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Wealth-tax Officer Vs. M.L. Janardhana Setty and Sons - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1984)9ITD776(Bang.)
AppellantWealth-tax Officer
RespondentM.L. Janardhana Setty and Sons
Excerpt:
.....dated 29-5-1955 there was severance of status in the bigger huf and eight branches of the family held the properties as tenants-in-common.there was partition by metes and bounds by deed dated 6-1-1968. since there was severance in status and one-eighth of the properties was held as tenants-in-common, the assessee, shri janardhana setty, and his two sons divided this one-eighth share among them in three equal shares as per the agreement dated 28-3-1964. this is also supported by the agreement dated 28-3-1968. since it was only a partial partition, there was no need for a division by metes and bounds. he submitted that mere severance in status brings out disruption of the family. he strongly urged that the partition of the bigger huf with effect from 6-1-1968 has been accepted by.....
Judgment:
1. The respondent-assessee is the smaller HUF. There was a severance of status of the bigger HUF, namely Mysore Lachaiah Setty & Sons, by an agreement dated 29-5-1955 under which each of the branches getting one-eighth share which they would hold as tenants-in-common. In this agreement there was no division by metes and bounds. Thereafter Shri Janardhana Setty and his two sons, coparceners of the smaller HUF, executed an agreement dated 28-3-1964, agreeing to divide between themselves the one-eighth share of the bigger HUF, each getting one-third share of it "which they would hold as tenants-in-common.

Subsequently by a partition deed dated 6-1-1968 the properties of the bigger HUF were divided by metes and bounds. Shri Janardhana Setty was not a signatory to it. Thereafter, an agreement dated 28-3-1968 was executed between Shri Janardhana Setty and his two sons stating that by agreement dated 28-3-1964 they have divided the one-eighth share of the bigger HUF and they shall be the absolute owners of the one-third share each of one-eighth share of the bigger HUF.2. In the wealth-tax returns filed by the respondent-family only the property let out to New Stores situated at Mahatma Gandhi Road, Chickmagalur, was shown. It was contended that the one-eighth share in the properties of the bigger HUF has been partitioned by Shri Janardhana Setty and his two sons as per the agreement dated 28-3-1964 and so they do not belong to the respondent smaller HUF. The WTO did not accept these submissions. He held that the actual partition of the bigger HUF by metes and bounds took place on 6-1-1969. The declaration of the partition made on 28-3-1964, therefore, proceeded on a wrong presumption that property was in the absolute possession of the smaller branch and could be partitioned. Because of this no partition can be said to have taken place on 28-3-1964.

Referring to the agreement dated 28-3-1968, between Shri Janardhana Setty and his two sons, the WTO held that the properties that were allotted to this family were not taken possession of and the actual partition between the three coparceners of this family was not possible. The agreement, therefore, is ineffective and on the basis of this it cannot be said that there was a partition of these assets by metes and bounds between the coparceners of this family. The other contention of the assessee was that in a partial partition where no order under Section 20 of the Wealth-tax Act, 1957 ('the Act') is necessary, the metes and bounds partition is not necessary and the coparceners can hold the properties as tenants-in-common without actually partitioning the properties by metes and bounds. The WTO did not accept this contention. He held that the fallacy in this argument is that the coparceners were not possessed of the properties nor they have accepted the properties allotted to them in partition but they have disputed it. The family could not make a declaration to hold unknown properties amongst the coparceners as tenants-in-common. He rejected the claim of partition in respect of the properties in the bigger HUF. He held that these properties are owned by the family and, accordingly, included them in the net wealth in all these years. The assessee preferred appeals before the AAC. He held that by the agreement dated 29-5-1955 there was severance in status and the eight members of the bigger HUF agreed to hold the properties as tenants-in-common. By the agreement dated, 28-3-1964 the one-eighth share in the bigger HUF was agreed to be held by the father and his two sons as tenants-in-common. There was a partition of the bigger HUF by metes and bounds as per the registered deed dated 6-1-1968. He held that a definite and unambiguous indication of the intention by one member to separate himself from the family and to enjoy his share in severally does amount in law to a division of status. The document dated 28-3-1964 is not a sham document. It creates interest for the assessee and his two sons to enjoy the right of tenancy-in-common secured by the assessee in the bigger joint family of Mysore Lachiah Setty & Sons. The document dated 28-3-1968 is also relevant. In the partition held on 6-1-1968 the assessee was allotted properties in definite proportion. Once it was conceded that in the partition dated 6-1-1968 the assessee was specifically allotted various assets of the value of Rs. 9,28,300 duly brought to charge by the WTO, there is nothing wrong in the the claim of the assessee that these properties no longer existed as on the valuation dates 31-3-1970 to 31-3-1972 relevant to the assessment years 1970-71 to 1972-73 and that they have been divided inter se by virtue of the document dated 28-3-1968. There is substantial reason to admit the assessee's claim that so far as the assessee's one-eighth share in the bigger HUF is concerned, there has been a further division of that right share between the father and his two sons. It can be reasonably inferred that at least by 27-3-1970 the assessee and his two sons held the properties to be derived from the bigger joint family in severally and tenants-in-common and such a right of tenancy-in-common was inter se subjected to partition between the assessee and his two sons as is clear from the agreement dated 28-3-1964 and the agreement dated 28-3-1968. Thus, he held that the WTO was not correct in law in bringing to charge the assets of the value of Rs. 9,28,300 for the purpose of assessment on the assessee-joint family as on the valuation dates 31-3-1970 to 31-3-1972, he directed the WTO to exclude the same from the assessments. Against the same, the revenue has preferred these appeals.

