2. There was originally a HUF consisting of V. Nadhatmrai as the karta and his two brothers V. Ramesh Babu and V. Jayaprakash, having certain business assets as well as immovable properties at No. 80, Narayana Mudali Street, Madras. There was a partition of this family which was recorded in a memorandum dated 1-4-1972. According to that memorandum, all the properties were partitioned and the members of the said joint family had severed in status. But, the house property not being capable of physical division by metes and bounds, it was agreed to be enjoyed in common by sharing the income equally. When this partition was placed before the ITO, an order under Section 171 of the Income-tax Act 1961 ('the Act'), was passed by him on 3-3-1976 by which only the partition with regard to movable property were accepted and the order was silent with regard to the immovable property. Since the order stated that only a partial partition has been recognised, the HUF continued to exist in respect of the immovable property. It may be mentioned that the Appellate Tribunal by its order dated 19-8-1981 in [IT Appeal Nos. 455 and 456 of 1980] upheld the claim of the assessee that as a consequence of the order under Section 171 the income from the property could be assessed only in the hands of the HUF and not separately as shares in the hands of the three divided coparceners. One of the divided coparceners Jayaprakash released his share of the property in favour of the other two by a deed dated 27-2-1974. This was treated as a gift by an individual owner of a share of the property and assessed to gift-tax. This was also confirmed by an exparte order by the AAC.3. Before us, the contention of the assessee is that in view of the order passed under Section 171 which recognised only the partition of the movable properties, the immovable property must be considered to be belonging to the HUF which was deemed to continue to exist and hence the release deed must be construed as a release of a coparcener's interest which did not amount to a transfer and could not, therefore, be assessed to gift tax. On the other hand, the contention of the revenue is that the order under Section 171 was made because of the peculiar provision in the Act according to which a property capable of division by metes and bounds and not so divided could not be recognised by the ITO (sic). It was submitted that the effect of the order under Section 171 deeming the HUF to continue was applicable only to the proceedings under the Act and could not affect the actual position in law in respect of the rights of the persons concerned and they are transactions which could attract the independent provisions of the Gift-tax Act.
4. On consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed. No doubt, the document dated 1-4-1972 recorded a complete partition between the three coparceners of the joint family and specifically provided that the house property with which we are concerned would be thereafter held by them as tenants-in-common. This partition of that asset has not been accepted by the ITO in order under Section 171. Therefore, for the purposes of the Act to the extent that the partition was not recognised the HUF shall be deemed to continue to be a HUF for the purpose of the Act. One of the coparceners has released his right in respect of the one-third share that was allotted to him in the partition. The question is whether that transfer by the release deed dated 27-2-1974 amounts to a transfer of his individual right acquired under the partition or whether it should be deemed to be a transfer of a coparcenary right in the property which is deemed to be continued to be held by the HUF to the extent that the partition was not recognised under Section 171. In other words, the question is whether the fiction created by Section 171 for the purposes of that Act could affect the taxability of a transaction under the provisions of the Gift-tax Act. Prima facie the legal fiction could not be extended beyond the purpose for which it was created. But, in the present case, it appears that there will be such a conflict of ideas between the two parallel enactments that a harmonious construction would require that the same fiction be kept in mind for the purpose of gift-tax also. The Supreme Court has held in the case of Kalloomal Tapeswari Prasad (HUF) v. CIT  133 ITR 690 that full effect should be given to the fiction in making the income-tax assessment and even if in reality a property has gone out of the joint family by a partition the income from the property has to be assessed in the hands of the HUF which is deemed to continue if the partition is not recognised under Section 171. A transfer of the share by a coparcener to a stranger would be invalid because a coparcener cannot transfer his rights unless there is a partition. But even if there is a partition and the coparcener transfers his share, on the one hand for the purpose of the Act, such a transfer will not be recognised if the partition is not accepted under Section 171 and the income from that property will have to be added to the income of the HUF which is deemed to continue to exist, whereas for the purpose of the Gift-tax Act, the transfer will have to be accepted on the ground that the coparcener had transferred his separate interest without consideration, There is, thus, a clear conflict between the two situations which may not occur in respect of the other related enactment, such as the Wealth-tax Act where there is a provision for making an order similar to Section 171, i.e., under Section 21 of the Wealth-tax Act. It seems to us that the revenue cannot take an inconsistent stand between the two enactments only on the ground that there would be a fiction in respect of the Act whereas the Gift-tax Act would be applied without regard to such a fiction. In our considered opinion, the fiction created by applying Section 171 cannot be ignored for the purpose of the Gift-tax Act and the transaction has to be considered in the light of the treatment of the asset for the purpose of the Income-tax Act and the Wealth-tax Act.
Since the asset in question is treated as belonging to HUF in spite of the claim that it is the separate property of the assessee-individual, we must hold that the transfer of the rights of the undivided coparcenary interest which does not amount to a transfer liable to gift-tax though he purported to transfer his separate interest. In the circumstances, we accept the appeal of the assessee and annul the gift-tax assessment. The appeal is allowed.