1. By this appeal, the assessee challenges the validity of the order under Section 263(1) of the Income-tax Act, 1961 ("the Act") passed by the Commissioner in respect of the assessment year 1976-77, holding that the assessment order under Section 143(1) of the Act dated 19-12-1977 made by the ITO, Sultanpur, was erroneous and prejudicial to the interest of the revenue.
2. The relevant facts bearing on the controversy may be noted : The assessee was the karta of the HUF and was a partner representing his family in Haribhanjan Lal Someshwar Prasad, Sultanpur, up to the assessment year 1975-76. On 1-4-1976, a partial partition amongst the members of the HUF with regard to the investment of the family in the aforesaid firm was effected and the various members of the assessee's family, consisting of himself, his wife and his son were allotted the following shares in the original capital of the family in the said firm :Shri Keshav Shukla 35,898.97Smt. Kalindi Shukla 35,898.97Shri Anil Kumar Shukla 35,898.97 With the aforesaid capital the three persons in their turn became partners in the same firm along with one Shri Shambhu Dayal and the respective shares of the partners in the said firm were agreed upon to be as fellows :Shri Keshav Shukla 30%Smt. Kalindi Shukla 20%Shri Anil Kumar 25%Shri Shambhu Dayal 25% The assessment of the assessee-firm for the assessment year 1976-77 was completed on a total income of Rs. 35,408 and the shares of Shri Keshav Shukla and his wife therein were determined to be Rs. 10,622 and Rs. 7,088, respectively. While making the assessment of Shri Keshav Shukla the ITO treated his share in the aforesaid firm as still belonging to the HUF of which he was the karta and, accordingly, brought the said amount of Rs. 10,622 to the assessment in his hands as representing the family.
3. After the aforesaid assessment had been made on Shri Keshav Shukla in the manner indicated above, the Commissioner perused his assessment records and felt that with regard to the income earned with the half of share in capital which he had received on partial partition of the family, he should have been assessed as individual following the decision of the Hon'ble Allahabad High Court in the case of CIT v.Purshottam Das Rais [1966J 61 ITR 86 and further that the share of his wife in the aforesaid firm should have been clubbed in his hands in terms of Section 64 of the Act and that inasmuch as the ITO had completed the original assessment without making due enquiries with regard to the correct status of the assessee and with regard to the applicability of the provisions of Section 64, his order was erroenous and prejudicial to the interest of the revenue. Accordingly he issued a show cause notice under Section 263(1) of the Act to the assessee and asked him to explain as to why the assessment made by the ITO should not be set aside by him with the direction that fresh assessment should be made in accordance with law.
3.1 It was pleaded by the assessee before the learned Commissioner that the assessee's correct status continued to be the HUF with regard to his partitioned share and such family consisted of himself, his wife and four unmarried daughters, that the nucleus of the property which came in the hands of the assessee was that of the HUF and therefore the same would continue to remain HUF as the status of the HUF cannot be disturbed on account of partial partition of the amount invested in the firm since no partition of immovable properties was effected, that the ITO had adopted the status of the assessee as individual in the assessment year 1977-78 without giving any opportunity of being heard to the assessee, and that appeal on that point was pending before the AAC, Faizabad, and that on that ground alone, it would not be proper to say that the ITO had committed a mistake and that his order was prejudicial to the interest of the revenue.
4. The learned Commissioner, however, felt that the ITO had made no enquiries before completing the assessment in the status of the HUF with a view to find out as to what was the correct status of the assessee and that he had accepted the version given by the assessee under Section 143(1) without properly applying his mind to it, that the assessee was a partner in the firm representing his HUF and that when the capital in the firm belonging to the family was partitioned amongst the assessee, his wife and his son, the share income of the members, who were parties to the partial partition, should have been assessed in the status of individual as held by the Hon'ble Allahabad High Court in the case of Purshottam Das Rais (supra), that in the circumstances the status of the assessee in respect of the share income from the firm should have been taken as individual by the ITO and that in accordance with the provisions of Section 64(1)(i), the share income of the wife from the same firm should have been included in the computation of the assessee's income for the assessment year 1976-77 and that inasmuch as the ITO had not carried out enquiries and made the assessment in terms of the above view of the law, his order was erroneous and prejudicial to the interest of the revenue and, therefore, the Commissioner set aside the order of the ITO and directed him to make the assessment de novo after giving full and complete opportunity to the assessee to adduce evidence in support of his contentions.
5. The aforesaid order of the learned Commissioner has been assailed by the learned counsel for the assessee on the ground that unless it could be shown by him that the stand taken by the ITO was erroneous in law and further that it was prejudicial to the interests of the revenue, the Commissioner could not issue directions under Section 263(1) setting aside the order of the ITO. In the present case, the facts were not in dispute, namely, that there had been a partial partition in the family of the assessee with regard to the capital investment in the firm and the only question for consideration was whether with regard to the share which the assessee had received on partial partition of his family he should be assessed in the status of HUF, consisting of himself, his wife and his unmarried daughters or whether assessment on him should have been made in the status of individual. The facts in the case of Purshottam Das Rais (supra) were altogether different and were not apposite to the facts of the present case and, in fact, their Lordships of the Allahabad High Court had clearly stated in the case of Bajrang Lal v. CIT  108 ITR 245 that if a sole coparcener had received ancestral property on partition he was entitled to the status of HUF provided, he or she represented the family as understood under the personal law of Hindus and was capable in nature or in law to add a coparcener to the family even after the aforementioned partial partition and as such the share in the divided property, which he received on partition of the family in his hands, continued to be belonging to the HUF consisting of himself, his wife and his unmarried daughters and as such the assessment made by the ITO on the assessee in the status of karta of the HUF was rightly made.