3. The learned departmental representative strongly urged that in the agreement dated 29-5-1955 there was no partition of the properties by metes and bounds. It was only in the agreement dated 6-1-1968 that there was partition by metes and bounds, but Shri Janardhana Setty was not a party to this agreement and he ratified the same in 1975 and got possession of the properties allotted to him only in 1975 and hence the agreement dated 28-3-1964 cannot be treated as a partition of properties by metes and bounds between Shri Janardhana Setty and his two sons. Since the partition dated 6-1-1968 was not accepted by Shri Janardhana Setty, there could not have been division of the properties till 1975 when he got possession of the same. Unless the entire properties are divided by metes and bounds in definite proportion, there could not have been a partition between the assessee and his two sons. What is true of the whole partition is also true of partial partition. Even in the partial partition the properties should be divided by metes and bounds. Thus, he urged that one-eighth share of the properties received from the bigger HUF was owned by the respondent-family and was tightly included in its net wealth. The AAC was wrong in excluding the same. The learned Counsel for the assessee strongly supported the order of the AAC. He submitted that by agreement dated 29-5-1955 there was severance of status in the bigger HUF and eight branches of the family held the properties as tenants-in-common.

There was partition by metes and bounds by deed dated 6-1-1968. Since there was severance in status and one-eighth of the properties was held as tenants-in-common, the assessee, Shri Janardhana Setty, and his two sons divided this one-eighth share among them in three equal shares as per the agreement dated 28-3-1964. This is also supported by the agreement dated 28-3-1968. Since it was only a partial partition, there was no need for a division by metes and bounds. He submitted that mere severance in status brings out disruption of the family. He strongly urged that the partition of the bigger HUF with effect from 6-1-1968 has been accepted by the ITO by his order under Section 171 of the Income-tax Act, 1961 ('the 1961 Act') as well as by the WTO by his order made under Section 20 of the 1957 Act. He placed reliance on a decision in CWT v. M.L. Ramchandra Setty & Sons [1979] 116 ITR 545 (Kar.).

