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Commissioner of Income-tax Vs. Hoshiari Lal Kalyani and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 249 of 1974
Judge
Reported in(1981)21CTR(Cal)267,[1981]128ITR515(Cal)
ActsIncome Tax Act, 1961 - Section 171
AppellantCommissioner of Income-tax
RespondentHoshiari Lal Kalyani and ors.
Appellant AdvocateS. Sen and ;A. Sengupta, Advs.
Respondent AdvocateR.C. Deb, ;S.L. Shroff and ;Debal Banerjee, Advs.
Excerpt:
- .....and the income-tax law. the whole controversy rests on the fact whether a division of some of the joint hindu family assets between a new small joint hindu family and the members of the family are tenable and whether the new small hindu family could be separated with regard-to certain assets only.8. under section 171 of the i.t. act, partial partition means a partition which is partial as regards the persons constituting the huf or the properties belonging to the huf or both.9. mr. suhas sen, the learned counsel for the revenue, contends that under a partial partition a part of the joint family cannot be separated from the family and at the same time form a part of the joint family for the rest of the joint family estate. he cannot also support the idea that the karta of a larger joint.....
Judgment:

Sudhindra Mohan Guha, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the following question was referred to this court:

'Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the deed of partition, the Appellate Tribunal was justified in holding that a partial partition within the meaning of Clause (b) of the Explanation to Section 171 of the Income-tax Act, 1961, had taken place amongst the members of the assessee-Hindu undivided family on June 30, 1964?'

2. The assessee is an HUF and the assessee's reference relates to the assessment year 1965-66. It was claimed that by a registered deed there was a partial partition of the assessee-HUF with effect from July 1, 1964. As a result, the assessee-HUF continued to be joint in respect of other assets and a smaller HUF was formed in respect of the assets mentioned in the deed.

3. The assessee was an HUF consisting of Hoshiari Lal Kalyani, his wife, Sabitri Debi, three minor sons and five unmarried daughters. The HUF had: (i) half share in the firm of Kaluram Chiranjilal, Dhupguri, (ii) three annas share in the firm, Bajrang Rice Mill, Maynaguri, (iii) three annas share in the firm, Hanuman Rice & Oil Mills, Dhupguri, and (iv) a house property. On July 1, 1964, Hoshiari Lal Kalyani, the karta (the husband of Sm. Sabitri Debi and father of other minor sons and daughters) made a partial partition of the family as under :

1. Hoshiarilal, Sabitri Debi & Sanjoy minors & unmarrieddaughters (smaller HUF)

Allotments 25% share & capital inHanuman Rice & Oil Mills, Dhupguri and Rs. 10,000 credited by debiting Shyamsundar& Mohanlal, Rs. 5,000 each.

2. Shyam Sundar Kalyani (Minor)

12% share & 50% of the capital in Sree Bajrang RiceMill, Maynaguri & by debiting Rs. 5,000.

3. Mohanlal Kalyani (Minor)

12% share & 50% of the capital in Bajrang Rice Mill,Maynaguri & by debitingRs. 5,000.

4. According to the ITO this resulted in a dual character of the minor which was not tenable in Hindu law. Another anomalous situation pointed out by the ITO was that the karta of the assessee-HUF at one and the same time could not represent both the assessee-HUF and the smaller HUF of which as a result of the alleged partial partition he became the karta in respect of the assets received by the smaller HUF on partial partition which, in his opinion, appeard to be untenable inasmuch as the interests of the two families might not always coincide. He, therefore, rejected the assessee's claim of partial partition.

5. An appeal was filed by the assessee to the AAC. The AAC held that there was no anomaly in one person having to perform duties at one and the same time in two different capacities and the partial partition was effected by a registered deed. He, therefore, directed the ITO to recognise the claim of partial partition and allowed the assessee's appeal.

6. The department being aggrieved by the order of the AAC came up in appeal before the Appellate Tribunal. The Appellate Tribunal held that as laid down under Expln. (&) to Section 171 of the I.T. Act, 1961, partial partition could be partial as regards the persons constituting the HUF or the properties belonging to the HUF or as to both the properties and the persons, and, therefore, there was nothing wrong in the claim of partial partition made by the assessee. Thus, the order passed by the AAC was upheld.

7. In the facts stated above it is to be seen whether such an arrangement for partial partition is permissible under the Hindu law and the income-tax law. The whole controversy rests on the fact whether a division of some of the joint Hindu family assets between a new small joint Hindu family and the members of the family are tenable and whether the new small Hindu family could be separated with regard-to certain assets only.

8. Under Section 171 of the I.T. Act, partial partition means a partition which is partial as regards the persons constituting the HUF or the properties belonging to the HUF or both.

