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income-tax Officer Vs. Mohanlal Chhotalal Manekchand - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Reported in(1986)17ITD418(Ahd.)
Appellantincome-tax Officer
RespondentMohanlal Chhotalal Manekchand
.....was withdrawn and as the account started credited to sheth mohanlal chhotalals hindu undivided family partial partition of capital account dated 26-10-1973'. on the debit side of this partial partition of capital account the entry is as follows : rs. 2,50,000 sheth mohanlal chhotalals hindu undivided family partial partition of capital account debited. dated 26-12-1973 at p. 351 aso vad 11 monday rs. 2,50, : it was decided to divide the capital in between two branches of mohanlal chhotalals hindu undivided family : debited to this account as under and credited to the respective accounts : rs. 1,25,000 credited to bai dhangauri, widow of mohanlal chhotalal account.7. from the accounts of bai dhangauri and rameshchandra for the samvat year 2030 in the books of chhotalal.....
Per Shri K. R. Dixit, Judicial Member - This group of appeals involve one common point regarding the recognition of the partial partition of the assessee-HUF. That point is involved in IT Appeal No. 1393 (Ahd.) of 1980 for the assessment year 1974-75. The other appeals are only consequential. The assessee-HUF consisted of Rameshchandra as karta, his widowed mother and six sisters. It was running certain business and made a claim of partial partition of a capital sum of Rs. 2,50,000 between the karta and his widowed mother. The ITO rejected this claim on the ground that there could not be a partition between mother and son since there was only one coparcener in the HUF relying upon the decisions in the cases of CIT v. Shantikumar Jagabhai [1976] 105 ITR 795 (Guj.) and Pushpa Devi v. CIT [1977] 109 ITR 730 (SC).

2. The Commissioner (Appeals) in a very detailed order considering several High Courts and Supreme Court decisions held that the partial partition should have been accepted by the ITO and allowed the appeal.

Before us copies, inter alia, of the agreement dated 12-12-1973 and Memorandum in support of agreement to prove the partition have been filed. On behalf of the revenue copies of affidavits dated 4-7-1977 each of the karta and the widowed mother have also been filed in which the partition has been disclaimed and the amount of Rs. 1,25,000 paid to the karta and the mother each has been claimed to have been loans from the HUF.3. On behalf, of the revenue considerable emphasis has been placed on these affidavits and it was argued that the assessee is taking contradictory stands, one based on partition and another on the loans as stated in the affidavits. Reliance has been placed on the decision in the case of Shantikumar Jagabhai (supra) and the decision of the Punjab and Haryana High Court in the case of CIT v. Narain Dass Wadhwa [1980] 123 ITR 281 has been sought to be distinguished on the ground that in that case there were disputes in the family whereas here there were no disputes and, therefore, there was no question of making a family arrangement in the interest of peace and it was a family arrangement which was recognised in that case.

4. On behalf of the assessee the learned counsel has argued that the agreement and the memorandum should at least be considered as family arrangement and in the alternative if this partition is not recognised, then loans should be recognised so that the income of the partitioned amount should not be added to the income of the HUF which the ITO has done. In other words, in order to meet the argument based on the decision in the case of Shantikumar Jagabhai (supra), the assessees counsel advanced a somewhat ingenious argument that under the Income-tax Act 1961, the partition is recognised between members.

Therefore, according to him, it is not necessary that for the purpose of the Act they should be coparcener. In other words, we are invited to discover a new Hindu, law for the purpose of the Act. We decline this invitation. Further, a distinction was sought to be drawn from the decision in Shantikumar Jagabhais case (supra) by pointing out that this is not a case of partition by metes and bounds and this was a partition at the instance of the karta and not of the mother.

In reply, the learned departmental representative emphasised that the affidavit cannot be brushed aside. He urged that the interest paid to the HUF on the loans should, therefore, be added. He also said that since the money belongs to the HUF, the income thereon should belong to and be added to that of the HUF.5. We have, therefore, to consider whether, in the first place, there was a valid partition of the HUF and, secondly, the effect on that partition of the said affidavits. It is necessary to reproduce some parts of the said agreement and of the affidavits.