4. We have considered the rival submissions. It is well settled that a partition can be effected by a definite and unequivocal indication of his intention by a member of a joint family to separate himself from the family and enjoy his share in severalty. Once the shares are defined, the partition is complete. In Smt. Krishnabai Ganpatrao Deshmukh v. Appasaheb Tuljaramrao Nimbalkar AIR 1979 SC 1880 the Supreme Court observed as under : ...The parties are, admittedly, governed by Mitakshara school of Hindu law. In an hindu undivided family of Mitakshara concept, no member can say that he is the owner of one-half, one-third or one-fourth share in the family property, there being unity of ownership and commensality of enjoyment while the family remains undivided. Such unity and commensality are the essential attributes of the concept of joint family status. Cesser of this unity and commensality means cesser or severance of the joint family status, or, which under Hindu law, is 'partition': irrespective of whether it is accompanied or followed by a division of the properties by metes and bounds. Disruption of joint status, itself, as Lord Westbury put it in Appovier v. Rama Subba Aiyan [1866] 11 Moo Ind App 76 (PC), in effect, 'covers both a division of right and division of propertry'. Reiterating the same position in Girja Bai v. Sadashiv [1916] 43 Ind App 151 (PC) the Judicial Committee explained that division of the joint status, or partition implies "separation in interest and in right, although not immediately followed by a de facto actual division of the subject-matter. This may at any time, be claimed by virtue of the separate right.

Thus, it was held therein that cesser of unity and commensality means cesser or severance of the joint family status, which means partition, irrespective of whether it is accompanied or followed by a division of the properties by metes and bounds. In Mulla's Hindu Law, 15th edition, at page 443 it is observed that an actual division of property by metes and bounds is not necessary and once the shares are defined, the partition is complete and the property ceases to be joint and the parties held the property as tenants-in-common. Partition is of severance of joint status and as such it is a matter of individual volition.

5. In the instant case as per the agreement dated 29-5-1955 there was severance in status and partition of the bigger HUF. The share was defined. Each of the eight branches held one-eighth share as tenants-in-common. It was further stated in that agreement that the net profit will be divisible into eight equal parts, each of the executants receiving one share for and on behalf of his branch and the income shall be held separately and in absolute and separate right. Under the above document there is a division in status and there was partition of the bigger HUF. The share of each member is defined. Even though there was no division of the property by metes and bounds, the property itself ceased to be joint and the parties held the property as tenants-in-common. Subsequently, by the partition deed dated 6-1-1968 there was partition of the properties of the bigger HUF by metes and bounds. This partition by metes and bounds of the bigger HUF as per the deed dated 6-1-1968 has been accepted by the ITO by his order dated 28-7-1976 under Section 171 of the 1961 Act as well as by the WTO by his order under Section 20 of the 1957 Act. It is not relevant whether Shri Janardhana Setty was a signatory to it or not. He was allotted an equal share. In fact, he had ratified the partition by ratification deed dated 30-10-1975. All these facts were noticed by the ITO in his order under Section 171 and accepted the partition dated 6-1-1968.

6. Shri Janardhana Setty and his two sons partitioned the said one-eighth share as per the agreement dated 28-3-1964. This is valid and they had the right to partition the one-eighth share which Shri Janardhana Setty got under the agreement dated 29-5-1955. Even after the regular deed of partition dated 6-1-1968 was executed, Shri Janardhana Setty and his two sons executed an agreement dated 28-3-1968 wherein it was reiterated that there has been a division in the family of Shri Janardhana Setty and his two sons as evidenced by the agreement dated 28-3-1964 and that they are entitled to one-third share each in the one-eighth share for which Shri Janardhana Setty is entitled to in the bigger HUF which they held as absolute owners. "Thereafter also another partition deed dated 27-3-1970 was executed between Shri Janardhana Setty and his two sons which also makes it clear as to the division of one-eighth share got from the bigger HUF. These three agreements clearly indicate the division of the one-eighth share in the bigger HUF into three equal shares between Shri Janardhana Setty and his two sons. Thus, there was a division of these properties. Hence, the assessee-family did not own the property, i.e., one-eighth share of the bigger HUF which has been divided by Shri Janardhana Setty and his two sons.

