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income-tax Officer Vs. Raj Kishan - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Amritsar
Decided On
Judge
Reported in(1985)14ITD501(Asr.)
Appellantincome-tax Officer
RespondentRaj Kishan
Excerpt:
.....and in the circumstances of the case, the learned aac has erred in holding that there had been a family settlement and not partial partition thereby directing that share income earned by shri raj kishan from vasdev harichand and interest earned by other family members should not be clubbed in the hands of the assessee-huf. 2. the reliance of the learned aac on various decisions is misplaced as family partition in these cases had taken place prior to the amendment of section 171 of the income-tax act derecognising partial partition after 31-12-1978.2. the assessee is a huf and for two assessment years under appeal its accounting periods ended on 31-3-1979 and 31-3-1980. the assessee filed an application dated 20-1-1982 before the ito giving information that a family settlement had taken.....
Judgment:
1. These appeals of the revenue for the assessment years 1979-80 and 1980-81 deal with the same controversy and are conveniently considered together and disposed of by a common order. Identical grounds have been taken by the revenue and the common issue agitated is reflected by undermentioned grounds of appeal Nos. 1 and 2 : 1. On the facts and in the circumstances of the case, the learned AAC has erred in holding that there had been a family settlement and not partial partition thereby directing that share income earned by Shri Raj Kishan from Vasdev Harichand and interest earned by other family members should not be clubbed in the hands of the assessee-HUF. 2. The reliance of the learned AAC on various decisions is misplaced as family partition in these cases had taken place prior to the amendment of Section 171 of the Income-tax Act derecognising partial partition after 31-12-1978.

2. The assessee is a HUF and for two assessment years under appeal its accounting periods ended on 31-3-1979 and 31-3-1980. The assessee filed an application dated 20-1-1982 before the ITO giving information that a family settlement had taken place and the capital standing to the account of the assessee-HUF in the books of Vasdev Harichand, Muktsar amounting to Rs. 53,247.61 as on 31-3-1979 had been divided as, under :marriage and maintenance: 10,000.00Raj Kishan, karta 14,517.67Santosh Rani, wife 14,517.67Kewal Krishan, minor son 14,517.67 In support of this claim the assessee filed certain documents as are mentioned in the assessment order of the year 1979-80. These included copies of notices exchanged between the karta Raj ; Kishan and his wife Smt. Santosh Rani and of the memorandum of family settlement dated 30-4-1979. The ITO after making enquiries reached the conclusion that family lived as they were living before the alleged family settlement and there were no circumstances for so-called family settlement. He, however, held that it was nothing but partial partition and the case would fall under Section 171(9) of the Income-tax Act, 1961 ('the Act') and this being so, the claim of the assessee was not to be accepted and the capital of the HUF will be considered as that of the HUF as it was before the so-called family settlement. The AAC in his combined order has accepted the assessee-HUF's stand that its capital came to be divided through a family settlement, which did not take the character of partial partition as understood in the Hindu law. He further observed that he was inclined to agree because of the fact that in the instant case there was no coparcener other than the karta, who could claim partition and the karta himself had not acted voluntarily in the exercise of his right of patria potestas and that the family settlement was the result of a compromise amongst the members of the family, which came to acquire finality in the eye of law when the compromise was decreed in the declaration suit by a Court of competent jurisdiction.

In paragraph No. 12, the AAC stated that he also accepted the alternative contention on the footing that even if it was admitted that the family settlement was actually in the nature of partial partition, the provisions of Section 171(9) were not attracted in the assessee's case because the relevant date on which the settlement was effected was 31-3-1979 when Sub-section (9) of Section 171 had not come into existence. He for this conclusion relied on the Supreme Court observation in the case of Apoorva Shantilal Shah v. CIT [1983] 141 ITR 558 that Section 171(9) had no retrospective operation. After this in same paragraph No. 12 the AAC ordered to the following effect : In this view of the matter, the share income earned by Shri Raj Kishan from the firm M/s. Vasdev Harichand and the interest earned by his wife and minor children cannot be clubbed in the hands of the assessee-HUF for the assessment of assessment year 1980-81.

We are mentioning this sentence for a particular reason. According to it, the AAC has granted a relief only in respect of the assessment year 1980-81 and no relief was granted for the assessment year 1979-80. We may also mention that as per pedigree table on page 1 of the assessee's paper book, the assessee-HUF consisted of Shri Raj Kishan, his wife Smt. Santosh Rani and two children, a son Kewal Krishan and a daughter Neeta, both minors at the relevant time.