"Now, therefore, by making this agreement we both the parties declare, agree and accept that : An amount of Rs. 2,50,000 (in words rupees two lakhs fifty thousand only) is deducted and separated from the amount lying in credit of capital account of Mohalal Chhotalal Joint Family, i.e., from the business being carried on in the name and style of Mohanlal Chhotalal Proprietor Bai Dhangauri Mohanlal; this separation of amount is done on Aso Vad Agiayaras of Vikram Samvat, 2029, i.e., on 22-10-1973; thereafter the said amount is equally divided in between us, two parties - members of the said joint family, by positing Hawala entries.

The said division is properly and truly made as per our decision. In this connection the necessary Memorandum is also made by us along with this agreement simultaneously and in this way we have completed this act of partial partition.

It is true that the remaining amount lying in credit of the capital account after deducting Rs. 2,50,000 (in words rupees two lakhs fifty thousand only) taken out from the family business is an undivided amount.

With a view to see that there should not be any suspicious in anybodys mind about this partial partition and they may not arise any complication in future, we have though it fit to enter into agreement and to prepare a Memorandum so as to form part of this agreement.

Accordingly, we have today made this agreement and also the memorandum along with this which is acceptable, and binding to us all the parties irrevocably.

This agreement in this way is made by us both the parties after reading and understanding the same and without anybodys undue influence willingly, in sound physical and mental conditions which is acceptable and binding to us both the parties and our heirs and legal representatives. The two parties mentioned above are the karta Remeshchandra and the widowed mother Bai Dhangauri".

"2. We hereby (each party) admit that as mentioned in the aforesaid agreement, the amount of Rs. 2,50,000 (in words rupees two lakhs fifty thousand only) which is said to have been distributed amongst us the parties on 22-10-1973, that amount we have received equally, i.e., each one has received an amount of Rs. 1,25,000 (in words rupees one lakh twenty-five thousand only) by passing proper Hawala entries. And, accordingly, on dividing the said amount of Rs. 2,50,000 (in words rupees two lakhs fifty thousand only) we accept that that much capital is partially divided belonging to the Hindu family.

3. Regarding this division which has taken place amongst the parties, proper Hawala entries are made in the account books and as they are correct and true, they are acceptable and will be acceptable to all of us." "That the HUF consisted of said late Mohanlal Chhotalal, I, Bai Dhangauri, as a wife and son Rameshchandra. That the said HUF still continues as such and the said HUF holds funds and properties, which, inter alia, comprises Rs. 2,50,000 out of this fund of Rs. 2,50,000 belonging to the said HUF the sum of Rs. 1,25,000 has been given and taken as a loan to I, Bai Dhangauri, individually and in my personal capacity and as borrowed of that sum I am liable to pay and the loaner the HUF is entitled to recover the said sum of Rs. 1,25,000 with interest thereon at the rate of 12 per cent per annum." 6. We have been given copies of the accounts of the HUF Chhotalal Manekchand for Samvat Year 2029 and from that it is seen that from out of the capital of Rs. 3,60,921.66, an amount of Rs. 2,50,000 was withdrawn and as the account started credited to Sheth Mohanlal Chhotalals Hindu Undivided Family Partial Partition of Capital Account dated 26-10-1973'. On the debit side of this partial partition of capital account the entry is as follows : Rs. 2,50,000 Sheth Mohanlal Chhotalals Hindu Undivided Family partial partition of capital account debited. Dated 26-12-1973 at p. 351 Aso Vad 11 Monday Rs. 2,50,000.

Re : It was decided to divide the capital in between two branches of Mohanlal Chhotalals Hindu Undivided Family : Debited to this account as under and credited to the respective accounts : Rs. 1,25,000 Credited to Bai Dhangauri, widow of Mohanlal Chhotalal Account.

7. From the accounts of Bai Dhangauri and Rameshchandra for the Samvat Year 2030 in the books of Chhotalal Manekchand HUF, it is seen that the sums of Rs. 1, 25,000 each are credited in the accounts of these two persons and interest amounts have also been credited.

8. It is, therefore, seen from the agreement, memorandum and the aforesaid accounts that Rameshchandra and Bai Dhangauri sought to effect the partial partition and as a result thereof they became creditors of the HUF receiving interest in respect of their deposited amounts of Rs. 1,25,000 each. Thus, it was not only by a formal agreement and memorandum but also by their actions of treating the partitioned amount as deposit and receiving interest thereon that the intention to carry out the partition has became clear. The question that arises then for consideration is whether this partition was valid.

