the family does not have interest in all properties belonging to the family. 12. The correct effect would be that the particular property is partitioned whereby it cease to belong, to the family and it is allotted to all the members of the family except one who can thereafter hold it as co-owners. But that property cannot be held by such members again as members of a HUF. In other words once a property is taken out from the common hotch-potch pot and partitioned, it loses its character of 'joint family property' and becomes an individual property in the hands of the members. 13. The arrangement of releasing the amounts by one co-sharer and of running separate HUFs by the remaining other coparceners, snacks of ingenuineness. In the above all arrangements in which the assessee has made, two separate HUFs by releasing the amounts in equal parts in favour of other persons shows that this is sham arrangement and the group of persons who have joined hands together to earn the income and become the partners in the separate firms, clearly shows that the co-sharers (as stated abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s partial partition of Rs. 20,000 of the bigger HUF. At this stage the Tribunal had invited the attention of the learned representative for the department to the clause (b) of the Explanation to section 171 which defines "partial partition" with a view to bring to his notice that the submissions made by him may not fit in well with the said definition. Thereafter, he referred to the aforesaid decision of the Hon'ble Supreme Court in the case of Joint Family of Udayan Chinubhai and pointed out that even though the ITO wanted to assess some of the members of the family in the status of "HUF", the Hon'ble Supreme Court held that the same could not be done. He also pressed into service the decision of the Hon'ble Supreme Court in the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148, as according to him, by creating multiple HUFS, the sole purpose of the assessee was to reduce/avoid legitimate tax due to the national exchequer. He Also referred to the order of the Tribunal in the case of ITO v. Mayabhai Laxmichand (HUF) [1986] 19 ITD 245 (Ahd.), as according to him, the ratio laid down therein would be applicable to the facts and circumstances obtaining in the instant case. Finally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1922 (corresponding to section 171 of the Act). Initially, the ITO assessed the other members of the joint family in their individual capacity. However, he initiated the proceedings u/s. 34 of the Indian Income-tax Act, 1922 (corresponding to section 147 of the Act) with a view to assess the other members of the family in the status of HUF. However, in the instant case, the ITO himself has recognised that the only one of the coparceners had severed his connection vis-a-vis Rs. 20,000 by taking his share of Rs. 4,000 or Rs. 8,000. The other members of the family continued to remain joint. As regards the order of the Tribunal in Mayabhai Laxmichand (HUF)'s case the learned counsel for the assessee highlighted the fact that in that case, an attempt was made by the assessee to circumvent the provisions of prohibiting partial partition after 31-12-1978. However, in the instant case, since the partial partition has taken place prior to the introduction of sub-section (9) in section 171 of the Act, the said order of the Tribunal would not come in his way. Finally, he also relied on an unreported decision of the Hon'ble Gujarat High Court in the case of Kanailal Motilal Co. [IT Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er clause (3) of section 25A if no order has been made notwithstanding the severance of the joint family status, the family continues to be liable to be assessed in the status of a Hindu undivided family, but once an order has been passed, the recognition of severance is granted by the income-tax department, and clause (3) of section 25A will have application." On the aforesaid observations themselves, the action of the ITO is clearly bad in law. 11. We have gone through carefully various reported/unreported decisions cited before us as well as the order of the Tribunal in Mayabhai Laxmichand (HUF)'s case , to which both of us were the parties and are of the view that the ratio laid down in each of them clearly supports the stand taken on behalf of the assessee. At this stage, we would like to observe that while applying the ratio laid down in the reported cases, it is also worthwhile keeping in mind the facts and circumstances obtaining in those cases and the one with which we are concerned in the present appeals. In the case of Joint Family of Udyan Chinubhai, the partition was total and that too by a court decree. This was recognised by the ITO by passing appropriate order u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been assessed to income-tax as such, it continues to be regarded as Hindu undivided family unless the property has been partitioned by metes and bounds. This provision applies equally in the case of total as well as partial partition. 46. In spite of the measures taken in recent years, Hindu undivided family continues to be used as a medium for reduction of tax liability. This appears to be specially true in cases where multiple Hindu undivided families have been created by effecting partial partitions as regards persons constituting the joint family or as regards the properties belonging to the joint family, or both. With a view to curbing the creation of multiple HUFs by making partial partition, it is proposed to de-recognise the partial partition of a Hindu undivided family effected after 31st December, 1978, for tax purposes. In cases where a Hindu undivided family has been taxed in the status of a Hindu undivided family, it will continue to be taxed as such unless there has been a total partition of the family properties by metes and bounds and a finding to that effect is recorded by the Income-tax Officer. 47. This amendment will take effect from 1st April, 1980, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by effecting partial partitions as regards persons constituting the joint family or as regards the properties belonging to a joint family or both. 31.3 With a view to curbing the practice of creating multiple Hindu undivided families by making partial partitions, the Finance Act has inserted a new sub-section (9) in section 171 of the Income-tax Act, whereunder partial partitions of Hindu undivided families effected after 31st December, 1978, will not be recognised for tax purposes. The new sub-section (9) which will apply in the cases of Hindu undivided families which have hitherto been assessed in the status of Hindu undivided family, has made the following provisions in this regard-- (i) In a case where a partial partition of a Hindu undivided family has taken place after 31st December, 1978, no claim that such partial partition had actually taken place will be enquired into under sub-section (2) of section 171 and the Income-tax Officer shall not record a finding as to whether there has been a total partition of the joint family property under sub-section (3) of that section. Further, any finding regarding partial partition recorded under the said sub-section (3) shall be n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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