3. On enquiry, from the Bench, an interesting fact came out. Shri Sudarshan Kapoor, the assessee's counsel, stated that so far as the assessment year 1979-80 was concerned, the assessee-HUF had duly disclosed the share of income from the firm Vasdev Harichand and it was taxed as such and that the appeal for the assessment year 1979-80 came to be filed before the AAC because the ITO recorded his findings in his assessment order of the year 1979-80 and followed the same in the assessment year 1980-81. On the basis of these facts, it is obvious that both the assessee and the revenue have filed appeals in respect of an issue for the assessment year 1979-80, which is quite academic to decide for that year. What is stated on behalf of the assessee is also borne out from paragraph No. 12 of the order of the AAC in which he gave relief only for the assessment year 1980-81. In view of the two appeals of the successive years being filed together we have in any case to decide the issue on merits.

4. We have heard the rival submissions. The assessee's counsel, Shri Sudarshan Kapoor, set up the case that this was a case of family settlement and the ITO without any proper material has treated it to be a case of partial partition. According to him, the family settlement was different in the eye of law from partial partition, which was derecognised by inserting Sub-section (9) in Section 171 by the Finance (No. 2) Act, 1980, with effect from 1-4-1980. Two High Court authorities of Gauhati and Punjab and Haryana High Courts in Ziauddin Ahmed v. CGT [1976] 102 ITR 253 and CIT v. Narain Dass Wadhwa [1980] 123 ITR 281 and a decision of the Chandigarh Bench of the Tribunal in a gift-tax matter in Hukam Chand Taneja v. GTO were cited. On behalf of the revenue, it was submitted that even though Section 171(9) was inserted by the Finance (No. 2) Act, 1980, with effect from 1-4-1980, the partial partition had been derecognised after 31-12-1978 and in the assessee's case the ITO had correctly held that this was a case of partial partition on 31-3-1979, which had to be derecognised and action taken in accordance with the new provision.

5. We have carefully considered the submissions of both the sides and the authorities cited. A close reading of Mulla's Hindu Law, Fifteenth edn., has brought out an interesting point which, has been lost sight of by all concerned. A family arrangement or family settlement can be the same thing as a partial partition when it takes place amongst members of a joint family. It may not be so when the family arrangement or settlement has taken place amongst other near relations. In each case, therefore, the position will have to be examined on facts. A family arrangement or a family settlement can be the mode used for partial partition or full partition in certain circumstances. Such circumstances exist in this case where the joint family consists of karta, his wife and two minor children, one male and one female.

Reference may be made to articles 248B and 345 of the Constitution at pp. 335 and 468. At p. 468, the learned author in the context of a will refers to in reality existence of a family arrangement contemporaneously made and acted upon by all parties the effect of which may be to create a partition of the joint family property. In other words, a partition can be brought about in a joint family with the consent of its members. In the Punjab and Haryana High Court authority in Narain Dass Wadhwa's case (supra) the High Court has considered the proposition of a partition, being brought about by way of a family arrangement. The relevant observations are in the last para at p. 285. In the facts and the circumstances of the case, it is clear to us that a partial partition was effected through the mode of a family settlement and the family settlement in fact and substance is no different from partial partition. This being so, the provisions of Section 171(9) will rightly be attracted. Both the Gauhati High Court in Ziauddin Ahmed's case (supra) and the Chandigarh Bench were dealing with a gift-tax matter and the relevant question to be determined was whether there was a 'transfer' when there was a family settlement. The question that a family settlement would bring about a partial partition or full partition was before neither of them. The Punjab and Haryana High Court judgment in Narain Dass Wadhwa's case (supra) in our view, strengthens the view taken by the ITO.6. We may also mention another aspect which the AAC has held in the assessee's favour in paragraph No. 12 of his order. His reading of the Supreme Court decision in Apoorva Shantilal Shah's case (supra) is out of context. The Supreme Court was dealing with two partial partitions made in December 1973 and it was in that context at p. 575 the Court mentioned twice that Sub-section (9) of Section 171 was not in existence at the relevant time and has no retrospective application. It was also noted by the Supreme Court that Sub-section (9) was only operating from 1-4-1980 and was of no material consequence in deciding the case in hand. In the judgment at p. 574, Sub-section (9) is reproduced and it is clearly mentioned therein that it was to derecognise partial partitions after 31-12-1978.

7. In view of the above discussion, we hold that the ITO was justified in applying the provisions of Section 171(9) for the assessment year 1980-81. So far as the assessment year 1979-80 is concerned, that section cannot be invoked but as noted above, we are informed by the assessee's counsel that there was no dispute about the inclusion of the income from the firm in that assessment year. The ITO consequently on this footing is justified in holding as per Clause (b) of Sub-section (9) of Section 171 that the HUF previously assessed shall continue to be liable to be assessed under the Act as if no partial partition had taken place for the next assessment year.

8. In view of the above discussion the appeal of the revenue, for the assessment year 1979-80 becomes infructuous calling for no relief in view of the admission made on behalf of the assessee while the appeal for the assessment year 1980-81 gets allowed.


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