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income-tax Officer Vs. Chekka Sriramachandra Murty - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1984)10ITD902(Hyd.)
Appellantincome-tax Officer
RespondentChekka Sriramachandra Murty
Excerpt:
.....to section 171 introduced by the finance (no. 2) act, 1980, as authorising derecognition of all partial partitions effected after 31-12-1978 irrespective of the assessment year involved. this tribunal in its common order in it appeal nos. 881 and 882 (hyd.) of 1983, has concluded that the original order passed on 30-11-1979 was correct and justified both on facts and law and that subsequent purported rectification was wrong, as the amendment did not apply for the assessment year 1979-80. the order passed on 30-11-1979, therefore, now stands restored. the learned counsel would, therefore, argue that since the original order stands restored, the partial partition should have been given effect even for later years. it is pointed out that section 171(1) refers to the aggregation of income.....
Judgment:
1. These three departmental appeals arise out of a common order of the AAC in respect of the assessments for the assessment years 1980-81, 1981-82 and 1982-83.

2. There was a partial partition in the assessee's family on 24-3-1979.

This was recognised by the ITO by a formal orderunder Section 171 of the Income-tax Act, 1961 ('the Act') on 30-11-1979. This was sought to be nullified by a purported rectification order passed on 14-2-1983.

The ITO understood the amendment to Section 171 introduced by the Finance (No. 2) Act, 1980, as authorising derecognition of all partial partitions effected after 31-12-1978 irrespective of the assessment year involved. This Tribunal in its common order in IT Appeal Nos. 881 and 882 (Hyd.) of 1983, has concluded that the original order passed on 30-11-1979 was correct and justified both on facts and law and that subsequent purported rectification was wrong, as the amendment did not apply for the assessment year 1979-80. The order passed on 30-11-1979, therefore, now stands restored. The learned counsel would, therefore, argue that since the original order stands restored, the partial partition should have been given effect even for later years. It is pointed out that Section 171(1) refers to the aggregation of income from partitioned assets only in respect of total partition and not in respect of partial partition.

There is no charging section for including the income of assets, which had left the family on a valid partial partition. In respect of converted property which has been blended, there is a clear charge asunder Section 64 of the Act. There is no such provision with the result that the non-recognition of partial partition or treating an order passed recognising partial partition effected after 31-12-1978 as null and void, cannot have the effect of charging the income from such partially partitioned assets in the hands of the family. It is pointed out that the Andhra Pradesh High Court in CIT v. Dam Seshavataram [1981] 129 ITR 339 had clearly laid down that income from the partially partitioned assets could not be included notwithstanding non-recognition. In coming to this conclusion, the High Court referred to the decision of the Supreme Court in Govinddas v. ITO [1976] 103 ITR 123 among other decisions. He also referred to the passage from the High Court decision to the effect that the absence of the phrase 'partial partitionunder Section 171(1)' justifies the exclusion of the assets, which left the family on partial partition. He claimed that the result could not be different merely because such partial partition order has been declared null and void. While it may be that the partial partition order passed by the ITO for the assessment year 1979-80 may not be recognised for the assessment year 1980-81, it is still not possible for the ITO to include the income from such assets in the absence of a charging section or anything else to justify such aggregation. He referred to an article in Tax Guide at page 7] to point out the view of the author that the amendment cannot prevent the assessee's right to exclude the income from the property which has left the family. This view, even if rejected as debatable, it is argued, cannot justify actionunder Section 154 of the Act for all these years.