9. Mr. Suhas Sen, the learned counsel for the revenue, contends that under a partial partition a part of the joint family cannot be separated from the family and at the same time form a part of the joint family for the rest of the joint family estate. He cannot also support the idea that the karta of a larger joint family would function as a karta of a smaller joint family. According to him, an order under Section 171 could be made only when, in addition to a severance in status, there has been a partition of all family properties among the members and until such an order is made, the family is deemed to be an HUF for the purpose of income-tax, notwithstanding the severance in status and a partition of some of the properties. In support of his argument he relies on the decision of the Division Bench of the Madras High Court in M.S.M.M, Meyyappa Chettiar v. CIT reported in : [1950]18ITR586(Mad) . In this case, the assessee was the karta of a HUF which consisted of himself and his two minor sons. During the assessment year 1940-41, the assessee applied under Section 25A for an order record-ing a partition arrangement effected by the assessee dividing himself and his sons, inter se. The property of the family consisted of business, houses and other immovable properties, jewels and shares. There were four businesses which were exclusively owned by the family and one in partnership with others. Under the partition deed two sole businesses were exclusively allotted to the father and the other businesses were divided equally between the sharers. The division of the businesses was made by appropriate entries in the accounts showing a division of capital and further contributions. In respect of the family immovable properties which consisted of houses and house sites as well as silverware, jewels and vessels valued at Rs. 1,50,000 each of the members was allotted one-third share. The partition was not recognised by the income-tax authorities. The Appellate Tribunal held that as the division of the businesses was unequal and as there was no physical division of the movable and immovable properties as contemplated by Section 25A, the partition could not be recognised. The Tribunal further held that the partition of the businesses was altogether null and void inasmuch as the division of the businesses between the shares was wholly unequal.

10. On a reference it was held that the division of the businesses brought about by the father in exercise of his power under the Hindu law was valid and effective, notwithstanding the unusual nature of the division. It was further held that the partition could not be said to be complete and, therefore, an order under Section 25A could not be recorded.

11. It should be remembered that this case was under the Indian I.T. Act, 1922, which did not recognise partial partition. Under the Act of 1922 Section 25A did not cover cases of partial partition. But under Section 171 of the I.T. Act, there need not be a complete partition. This section covers cases of partial partition also.

12. Mr. Sen also refers to the decision of the Madhya Pradesh High Court in the case of CIT v. Seth Gopaldas (HUF), reported in : [1979]116ITR577(MP) . It is held therein that the Explanation to Section 171 of the I.T. Act, 1961, which defines 'partition' and 'partial partition' contains nothing to permit an inference that these expressions are to be understood for the purpose of the Act in a manner different from that in which they are understood under the general Hindu law. Hence, according to their Lordships, a Hindu father could not have the right to bring about a partial partition of the family properties among his sons, inter se, as part of his patria potestas without the consent of his sons.

13. Mr. R. C. Deb, the learned counsel for the assessee, in reply places Mulla's Principles of Hindu Law, 14th Edn., p. 610, which runs as follows :

'The father of a joint family has the power to divide the family property at any moment during his life, provided he gives his sons equal share with himself and if he does so, the effect in law is not only a separation of the father from the sons, but a separation of the sons inter se. The consent of the sons is not necessary for the exercise of that power.....The right of a father to sever the sons inter se is a part of the patria potestas still recognised by the Hindu law.'

14. It is now recognised in Hindu law that the members of a joint family can make a division and severance of interest in respect of a part of the joint estate while retaining the status of a joint family and holding the rest of the estate as properties of the joint family.

15. The partition in Hindu law is effected by a definite and unequivocal indication of a coparcener's intention to separate. Similarly, a partial partition is effected by a definite and unequivocal indication of the coparcener to partition a particular business or property of the joint family leaving the other assets as joint family property. The father as patria potestas can effect a partition in the family if he considers the same to be in the interest of the family. There was no suggestion that such partition was, in any case, made against the interests of the minors. An aggrieved member of the coparcenary can question such a partition but not a third party, namely, the I.T. Dept. As regards the issues raised in the case of CIT v. Seth Gopaldas (HUF) : [1979]116ITR577(MP) that a partial partition can be made only by the consent of all, it may be pointed out that the question of consent would not arise in this case as the sons were minors and they could not give any valid consent. It is the father who acted on their behalf. Thus, we would hold that the father in this case had every right to bring about a partial partition of the family properties among his sons inter se as part of his patria potestas.

16. In this view of the matter, the partial partition in this case as foundvalid by the Tribunal seems to be in consonance with Section 171 of the I.T. Act,1961. Thus, we answer the question in the affirmative and in favour ofthe assessee.

17. There will, however, be no order as to costs.

Sabyasachi Mukharji, J.

18. I agree.


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