7. Further, this is a case of partial partition only as one of the properties owned by the family, i.e., the property let out to New Stores at Mahatma Gandhi Road, Chickmagalur, has not been divided and it is still held by the smaller HUF. When there is a partial partition, there need not be a division by metes and bounds. Section 20 will apply only in a case where there has been a complete partition of the family properties as a whole amongst the members of the family in definite proportion. Section 20 cannot be applied to a case of partial partition of the properties. In this connection, we may refer to the decision of the Karnataka High Court in M.L. Ramachandra Setty & Sons' case (supra). There the assessee, Ramachandra Setty, was one of the brothers of Shri Janardhana Setty, the respondent here. It was held therein that Section 20 would not apply to cases of partial partition and it is not necessary to divide the estate by metes and bounds. The Karnataka High Court held as under : In the cases before us, the members of the HUF, while they continued to be undivided in respect of the rest of their estate, agreed to hold the three estates in question as tenants-in-common with effect from March 17, 1968. The agreement dated March 17, 1968 had the effect of bringing about a partial partition amongst the members of the HUF insofar as the three estates were concerned. Because the family continued to be joint for other purposes in view of the decision of the Privy Council referred to above, no order under Section 20 of the Act was necessary and in fact Section 20 was not attracted at all. Section 20 applies to a case where the 'joint family property has been partitioned as a whole among the various members or groups of members in definite portions'. The expression 'partitioned as a whole' means that a partition has taken place in its entirety in respect of all the property of the family. Section 20 cannot, therefore, apply to a case of partial partition as to property. The High Court of Allahabad has also taken the same view in Dwarka Nath v. CWT [1966] 62 ITR 304. The authorities under the Wealth-tax Act had, therefore, to decide these cases without any regard to Section 20 of the Act, but with due regard to Mitakshara law. It is well settled that it is open to the members of a HUF to agree to enter into a partial partition and to hold the properties which were the subject-matter of such partial partition, as tenants-in-common, while continuing to be joint in respect of other properties of the family. The Tribunal was, therefore, right in holding that Section 20 of the Act did not apply to cases of partial partition as to property, that the properties in question did not belong to the HUF on the valuation dates and further that it was not necessary to divide the estates by metes and bounds. The three questions referred to us in T.R.C. Nos. 158 to 160 of 1977 are answered in the affirmative and in favour of the assessee-HUF.In this decision it was noticed that Section 20 of the 1957 Act is similar to Section 25A of the Indian Income-tax Act, 1922, which did not specifically deal with cases of partial partition as it has been done under Section 171 of the 1961 Act. A reference was made to the decision of the Privy Council in Sir Sunder Singh Majithia v. CIT [1942] 10 ITR 457 wherein it was held that Section 25A did not prohibit members of a HUF from entering into a partnership in respect of a portion of the joint property if they had partitioned amongst themselves and that that section had no reference at all to a case of HUF which had parted with an item of property to its individual member taking proper steps and continued in existence at the time of assessment, never having been disrupted. Where some of the members of the HUF had agreed to hold a property which belonged to a joint Hindu family as tenants-in-common with effect from any particular date, it was held that such a case fell outside the scope of Sub-section (3) of Section 25A.8. The above ratio squarely applies to the instant case. Following with respect the above decisions, we hold that Section 20 cannot be applied to a case of partial partition of the property and so the case has to be decided without any regard to Section 20 but with due regard to Mitakshara law. The members of the HUF can agree to enter into a partial partition and to hold the property which was the subject-matter of such partial partition as tenants-in-common while continuing to be joint in respect of other properties of the family. We have already pointed out that one of the family properties, namely, the property let out to New Stores at Mahatma Gandhi Road, Chickmagalur, has not been partitioned by the members of the family and the remaining properties alone have been partitioned in the partial partition. Thus, it is clear from the facts that there has been only a partial partition. The properties in partial partition have been held by the members of the family as tenants-in-common. Thus, Section 20 does not apply to a case of partial partition. Thus, the one-eighth share received by Shri Janardhana Setty from the bigger HUF has been partitioned by him and his two sons into three equal shares which they held as tenants-in-common though they continued to be joint in respect of the property let out to New Stores at Mahatma Gandhi Road, Chickmagalur.

Thus, the one-eighth share got from the bigger HUF which has been partitioned by Shri Janardhana Setty and his two sons does not belong to the respondent smaller HUF and cannot be included in its net wealth.

9. The decision in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 (SC) has no application to the facts of the instant case. That was a case dealing with Section 171. Hence, that decision has no application to the facts of the instant case.

10. Thus, we hold that the AAC was justified in directing the WTO to exclude the assets of the value of Rs. 9,28,300 from the assessments of the assessee-family in all these years. Thus, we uphold his order.


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