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income-tax Officer Vs. Sri Natchu Sanyasisetty and Sons - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1985)11ITD427(Hyd.)
Appellantincome-tax Officer
RespondentSri Natchu Sanyasisetty and Sons
Excerpt:
.....(2) of section 171 and the ito shall not record a finding as to whether there has been a total partition of the joint family property under sub-section (3) of that section. hence, the partial partition effected after 31-12-1978 will not be recognised for tax purposes and such family continues to be assessed as if no such partial partition has taken place and the assessee shall be deemed to continue as belonging to the huf and no member will be deemed to have separated from the family. hence, i decline to accept the claim of partial partition with effect from 31-3-1979 in view of the amendment to section 171.the stand that the claim for partial partition could not be enquired into, was taken in view of the express provisions of section 171(9) of the income-tax act, 1961 ('the.....
Judgment:
1. This is an appeal filed by the revenue and it relates to the assessment year 1980-81.

2. There was a HUF consisting of S/Shri Sanyasisetty, karta, and his two sons, Venkata Satyanarayana and Satyanarayana. It was claimed that the business carried on by the HUF was partially partitioned with effect from 31-3-1979. In this regard, the ITO wrote to the assessee on 19-3-1981 as under: The assessee claimed partial partition in business capital with effect from 31-3-1979 between the assessee and his two sons. In a case where a partial partition of HUF has taken place after 31-12-1978, no claim that such partial partition had actually taken place will be enquired into under Sub-section (2) of Section 171 and the ITO shall not record a finding as to whether there has been a total partition of the joint family property under Sub-section (3) of that section. Hence, the partial partition effected after 31-12-1978 will not be recognised for tax purposes and such family continues to be assessed as if no such partial partition has taken place and the assessee shall be deemed to continue as belonging to the HUF and no member will be deemed to have separated from the family. Hence, I decline to accept the claim of partial partition with effect from 31-3-1979 in view of the amendment to Section 171.

The stand that the claim for partial partition could not be enquired into, was taken in view of the express provisions of Section 171(9) of the Income-tax Act, 1961 ('the Act'). Thereafter, Shri Sanyasisetty passed away on 16-1-1980 and finally there was a claim made for total partition with effect from 31-3-1980 between the two brothers and their mother. With reference to this claim, the ITO passed an order under Section 171 also, dated 19-3-1981, as under: There was a claim of full partition in the family with effect from 31-3-1980 between the two brothers and their mother. The capital ascertained, included movables, was of Rs. 1,02,695, which was divided equally between the two brothers and their mother. A petition was put in by the assessee for recognition of the partition with effect from 31-3-1979 in respect of movables and with effect from 31-3-1980 in respect of immovables. On examination of the case, I accept the partition claim of the assessee with effect from 31-3-1980.

The assessment year under consideration is 1980-81, for which the accounting year is 1-4-1979 to 31-3-1980. The assessee filed two returns of income under the assumption that there was a partial partition with effect from 31-3-1979. The ITO stated that the income shown in the two returns would have to be clubbed together and the entire business income will be assessed in the hands of the assessee-HUF for the accounting year ended on 31-3-1980. He so completed the assessment on 19-3-1981.

3. The assessee appealed to the AAC and pleaded for exclusion of the income from the movable assets, which are the subject of partial partition on 31-3-1979. The AAC stated that in the total partition, assets which were the subject of partial partition had also been included and when the ITO has accepted the full partition in respect of movable and immovable properties, the question of including the income from properties, of which the partition was effected on 31-3-1979, could not arise since the partial partition got merged with the total partition which took place on 31-3-1980.

4. The revenue is aggrieved with the decision. It was submitted by the learned departmental representative that the total partition took place only on 31-3-1980. Therefore, income up to 31-3-1980 had to be included and assessed in the hands of the assessee-HUF for the assessment year 1980-81. The partial partition on 31-3-1979 could not be recognised in view of the provisions of Section 171(9). Therefore, prior to 31-3-1980, there was no question of excluding any income from the partitioned assets of the HUF. Reliance was placed on the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 for this proposition.

5. The learned Counsel for the assessee submitted that for a partial partition taking place in law, it was not necessary that an order under Section 171 should be passed. He relied on the decision of the Andhra Pradesh High Court in CIT v. Dara Seshavataram [1981] 129 ITR 339.

Therefore, he submitted that when the total partition was recognised on 31-3-1980 and an order under Section 171 was passed, the moment such an order was passed it would operate retrospectively to exclude from the assessment of the HUF income which was subject of partial partition earlier on 31-3-1979. According to him, the judgment of the Supreme Court only held that an order under Section 171 was a prerequisite before incomes could be excluded. When such an order was passed albeit, subsequently, in the course of recognising a total partition, income from the partially partitioned assets would stand excluded from the date of partial partition.

