Section 171 of the Income Tax Act, 1961 defines the partition of HUF and deals with the provisions of assessment after its partition. The income tax laws require that partition of HUF should be full.
Text of Section 171
ASSESSMENT AFTER PARTITION OF A
HINDU UNDIVIDED FAMILY.
171. (1) A
Hindu family hitherto assessed as undivided shall be deemed for the purposes of
this Act to continue to be a Hindu undivided family, except where and in so far
as a finding of partition has been given under this section in respect of the
Hindu undivided family.
(2) Where,
at the time of making an assessment under section 143 or section
144, it is claimed by or on behalf of any member of a Hindu family assessed as
undivided that a partition, whether total or partial, has taken place among the
members of such family, the Assessing Officer shall make an inquiry thereinto
after giving notice of the inquiry to all the members of the family.
(3) On
the completion of the inquiry, the Assessing Officer shall record a finding as
to whether there has been a total or partial partition of the joint family
property, and, if there has been such a partition, the date on which it has
taken place.
(4) Where
a finding of total or partial partition has been recorded by the Assessing
Officer under this section, and the partition took place during the previous
year,—
(a)
the total income of the joint family in respect of the period up to the date of
partition shall be assessed as if no partition had taken place; and
(b)
each member or group of members shall, in addition to any tax for which he or
it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and
severally liable for the tax on the income so assessed.
(5) Where
a finding of total or partial partition has been recorded by the Assessing
Officer under this section, and the partition took place after the expiry of
the previous year, the total income of the previous year of the joint family
shall be assessed as if no partition had taken place; and the provisions of
clause (b) of sub-section (4)
shall, so far as may be, apply to the case.
(6) Notwithstanding
anything contained in this section, if the Assessing Officer finds after
completion of the assessment of a Hindu undivided family that the family has
already effected a partition, whether total or partial, the Assessing Officer
shall proceed to recover the tax from every person who was a member of the
family before the partition, and every such person shall be jointly and
severally liable for the tax on the income so assessed.
(7) For
the purposes of this section, the several liability of any member or group of
members thereunder shall be computed according to the portion of the joint
family property allotted to him or it at the partition, whether total or
partial.
(8) The
provisions of this section shall, so far as may be, apply in relation to the
levy and collection of any penalty, interest, fine or other sum in respect of
any period up to date of the partition, whether total or partial, of a Hindu
undivided family as they apply in relation to the levy and collection of tax in
respect of any such period.
(9) 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 sub-section (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,
and the
provisions of this Act shall apply accordingly.
Explanation.—In this section,—
(a)
"partition" means—
(i)
where the property admits of a physical division, a physical division of the
property, but a physical division of the income without a physical division of
the property producing the income shall not be deemed to be a partition; or
(ii)
where the property does not admit of a physical division, then such division as
the property admits of, but a mere severance of status shall not be deemed to
be a partition;
(b)
"partial partition" means a partition which is partial as regards the
persons constituting the Hindu undivided family, or the properties belonging to
the Hindu undivided family, or both.
What is the Partition
Partition is the severance of the
status of Joint Hindu Family, known as Hindu Undivided Family under tax laws. Under
Hindu Law once the status of Hindu Family is put to an end, there is notional
division of properties among the members and the joint ownership of property
comes to an end. However, for an effective partition, it is not necessary to
divide the properties in metes and bounds. But under tax laws for an effective
partition division by metes and bounds is necessary.
Partition
means—
|
Case |
Partition |
|
Where
the property admits of a physical division |
a
physical division of the property, but a physical division of the income
without a physical division of the property producing the income shall not be
deemed to be a partition; or |
|
Where
the property does not admit of a physical division |
then
such division as the property admits of, but a mere severance of status shall
not be deemed to be a partition. |
An HUF
can be partitioned both as regards to persons and as regards to property. This
partition can be of two types:
(a)
Total or complete partition;
(b)
Partial partition.
The
Partition of HUF can be categorized as under : -
(i)
Partial Partition
Partition
could be partial also. It may be partial vis-à-vis members, where some of the
members go out on partition and other members continue to be the members of the
family. It may be partial vis-à-vis properties where, some of the properties
are divided among the members other properties continue to be HUF properties.