6. On behalf of the department, the order of the Commissioner was stoutly supported and it was stated that the facts of the case of Purshottam Das Rats (supra) clearly covered the facts of the present case and that, according to their Lordships of the Hon'ble Allahabad High Court, the correct view of law in the case of property received on partition was that in regard to the partitioned property every member will be assessed as individual on his income from the portion specifically allotted to him and as such, the Commissioner was right in holding that the ITO had made an error which was prejudicial to the interest of the revenue and, therefore, action under Section 263 was clearly warranted and was rightly taken by the Commissioner. It was also urged by the learned departmental representative that the Commissioner had not foreclosed the issue against the assessee and had merely set aside the order of the ITO with the direction to hear the assessee de novo and decide the case on merits after taking on record such evidence as the assessee might like to place. The assessee could, therefore, still claim before the ITO that what he thought was the correct position in law.
7. We have carefully examined the facts on record and the rival submissions. Admittedly, the capital in the firm which has been partitioned between the assessee, his son and his wife was the property of the HUF, and, therefore, its nature would not get altered in the hands of the assessee if it can be shown that he still forms a family along with other members, who have not separated from him. In the present case, admittedly, the four unmarried daughters of the assessee are still there and they continued to be the members of his family. The unmarried daughters have a right to be maintained and to be married out of the joint family property. The assessee, therefore, owns the property received by him on partition from his son and his wife not in his individual capacity, but as the karta of the family consisting of himself and his unmarried daughters. The correct position in law of the property received on partition by a member of the family been considered and pronounced by their Lordships of the Privy Counsel in Attorney General of Ceylon v. A.R. Arunachalam Chettiar  34 ITR 42. The above decision of the Privy Counsel has been approvingly quoted and relied upon by the Hon'ble Supreme Court while disposing of the appeal in the case of N.V. Narendranath v. CWT  74 ITR 190. At page 197, this is what their Lordships have stated with regard to the nature of property received on partition by a member of the HUF. ... As pointed out by the Judicial Committee in Aurnachalam's case  34 ITR (ED) 42 it is only by analysing the nature of the rights of the members of the undivided family, both those in being and those yet to be born, that it can be determined whether the family property can properly be described as 'joint property, of the undivided property'. Applying this test, it is clear, though in the absence of male issue, the dividing coparcener may be properly described in a sense as the owner of the properties, that upon the adoption of a son or birth of a son to him, it would assume a different quality. It continues to be ancestral property in the hands as regards his male issue for their rights had already attached upon it and the partition only cuts off the claims of the dividing coparceners. The father and his male issue still remain joint. The same rule would apply even when a partition had been made before the birth of the male issue or before a son is adopted, for the share which is taken at a partition by one of the coparceners is taken by him as representing his branch. Again, the ownership of the dividing coparcener is such 'that female members of the family may have a right to maintenance out of it and in some circumstances to a charge for maintenance upon it'. See Arunachalam's case (supra). It evident that these are the incidents which arise because the properties have been and have not ceased to be joint family properties ....
8. Applying the above principles to the facts of the present case, it is seen that what was received by the assessee on partition was part of joint Hindu family property and that he had unmarried daughters who had the right of being maintained by the family. The property, therefore, which has been received by the assessee belongs to him as the head of the family consisting of himself and his daughters and to the existing family a son can always be added either by birth or by adoption and, therefore, the incidents of HUF property are not taken away merely because the assessee's wife and assessee's son have been separated after partition with regard to the share capital in the firm in which the assessee was formerly representing the entire family, consisting of himself, his son, his wife and his daughters, as karta. The fact of the case of Purshottam Das Rais (supra) were altogether different inasmuch as there were no family members with whom Shri Purshottam Das Rais could form a family after partition had taken place between him, his wife, his sons and his mother. Shri Purshottam Das was left all alone and it is common ground that a single person does not constitute family. It was in the context of the facts of that case that their Lordships had pointed out that on the partition of the family income received by each of the divided members from divided property was received by him as an individual (sic.) and he was assessable with regard to such income as individual. The facts of the present case are materially different in so far as the divided father still has unmarried daughters to support and maintain and the responsibility of those daughters cannot be foisted by him on his divided son or for that matter on the divided wife. The obligation to maintain the unmarried daughters and marry them is fastened on the family of which, at the relevant time, the assessee is the karta. The Commissioner was, therefore, in our opinion, in error in presuming that the facts of the present case were governed by the ratio of the case of Purshottum Das Rais (supra). In view of this, we quash the order of the Commissioner under Section 263 and allow the appeal.