It is pointed out that the same article expresses the difficulty in reopening the assessments, which were already accepted on the basis of law prior to the amendment. He referred to another article, where a similar opinion was expressed on the basis of the decision of Kalloomal Tapeswari Prasad v. CIT 1973 Tax LR 697 (All.), ITO v. Smt. N.K. Sarda Thampatty and Dara Seshavataram's case (supra) as justification of the view that the non-recognition of the partial partition will not justify the aggregation. Another article in [1980] 18 CTR 13 points out that Section 171 is a machinery section and that the amendment 'has misfired itself inasmuch as it cannot achieve the object for which it was intended, as is evident from the objects of the amendment explained in the memorandum issued along with the Finance Bill. An article in [1981] 21 CTR 24 opines that though partial partition can be ignored in view of the amendment, 'the question as to what income becomes includible will be a debatable point'. Another article in [1983] 32 CTR, article 28, reviews the Supreme Court decision in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 and also a number of the other High Courts decisions. In the opinion of the author, the Supreme Court decision did not refer to the Kerala High Court decision in Smt. Sarda Thampatty's case (supra) which has dealt with exhaustively as to the scope of legal fiction envisagedunder Section 171 and that the arguments based upon this and some other decisions of the other High Courts had not been pressed into service by the elders (sic) appearing in the case of Kalloomal Tapeswari Prasad (HUF)'s case (supra). In view of the various other High Courts (apart from the three mentioned in an earlier article) as of the Madras High Court in the case of Seethammal v. CIT [1981] 130 ITR 597 and some other Supreme Court decisions, the legislation does not appear to be effective for the purposes for which it was enacted unless certain further amendments are made to Section 171 and/or 155 of the Act. The learned counsel claimed that the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF)'s case (supra) was rendered in the context of a finding by the Supreme Court that there was no partial partition as contended. In fact, the High Court itself had held so, but all the same concluded that some assets had left the firm. The Supreme Court pointed out that having held that the assessee was not entitled to claim partial partition in the facts of the case, the High Court had erred in holding that the income from certain assets cannot be included. It does not lay down any general proposition that the income which no longer belongs to an assessee can be included even when there is a genuine partial partition and has been recognised as in the assessee's case. Even assuming that the issue is not free from doubt, he claimed that it cannot form the subject-matter of rectificationunder Section 154, as it is well established that the debatable questions could not become the subject-matter of rectification.

3. The learned departmental representative, on the other hand, argued that the entire controversy sought to be raised by the learned counsel was pointless after the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF)'s case (supra). As for the reliance of the learned counsel on the decision of the Andhra Pradesh High Court in Dara Seshavataram's case (supra), he claimed that this was no longer good law. He further pointed out that the Andhra Pradesh High Court had specifically referred to the Allahabad High Court decision in Kalloomal Tapeswari Prasad (HUF)'s case (supra) itself, which had since been reversed by the Supreme Court. He argued that the rationale of the Supreme Court decision applies to not only a case where partial partition was found not acceptable, but also to a case where such partial partition cannot be recognised under the law as in the assessee's case. Probably when there is a statutory bar to such recognition, the decision of the Supreme Court would apply even in stronger terms, according to him. He claimed that there could not be even a debate on this issue after the Supreme Court decision. It is in this view that he justified the ITO's action.

4. We have carefully considered the records as well as the arguments.

Section 171(9) reads as under : Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided,- (a) no claim that such partial partition has taken place shall be inquired into under Sub-section (2) and no finding shall be recorded under subsection (3) that such partial partition had taken place and any finding recorded under Sub-section (3) to that effect whether before or after the 18th day of June, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall be null and void ; (b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place ; (c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition ; (d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition.

Here is a case where partial partition was made on 24-3-1979, which falls after 31-12-1978. This was recognised by the ITO by an orderunder Section 171 passed on 30-11-1979. This order was validly passed and has also complete effect for the assessment year 1979-80 even as held by us in our common order in IT Appeal Nos. 881 and 882 (Hyd.) of 1983 of even date. However, Section 171(9)(a) clearly stipulates that where an order had already been passed recording a finding of such partial partition, whatever be the date of order, it 'shall be null and void'.

We have, therefore, to hold that the order passed by the ITO on 30-11-1979 has to be treated as 'null and void' for the assessment year 1980-81 and thereafter inasmuch as the Finance (No. 2) Act, 1980 inserted the above amendment with effect from 1-4-1980, there cannot be any debate on our conclusion so far. A debate is, however, sought to "be raised in respect of the ITO's action for including the income from such assets which have left the family on the partial partition which was clearly valid under the Hindu law. Section 171(9)(6) also provides that 'such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place'. It is the view of the authorities that this Sub-section is a complete code in itself and that it entitles them to include the income from the assets though they now belong to the members for the purposes of property laws. It is because of the fiction of continued existence of the HUF without partial partition as provided under Sub-section (9) Section 171, wherever such partial partition has occurred after 31-12-1978. It may be recalled that the law as it stood under the Indian Income-tax Act, 1922 ('the 1922 Act'), was concerned only with the total partition.