6. We have considered the rival submissions. On 31-3-1979, the assessee claimed that there was a partial partition by which the movables were partitioned. Section 171(9), introduced with effect from 1-4-1980, states that where a partial partition has taken place after 31-12-1978, no claim that such a partial partition has taken place shall be inquired into and no finding shall be recorded under Section 171(3) and further that such family shall continue to be liable to be assessed as if no such partial partition has taken place. Therefore, when the assessee had made a claim that there was a partial partition on 31-3-1979, the ITO by virtue of the provisions of Section 171(9) was justified in writing the letter dated 19-3-1981 that the claim of partial partition with effect from 31-3-1979 could not be accepted.

Therefore, there was no order under Section 171 recognising the partial partition as on 31-3-1979. The Supreme Court in the case of Kalloomal Tapeswari Prasad (HUF) (supra) had stated as under: Now we come to Sub-section (1) of Section 171 of the Act which contains a 'deeming' provision. It says that a Hindu family hitherto assessed as undivided shall be deemed for the purposes of the Act to continue to be an HUF, except, where and insofar as a finding of partition has been recorded in respect of it under Section 171.

Partition referred to here can obviously include a partial partition also either as regards the persons constituting the undivided family or the properties belonging to it or both, in view of the provisions contained in the other sub-sections in and the Explanation to section J71, Where there is no claim made that a partition--total or partial--had taken place or where it is made and disallowed an HUF which is hitherto being assessed as such will have to be assessed as such notwithstanding the fact that a partition had in fact taken place as per Hindu law. A finding to the effect that partition had taken place has to be recorded under Section 171 by the ITO. He can record such a finding only if the partition in question satisfies the definition of the expression 'partition' found in the Explanation to Section 171....

It is, therefore, clear that since there was no order under Section 171, the HUF had to be assessed as such. Before the Supreme Court, the argument was expressly taken on behalf of the assessee that the fiction contained in Section 171(1) did not apply to an undivided family which continued to be in fact an undivided family even after a partial partition as regards some of the properties. This argument has been referred to at pages 704 and 705. In particular, it was contended that after a partial partition of some properties had taken place, the undivided family is liable to be assessed as such only in respect of the income derived by it from the remaining items of properties owned by it and the income derived from properties which have gone out of the ownership of the family by reason of the partial partition should be excluded from the total income of the family. This contention was examined, at length, by the Supreme Court and the Supreme Court observed as under: After a partial partition as regards property, the property divided is held by the members of the undivided family as divided members with all the incidents flowing therefrom and the property not so divided as members of an undivided family. The fiction enacted in Section 171(1) of the Act can, therefore, operate in such a case also because the family which has become divided as regards the property which is the subject-matter of partial partition is deemed to continue as the owner of that property and the recipient of the income derived from it except where and insofar as a finding of partition has been given under Section 171. In such a case it is obvious that the real state of affairs is in fact different from what is created by the fiction and it cannot be said that there is no occasion for the fiction to operate. That is the true meaning of Section 171(1) of the Act. In view of the substantial changes that are brought about in Section 171, we find it impossible to accept the contention that the fiction in Section 171(1) of the Act does not operate in the case of partial partitions as regards property where the composition of the family has remained unchanged.

The Supreme Court further held at pages 709 that once it was held that the assessee was not entitled to claim partial partition, the income from the properties which were the subject-matter of the partial partition had to be included in the total income of the assessee. The Supreme Court, specifically, observed as under: ...We have already held that, Section 171 of the Act applies to all partitions--total and partial--and that unless a finding is recorded under Section 171 that a partial partition has taken place the income from the properties should be included in the total income of the family by virtue of Sub-section (1) of Section 171 of the Act.

To put it in other words, what would have been the position of an HUP, which had claimed in assessment proceedings under the 1922 Act that a total partition had taken place and had failed to secure a finding to that effect in its favour under Section 25A thereof, would be the position of an HUF, which has failed to substantiate its plea of partial partition as regards property under Section 171 of the Act. The property which is the subject-matter of partial partition would continue to be treated as belonging to the family and its income would continue to be included in its total income until such a finding is recorded. That is the true effect of Section 171(1)....

It is, therefore, clear that income from properties which were the subject-matter of partial partition on 31-3-1979, could not be excluded. In our view, the aforesaid observations of the Supreme Court conclude the issue on the assessability of income from properties which were partially partitioned, where no order under Section 171 was passed.

7. Complete partition in the present case took place only on 31-3-1980.

The ITO, in his order under Section 171, has also stated categorically that he was recognising such partition only from 31-3-1980 and negatived the assessee's plea of a partition of movables from 31-3-1979 for tax purposes. Therefore, there was no order under Section 171 which recognised a partial partition of any property between 1-4-1979 and 31-3-1980. When there was no such order, the income from all properties for the period 1-4-1979 to 31-3-1980 had to be assessed in the hands of the assessee alone. In the light of the later judgment of the Supreme Court, which we have discussed, we consider that there are no conclusions in the judgment of the Andhra Pradesh High Court in the case of Dara Seshavataram (supra), which would come to the assistance in respect of the contentions urged on behalf of the assessee.

8. In the result, we set aside the order of the AAC and restore the findings of the ITO. The appeal of the department is allowed.


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