Partial partition may be partial vis-à-vis properties and members both.
However,
Tax Laws do not recognize partial partition of property or/ and persons after
30.03.1978 on insertion of sub-section (9) to Section 171 of the Income Tax
Act. This restriction was put to avoid creation of multiple HUFs which was a
misuse.
Tax implication of Partial
Partition of HUF
Section 171, as originally
enacted, applied to total as well as partial partition. However, sub-section
(9) inserted by Finance (No 2) Act, 1980 recognises only complete partition. A
Partial partition took place after 31.12.1978 is not recognized under the Income
Tax Act, 1961 (Section 179(9). Thus partial partition effected after this date
is not given effect to by the Assessing Officer even though such partition may
be legal as per Hindu Law. Hence, for the purpose of income-tax assessment, the
HUF shall be deemed to continue notwithstanding the partial partition and the
income from all properties shall continue to be assessed in the hands of
erstwhile HUF. Therefore even after the Partial partition, the income of the
HUF shall be liable to be assessed under the Income-tax Act as if no partition
had taken place.
Treatment
in case of partial partition took place after 31.12.1978 [Section 171(9)]
Where a
partial partition has taken place among the members of an HUF after 31.12.1978,
then—
(i) no claim that such partial partition has
taken place shall be inquired into under section 171(2)
(ii) no finding regarding partition shall be
recorded under section 171(3).
(iii)
such family shall continue to be liable to be assessed under this Act as if no
such partial partition had taken place;
(iv)
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.
KEY
NOTE
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.
(ii)
Total or Complete Partition
Assets
of HUF are physically divided. In total partition all the members cease to be
members of the HUF and all the properties cease to the properties belonging to
the said HUF.
Tax
Implication of Full Partition of HUF
After
the Partition, the assessment of HUF shall be made as per the provisions of
Section 171 of the Income Tax Act and order to be passed by the Assessing
Officer.
Person
entitled to share on partition
Following
persons can claim share on partition:
|
Case |
Persons
who can claim share on partition |
|
Any |
Coparceners |
|
Any |
A
child in the womb of his mother at the time of partition |
|
Partition
between sons after the death of father |
Mother
- gets an equal share to that of son |
|
Wife
- gets an equal share to that of a son (apart from that of husband) |
Partition
between father and sons |
KEY
NOTE
A
child in the womb of his mother is entitled to share of HUF property, on
partition.
How
a partition can be effected and what is its effect
To
constitute a partition all that is necessary is a definite and unequivocal
indication of intention by a member of a joint family to separate himself from
the family. What form such intimation indication or representation of such
interest should take would depend upon the circumstances of each case. A
further requirement is that this unequivocal indication of intention to
separate must be to the knowledge of the persons effected by such declaration.
A review of the decisions shows that this intention to separate may be
manifested in diverse ways. It may be by notice or by filing a suit.
Undoubtedly, indication or intimation must be to members of the joint family
likely to be affected by such a declaration.
Modes
of Partition
A
partition can be made by a definite, unambiguous declaration of intention by
any member to separate himself from the family. If this is done it would amount
to division of status whatever mode may be used. Partition may be effected:
(a) By
institution of suit;
(b) By
submitting the dispute as to division of the properties to arbitration;
(c) By
agreement to divide the property;
(d) By
conduct or by a demand for a share in the properties;
(e) By
metes and bounds.
Persons entitled to claim
partition
Partition can only be claimed by
a coparcener. But, when there is a partition of HUF, the following persons are
entitled to a share in the assets of the HUF:
(i) All coparceners.
(ii) Mother is entitled to a share equal to the
share of a son in case of death of the father.
(iii) Wife
gets a share equal to that of a son if a partition takes place between her
husband and his sons. She enjoys this share separately even from her husband. In
other words, a wife or
mother has no right to claim
partition, but if a partition is
effected a mother or the wife gets
a share equal to that of the son.
(iv) A son in the womb of the mother at the time
of the partition.