Partial partition could be effective without a formal recognition and there was no scope for aggregation of the income from the assets so partially partitioned. Recognition of partial partition was provided under the 1961 Act. It was, however, the view of a number of commentaries that in the absence of any specific provision regarding partial partitionunder Section 171(1) and proper provision for aggregation of the income from partitioned assets by a charging section on the lines of Section 64, the income of the partitioned assets cannot be aggregated notwithstanding such non-recognition of partial partition. Such a view was expressed on analogy of reasoning available in an earlier decision of the Privy Council with reference to the consequences of total partition prior to specific introduction in Section 25A in the 1922 Act. It is on the basis of this parity of reasoning that one of the articles mentioned earlier described the amendment introduced by the Finance (No. 2) Act, 1980, as having 'missed the fire' following the language of Kanga and Palkhivala in The Law and Practice of Income-tax with reference to the provisions under the 1961 Act, requiring recognition of partial partition, Volume 1, Seventh edn., p. 980. Even as noticed in the various articles relied upon by the learned counsel and the citations, a number of the High Courts took the view in respect of partial partitions. In fact, the Andhra Pradesh High Court in Dara Seshavataram''s case (supra) has clearly said so. The Supreme Court in the case of Kalloomal Tapeswari Prasad (supra), no doubt, rendered its decision in the context of the facts of a case where a partial partition was considered to be non-recognisable because there was no division by metes and bounds, though it was possible to have such a division. But the decision goes further than that. It did refer to earlier decision of the Supreme Court in Govinddas's case (supra) and its still earlier decision in Sir Sundar Singh Majithia v. CIT [1942] 10 ITR 457 (PC). Referring to the latter decision, it said that it was rendered in the context of SECTION 25A.It observed as under in Kalloomal Tapeswari Prasad (HUF)'s case (supra) : . . . Reliance is placed on the following observations of the Privy Council in the case of Sir Sundar Singh Majithia [1942] 10 ITR 457, 465, where Sub-section (3) of Section 25A of the 1922 Act arose for consideration : 'The section has nothing to say about any Hindu undivided family which continues in existence, never having been disrupted. Such a case is outside Sub-section (3) because it is not within the section at all. No subsection is required to enable an undivided family which has never been broken up to be deemed to continue. But it need not have the same assets or the same income in each year and it can part with an item of its property to its individual members if it takes the proper steps.' It is not necessary to make any comment on these observations as they had held the field until the Act came into force with Section 171 inserted in it. Parliament enacted Section 171 after taking note of the above decision and several other decisions following it, which had taken the view that a partial partition did not fall within the scope of Section 25A. It expressly stated in Section 171 of the Act that the said provision was applicable to both kinds of partitions-total or partial. It has also defined partial partition as one which is partial as regards persons constituting the undivided family or as regards the properties belonging to the undivided family or both. Virtually the present provision deals with all kinds of partitions, the nature of which sometimes may be difficult to predicate correctly. . . . (p. 705) Meeting an argument based upon the decision of the Madras High Court, in A. Kannan Chetty v. CIT"[1963] 50 ITR 601, it observed as under in Kalloomal Tapeswari Prasad (HUF)'s case (supra) : It is significant that in the passage extracted above, the Madras High Court has distinguished the case of an alienation in favour of a stranger from the case where the joint family deals with one or more items of property or converts it into a different estate retaining both possession and income in its own hands. We do not consider that such a plea is available to the assessee because the acceptance of such a plea would lead to the nullification of the scheme of Section 171 of the Act itself. As long as a finding is not recordedunder Section 171 holding that a partial partition had taken place, the HUF should be deemed for the purposes of the Act to be the owner of the property which is the subject-matter of partition and also the recipient of the income from such property. The assessment should be made as such and the tax assessed can be recovered as provided in the Act. In the circumstances, the decision of the High Court on the second question has to be reversed. We, accordingly, record our answer to the second question in the affirmative and in favour of the department.(p. 710) The above passage clearly shows that the exclusion, if at all, can be justified only on alienation to a stranger but not to members. It points out clearly that the acceptance of an argument for exclusion of any income in respect of assets which have been partitioned even without a recognition from the ITO would nullify the scheme itself. The purport of the decision is clearly that the exclusion is possible only if there is a recognition of partial partition. In the assessee's case, the recognition once made has become null and void. In other words, the recognition cannot help any assessment even if made as long as it was a case of partial partition after 31-12-1978 because the order of recognition has become 'null and void'. The issue had come up before a Special Bench of the Madras Tribunal in the case of ITO/WTO v. R.Brahadeeswaran/N. Srinivasan [1983] 6 ITD 798. In this decision, the Judicial Member accepted the argument similar to the one raised before us on the plea that Section 171 was a machinery section and that the decision of the Supreme Court could be distinguished inasmuch as it was rendered in the limited context where even partial partition was not capable of recognition. A decision including that of the Andhra Pradesh High Court in the case of Dara Seshavataram (supra) was relied upon.