9. In the case of Shantikumar Jagabhai (supra) an attempt was made to effect a partition between a mother and her minor son. The Court held that unless a partition takes place among the coparceners of family, a female member of a joint family has no right to demand a partition or to get a share in her own right. It also held that since there was no other and bounds being effected and least of all the mother could get a share on such a partition and that it was not open to the mother in her capacity as a guardian of the minor son to effect a partition between herself and the minor. The partition was, therefore, held to be not effective.

10. However, in Narain Dass Wadhwas case (supra) the Punjab and Haryana High Court was concerned with a case where an HUF consisted of an adult male as karta, his mother and two sisters. The partition of amount invested by this HUF in a firm was sought to be carried out and the High Court held that the son karta as a coparcener had a right to claim partition and could, therefore, partition the property of the HUF. In any case by way of family arrangement such a partition could be made.

The partition was held to be valid.

11. In the case of Shantikumar Jagabhai (supra) the Court was not concerned with a right of coparcener. IT was merely concerned with the position which would arise where there was no coparcener who could exercise a right of partition and there was only a widow who had no such right. Here we are concerned with an HUF where there is a coparcener and it is his right to partition which has to be considered.

For the same reason Pushpa Devis case (supra) has no application here.

In this respect this case is distinguishable from the case of Shantikumar Jagabhai (supra) and exactly in Shantikumar Jagabhais case (supra) the fact that the son was a minor has been taken into account by the Court in arriving at the decision which shown that if the son had been a major, the partition would have been regarded as valid. We, therefore, hold, that there was a family arrangement in this case whereby an amount of Rs. 2,50,000 was taken out of the fund of the HUF and given over to Rameshchandra and Bai Dhangauri who owned their equal shares individually.

12. We are now faced with the difficult problem that even if certain affidavit is made by a person against his own interest, we have to consider that it is not effective and binding on that person. The agreement and memorandum producers a legal consequences, namely, family arrangement as stated above. That legal consequences remains as it is.

An affidavit can contain only a statement of fact and it cannot prevent a legal consequences. This is the position in law. The result goes in favour of the assessee but that is merely incidental. Therefore, the departments Appeals No. 139 (Ahd.) of 1980 is rejected.

13. IT Appeal Nos. 1394 (Ahd.) of 1980 and 543 and 2078 (Ahd.) of 1981 are regarding the additions of the income from the sums received on partition by Rameshchandra and Bai Dhangauri in the firm of Rameshchandra & Co. The ITO has added them in the income of the assessee since he did not recognise the partition. The Commissioner (Appeals) has deleted these additions. As a result of our decision in IT Appeals No., 1393 (Ahd.) of 1980, we confirm the order of the Commissioner (Appeals) and reject these appeals.

14. In IT Appeal Nos. 1362 and 1363 (Ahd.) of 1980 and 485 and 2088 (Ahd.) of 1981 we are concerned with the payment of interest by the HUF to the said Rameshchandra and Bai Dhangauri on the partitioned amount.

The ITO has disallowed it. The Commissioner (Appeals) has rejected the assessees appeal on the ground that no details in this regard have been submitted. We fail to see that further details were necessary for this purpose and, therefore, hold that the interest payment has to be allowed. The appeals are, therefore, allowed.

15. IT Appeal Nos. 657 and 2234 (Ahd.) of 1981 and 1225 (Ahd.) of 1982 are regarding the refusal of registration of the firm of Remeshchandra & Co. by the ITO on the ground that the claim of partial partition whereby the widow and son received the sum of Rs. 1,25,000 invested in the firm was not recognised. The Commissioner (Appeals) has allowed the appeals. In view of our order in IT Appeal No. 1393 (Ahd.) of 1980, we reject these appeals.

Per Shri K. T. Thakore, Accountant Member - I have gone through the order as proposed by my learned brother, the Judicial Member, carefully, I agree with the conclusion reached by him fully. However, I have my reservations about the observations made in para 5 of the order as proposed by him. In my view it is not necessary to go into the question as to whether a partition between the members could be recognised or not. Firstly, because the matter is not free from doubt and secondly, the controversy in this regard has become academic in view of the acceptance of alternative contention raised by the assessee that the family arrangement has to be recognised. As a consequence, the interest on the sum of Rs. 2,50,000 was not eligible to inclusion in the hands of the assessee-HUF. Subject to above observations the assessees appeal be allowed and the departments appeals be dismissed.

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