Right
of minor to claim partition
A minor
can claim partition through his guardian. - [Apoorva Shantilal Shah v. CIT
(1983) 141 ITR 558 (SC)]
Physical
division by metes and bounds is necessary
Hindu
Law does not require division of joint family property physically or by metes
and bounds. However, partition as defined under Explanation to Section
171 of the Act means—
(i)
where the property admits of a physical division, a physical division of the
property, but a physical division of the income without a physical division of
the property producing the income shall not be deemed to be a partition; or
(ii)
where the property does not admit of a physical division, then such division as
the property admits of but a mere severance of status shall not be deemed to be
a partition).
Properties which cannot be
divided physically
There
are some properties which cannot be divided physically. If physical division is
not possible, partition can still be effected by paying cash or other assets to
a sharer in lieu of his or her share in the property. Such situation arises,
when the division of an estate is considered to be dangerous and unreasonable
and when such division dilutes the inherent value of the property, or when the
immovable property is too small for division.
Income-tax
Act recognizes only an actual partition and not the notional partition
When a
Hindu male dies on or after 17.06.1956 having at the time of his death an
interest in coparcenary property, leaving behind a female heir of the class one category, then his interest
in the coparcenary property shall devolve by succession and not by
survivorship. The interest of the deceased will be carved out over devolution,
though there is no actual partition. Such an act is considered as a notional
partition under the Hindu Law. The concept of notional partition is
non-existent under the Income Tax Act. The Income-tax Act recognizes only an
actual partition and not the notional partition.
Physical
division of property by way of book entries not permissible
Where a
property is capable of physical division, the partition must be made by
physical division only. If the property of the HUF does not admit of physical
division, the property must be so physically divided as much permits. For
example, it is not expected that the utility of the property is lost by
compelling a physical partition and in such a case, the property may be divided
physically to the extent possible.
This is
rule in section 179 to make a valid claim for recognising the partition for
Income-tax purposes.
Entries
showing division of the property in books of account may be good evidence of a
partition more particularly in cases where the property may not be capable of
physical division. An asset which is not capable of physical division can be
partitioned by making entries in books.
Concept of notional partition is
non-existent under the Income-tax Act
The concept of notional partition
is non-existent under the Income-tax Act. The Income-tax Act recognizes only an
actual partition and not the notional partition.
What is notional partition
When a Hindu male dies on or
after 17.06.1956 having at the time of his death an interest in coparcenary
property, leaving behind a female heir of the class one category, then his
interest in the coparcenary property shall devolve by succession and not by survivorship.The
interest of the deceased will be carved out over devolution, though there is no
actual partition. Such an act is considered as a notional partition under the
Hindu Law.
Difference
between partition under the Hindu Law and that under the Income-tax Act
There
is a difference between a partition under Hindu Law and a partition recognised
under the Income-tax Act. Though the concept of partition is the same under
Hindu law and tax laws, in two respects, recognition of partition under tax
laws differs from that under Hindu Law.
|
S.
No. |
Partition
under Hindu Law |
Partition
under section 171 of Income Tax Act, 1961 |
|
1. |
Partition
is a process by which a joint enjoyment is transformed into an enjoyment in
severalty. Each one of sharers had an antecedent title and therefore no
conveyance is required. CED v. Kantilal Trikamlal(1976) 105 ITR 92 (SC). |
Section
171 raises a legal fiction that an HUF, once assessed shall be deemed to
continue unless a finding of partition has been given under this section. Consequently,
unless a finding is recorded under section 171 that a partition has taken place, the income
from the properties would be included in the total income of the family by
virtue of sub-section (1) of section 171. (Kaloomal Tapeshwari Prasad v.
