R. K. Varma, J. - This is a reference under s. 256(1) of the IT Act, 1961 (hereinafter referred to as the Act) made by the Tribunal referring the following question of law stated to be arising out of the Tribunals order dt. 28-2-1983 passed in I.T.A. Nos. 886 and 887 of 1981 for the asst. yrs. 1976-77 and 1977-78 for the opinion of this court :
'Whether, on the facts and in the circumstances of the case the Tribunal was justified in law in directing the ITO to accept the claim of partial partition under s. 171 of the IT Act, 1961 made by the assessee, when there was only division of income without physical division of the property producing such income ?'
2. The facts leading to this reference are briefly stated thus :
The assessee is assessed in the status of HUF. There is also a firm of the same name. Assessee disclosed income of Rs. 30,924 for the asst. yr. 1976-77 and an income of Rs. 20,807 for the asst. yr. 1977-78. The source of this income was indicated as income from agricultural and property. The assessees case was ultimately accepted in appeal by the AAC and the entire income in the two assessment years was treated as income from agricultural and property. These amounts were deposited by the assessee in its account in the books of the firm of the same name. Assessee distributed these amounts in the names of the members of the HUF and claimed partial partition under s. 171 of the Act. This claim was refused by the ITO in view of the Explanation to s. 171 of the Act. The reason given by the ITO is that the assessee divided income without physical division of property producing the income. The AAC in appeal upheld the order of the ITO.
3. The assessee went in Second appeal before the Tribunal. It was contended on behalf of the assessee that once the deposits were made in the books of the firm it became capital assets of the members of the HUF which could be divided among them as such assets. In respect of the asst. yr. 1976-77 partial partition took place on 3-11-1975 and in respect of the asst. yr. 1977-78 it took place on 22-10-1976. In its order the Tribunal apparently accepted the contention of the assessee and held that once the amount was deposited in the books of the firm it cannot be said that unless the immovable property was divided the income arising out of such property cannot be divided. The Tribunal directed the ITO to accept the partial partition in respect of the amount in question in both the years under consideration. The Tribunal also held that sub-s. (1) of s. 171 of the Act contains the deeming provision and the Partition referred to therein can obviously include a Partial Partition also either as regards the person constituting the undivided family or the properties belonging to it or both.
4. The applicant revenue by a reference application under s. 256(1) of the Act required the Tribunal to refer the aforesaid question stated to be a referable question of law and further stated to be arising out of the consolidated order of the Tribunal passed in the two appeals arising out of assessment pertaining to the asst. yr. 1976-77 and 1977-78 for the opinion of the High Court. The reference application pertaining to asst. yr. 1977-78 was time barred. The present reference is, therefore, restricted to the asst. yr. 1976-77 only.
5. From what has been held in substance by the Tribunal in appeal there appears no difficulty in seeing that the division by the members of the HUF of the amount of income of HUF after the same is deposited at the end of the accounting year in the books of the firm as aforesaid amounts to partial partition as defined in cl. (b) of the Explanation to s. 171 of the Act. The Tribunal has rejected the view taken by the ITO and the AAC to the effect that physical division of income without physical division of property producing the income shall not be deemed to be a partition. It is apparent that the income of the HUF after being deposited at the close of the accounting year in the books of the firm was treated as capital assets of the members of the HUF as has been contended by the assessee counsel before the Tribunal. The division of such capital assets was, therefore, accepted as partial partition as claimed by the assessee.
6. On the facts and in the circumstances of the case, as understood by the Tribunal and reflected in its order passed in second appeal it cannot be said that any second appeal it cannot be said that any referable question of law, as stated by the Tribunal, arises in the present case. It appears unnecessary to consider whether a case of partial partition as accepted by the Tribunal answers the requirements of the definition of partition as envisaged in cl. (a) of the Explanation to s. 171 of the Act. The definition of partial partition is provided separately in cl. (b) of the Explanation. The instant case is referable to cl. (b) and not to cl. (a) of the Explanation and as such the question of law as stated does not arise out of the Tribunals order. In the circumstances, we are of the opinion that it is not necessary to answer the question as framed by the Tribunal since the same does not arise out of the Tribunals order. The reference is disposed of accordingly.