The Accountant Member was of the view that Clause (b) of Section 171(9), which stipulates 'such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place', puts the issue beyond all possible doubt and that no further amendment was necessary, in view of this clear wording either to Section 171(1) or elsewhere. He was of the view that the passage, which is earlier reproduced from the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF)'s case (supra), puts the matter beyond any possible doubt. In view of the clear wording of the law as well as the guidance available from the Supreme Court decision with reference to the partial partition, there could not be any further controversy on this matter. The Third Member (President) agreed with the Accountant Member, who was of the view that the position as regards partial partition now is the same as for total partition. He posed the issue as under : . . . Therefore, the question would still be whether the assets or properties which have gone out of the HUF nucleus, whether by way of partition, total or partial or otherwise, but when an orderunder Section 171 has not been passed or could not be passed in the eye of law, would continue to belong to the HUF so much so that both for the purposes of income-tax and wealth-tax their income and/or wealth would be included in the assessment of the HUF.(p. 816) Same argument that Kalloomal Tapeswari Prasad's case (supra) has limited application only on facts where partial partition itself is not capable of being accepted, was rejected by the Third Member on the ground that such an argument is 'an oversimplification of the whole case' and that the decision of the Supreme Court 'gives a complete answer to the problem before us in this case', where there was admittedly a partial partition in respect of Rs. 1,50,000 taken out of joint family funds on 29-1-1980 which, unfortunately for the assessee, fell after 31-12-1978. We are in agreement with the majority decision of the said Special Bench decision. We are of the view that after the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF)'s case (supra), there is no scope for argument that notwithstanding non-recognition of partial partition, aggregation of the income from such partitioned (partially) assets could not be done. Even if we were to take the observation reproduced earlier as a mere obiter on the ground that the facts of that case were different, such obiter of the Supreme Court is certainly binding on us. Apart from the said decision, we also find that much of the criticism levelled against provisions regarding partial partitions prior to the amendment by the Finance (No.2) Act, 1980, can no longer be valid for more than one reason. Firstly, Section 171(9) is now a self-contained code; secondly, words 'such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place' in Section 171(9)(b) makes the law very clear ; thirdly, the non obstante clause 'notwithstanding anything contained in the foregoing provisions of this section', should also give a quietus to this controversy as consequences of partial partitions after 31-12-1978 is now independent of the provisions relating to partition, whether complete or partial. Fourthly, the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF)'s case (supra) would apply even with greater force inasmuch as there is an absolute bar to recognise partial partitions effected after 31-12-1978 and there are clear provisions as to liability consequent on the fiction created by this new Sub-section. Lastly, if we were to accept the interpretation sought to be placed by the learned counsel of the assessee, the Sub-section will be a dead letter. The Supreme Court has pointed out that it is not open to the courts to place an interpretation which nullifies the effect of the amendment and it could be made workable by a reasonable interpretation which will achieve the object of the amendment even as clearly enunciated in this case in the memorandum annexed to the Finance Bill. It is not open to us to ignore this amendment on the ground that it could have been better worded or it could have been placed under some other charging section. We, therefore, find it difficult to accept that Section 171(9) is a mere machinery section in the light of the words 'shall continue to be liable to be assessed'. A liability is clearly created. It is under these circumstances that we have to accept the revenue's case for aggregation of the income that had been sought to be included in the orders of the ITOunder Section 171.