CIT (1982) 133 ITR 690 (SC) |
|
2. |
FOR
RECOGNITION OF PARTITION UNDER HINDU LAW DIVISION OF PROPERTIES BY METES AND
BOUNDS IS NECESSARY The
Hindu Law does not require that the property in every case be partitioned by
metes and bounds or physically into different portions to complete a
partition. In
other words, for recognition of partition under Hindu Law division of
properties by metes division of properties by metes and bounds is not
necessary. Once shares of each share holder are defined, the partition is
complete. It is not necessary that it should be by metes and bounds. |
HOWEVER,
FOR RECOGNITION OF PARTITION UNDER TAX LAWS, DIVISION OF PROPERTIES BY METES
AND BOUNDS IS NOT NECESSARY The Income
Tax Law introduced certain additional conditions of its own to give effect to
the partition under section 171. For recognition of partition under tax laws,
division of properties by metes and bounds is necessary. It
was held that where the assets were not divided by metes and bounds, the
partition could not be recognised for the purposes of the Income-tax Act. [CIT
v. Venugopal Inani (1999) 239 ITR514(SC)] |
|
3. |
Even
a single coparcener can separate himself from rest of the family. |
It
is to be noted that section 171 applies to those HUFs which have been
assessed under the Act. So, in my opinion, partial partition can still take
place where HUF has not been assessed without invoking this section. |
|
4. |
UNDER
HINDU LAW PARTIAL PARTITION IS RECOGNISED Partition under Hindu Law, can be
total or partial. In total partition all the members cease to be members of
the HUF and all the properties cease to be properties belonging to the said
HUF. For example, joint family business could be divided while retaining
other properties as joint property. |
However,
in view of provisions of Section 171(9) of Income-tax Act, 1961, partial
partitions will not be recognised for tax purposes. Section 171, as
applicable from assessment year 1980-81, recognises only complete partition. Explanation
to this section recognizes only partition by metes and bounds i.e. the
physical division of property is condition precedent. So, there is a
departure from Hindu law. Even a decree of court would not be sufficient or
binding on Assessing Officer unless physical division takes place. ITO v.
N K Sarada Thamptty (1991) 187 ITR 696 (SC); Narender Modi v. CIT (1976) 105
ITR 109 (SC). |
|
5. |
Where
there is partition between different branches, the respective branches
continue to remain in joint. |
Partition
can be effected on demand of coparceners or suo moto by the father in
his superior power even without the consent of sons. Such right can also be
exercised even where sons are minors. Apoorva Shantilal Shah (HUF) Seth
Gopaldas (HUF) v. CIT (1983) 141 ITR 558 (SC). |
|
6. |
Since
partition can be effected between coparceners only, a family with sole
coparcener is not amenable to partition. V. V. S. Natarajan v. CIT111 ITR
539 (Mad); CIT v. Satpal Bansal 162 ITR 582 (P&H)(FB) |
In
case of CIT v. Maharani Rajlaxmi Devi224 ITR 582 SC, the court has
held that recording of partition under section 171 is necessary even in case
is falling under section 6 of the Hindu Succession Act. It observed: “it must
be held that though for the purpose of HUF, section 6 of the Hindu Succession
Act, would govern the rights of the parties but insofar as income-tax law is
concerned, the matter has to be governed by section 171(1).” |
|
7. |
|
It
is mandatory that assessee must make a claim of partition at the time of
making assessment under section 143/144. If such claim is made, the Assessing
Officer is required to make an enquiry
into such claim after giving notice to all the members. After making enquiry,
Assessing Officer is required to record a finding accepting/rejecting the
claim. |
Allotment
of share on partition
On a
partition between the members of a joint family, the shares are allotted as
under:—
|
S.
No. |
Particulars |
Allotment
of share on partition |
|
(i) |
On
a partition in an HUF which includes father, mother and sons, |
mother
has no right to claim partition but when a partition is actually effected she
takes a share equal to the sons. |
|
(ii) |
On
a partition between a father and his sons where mother is not living, |
each
son takes a share equal to that of the father. Suppose there are four sons,
each son will take 1/5 share of the property. |
|
(iii) |
If
joint family consists of brothers |
they
take equal shares on a partition. |
|
(iv) |
Each
branch takes per stripe as regards every other branch |
but
members of each branch take per capita as regards each other. |
|
(v) |
The
daughter whether married or unmarried |
With
effect from 09.09.2005, daughter married or unmarried whether shall also be
entitled to equal share on partition as she has also been treated as
coparcener like son. |
Where
however, division was not effected of the property the claim was rejected—[Kaluram
& Co. v. CIT (2002) 254 ITR 307 (2001) 115 Taxman 499 (Del)]
Section
6: The Hindu Succession (Amendment Act),
2005 which came into effect on 09.09.2015 and by which daughters in a joint
Hindu family, governed by Mitakshara law, were granted statutory right in the
coparcenary property (being property not partitioned or alienated) of their
fathers applies only if both the father and the daughter are alive on the date
of commencement of the Amendment Act.