5. Having held that the aggregation is warranted on merits, we have yet to consider what the learned counsel was at great pains to canvass before us as a greater hurdle to the revenue. It is stated that the issue is a debatable one. If the issue is a debatable one, there is no doubt that it cannot be the subject-matter of rectification. The law is too well established. The law relating to rectification has been summarised in one of the orders of this Tribunal reported in P. K.Ramasamy Nadar v. Second ITO [1982] 2 ITD 624 (Mad.), to which one of us was a party, in the following words : There was considerable attempt to show that the mistake, if any, is not capable of rectification within the meaning of Section 154.

Authorities were sought to be cited by both sides. We do not think that we have to discuss this matter in any detail. The law is now well established. The mistake, in order that it can be rectified, should be a mistake 'apparent from the record'. Such a mistake may well be a mistake of law also. Overlooking a mandatory provision of law which leaves no option or discretion to the taxing authority, e.g., omission to charge tax, surcharge or interest, is a mistake apparent from the record. These propositions are now well established. No doubt, a debatable question of law or failure to apply the law to a set of facts which remain to be investigated cannot justify the jurisdictionunder Section 154. Section 154 will certainly not justify a review. A mistake which can be established by a long process of reasoning cannot obviously be a mistake apparent from the record. These again are the principles about which there is and could be no controversy. ... (p. 629) The learned counsel would say that the very fact that the matter was argued at such length by him before us and the further fact that the first appellate authority agreed with him and one of the Members of the Division Bench of the Madras Tribunal interpreted Kalloomal Tapeswari Prasad's case (supra) in assessee's favour and there are so many articles to the same effect, would clearly make the issue debatable. We are afraid that neither duration of the argument before us nor the other facts urged by him would automatically lead to a conclusion that the issue is a debatable one. We have gone through the articles cited by the learned counsel carefully. Except the last one, the other articles are prior to the Supreme Court decision in Kalloomal Tapeswari Prasad (HUF)'s case (supra). The last one also only points out that many other decisions of the High Courts taking a contrary view had not been pointed out to the Supreme Court. It is under these circumstances, we are unable to agree that the articles could raise a debatable issue.

It must be remembered that it is our clear finding that the language of the statute itself being clear and self-contained, the partial partition has to be ignored and the income from the partially partitioned assets has to be aggregated. Even without any reference to any decision, we can say that the statute warrants inclusion. Hence, Section 154 should apply. If we have to go by discussion of law especially not by interpretation of Section 171(9) but on parity of reasoning with reference to the prior provisions relating to partial partitions in general, even then we have to go by the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF)'s case (supra), as we understood it. There is no ambiguity in the decision. In view of the clear passage extracted above (in paragraph 4 supra), we must hold that it is not open to us either to be guided by the earlier decisions or by the articles or the commentaries after observations in the decision of the Supreme Court even if we were to take them as obiter since even such obiter is binding on us as well as on the authorities under the Act. Even in this view, we have to hold that Section 154 is justified.

We do not think that there is any ambiguity in the statute as sought to be read into it by the' first appellate authority. The ITO made these assessments overlooking provisions of Section 171(9) and not because he was otherwise convinced about the alleged debatable view of law. It was clearly a mistake of law which the ITO was quite capable of rectifying within his powersunder Section 154.

6. Under the above circumstances, we have to allow the departmental appeals and restore the orders of the ITOunder Section 154.


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