(i) An
amendment of a substantive provision is always prospective unless either
expressly or by necessary intendment it is retrospective. In the present case,
there is neither any express provision for giving retrospective effect to the
amended provision nor necessary intendment to that effect. Requirement of
partition being registered can have no application to statutory notional
partition on opening of succession as per unamended provision, having regard to
nature of such partition which is by operation of law. The intent and effect of
the Amendment will be considered a little later. On this finding, the view of
the High Court cannot be sustained.
(ii)
Contention of the respondents that the Amendment should be read as
retrospective being a piece of social legislation cannot be accepted. Even a
social legislation cannot be given retrospective effect unless so provided for
or so intended by the legislature. In the present case, the legislature has
expressly made the Amendment applicable on and from its commencement and only
if death of the coparcener in question is after the Amendment. Thus, no other
interpretation is possible in view of express language of the statute. The
proviso keeping dispositions or alienations or partitions prior to 20th
December, 2004 unaffected can also not lead to the inference that the daughter
could be a coparcener prior to the commencement of the Act. The proviso only
means that the transactions not covered thereby will not affect the extent of
coparcenary property which may be available when the main provision is
applicable. Similarly, Explanation has to be read harmoniously with the
substantive provision of Section 6(5) by being limited to a transaction of
partition effected after 20th December, 2004. Notional partition, by its very
nature, is not covered either under proviso or under sub-section (5) or under
the Explanation.
(iii)
Interpretation of a provision depends on the text and the context (RBI v.
Peerless (1987) 1 SCC 424, para 33). Normal rule is to read the words of a
statute in ordinary sense. In case of ambiguity, rational meaning has to be
given (Kehar Singh v. State (1988) 3 SCC 609). In case of apparent
conflict, harmonious meaning to advance the object and intention of legislature
has to be given (District Mining Officer vs. Tata Iron and Steel Co. (2001)
7 SCC 358).
(iv)
There have been number of occasions when a proviso or an explanation came up
for interpretation. Depending on the text, context and the purpose, different
rules of interpretation have been applied (S. Sundaram Pillai v. R.
Pattabiraman (1985) 1 SCC 591).
(v) Normal
rule is that a proviso excepts something out of the enactment which would
otherwise be within the purview of the enactment but if the text, context or
purpose so requires a different rule may apply. Similarly, an explanation is to
explain the meaning of words of the section but if the language or purpose so
requires, the explanation can be so interpreted. Rules of interpretation of
statutes are useful servants but difficult masters (Keshavji Ravji & Co.
vs. CIT (1990) 2 SCC 231). Object of interpretation is to discover the
intention of legislature.
(vi) In
this background, we find that the proviso to Section 6(1) and sub-section (5)
of Section 6 clearly intend to exclude the transactions referred to therein
which may have taken place prior to 20th December, 2004 on which date the Bill
was introduced. Explanation cannot
permit reopening of partitions which were valid when effected. Object of giving
finality to transactions prior to 20th December, 2004 is not to make the main
provision retrospective in any manner. The object is that by fake transactions
available property at the introduction of the Bill is not taken away and
remains available as and when right conferred by the statute becomes available
and is to be enforced. Main provision of the Amendment in Section 6(1) and (3)
is not in any manner intended to be affected but strengthened in this way.
Settled principles governing such transactions relied upon by the appellants
are not intended to be done away with for period prior to 20th December, 2004.
In no case statutory notional partition even after 20th December, 2004 could be
covered by the Explanation or the proviso in question.
(vii)
Accordingly, we hold that the rights under the amendment are applicable to
living daughters of living coparceners as on 9th September, 2005
irrespective of when such daughters are born. Disposition or alienation
including partitions which may have taken place before 20th December, 2004 as
per law applicable prior to the said date will remain unaffected. Any
transaction of partition effected thereafter will be governed by the Explanation.
- [Prakash v. Phulvati - Civil Appeal No. 7217 of 2013, dated 24.11.2015
(SC)]
It is
also open to parties to allot whole house to one member on his undertaking to
pay money value of the shares due to other members & the amount paid to
other coparcenes will be available to the members in addition to his cost of
his share if the house is later sold. - [Lalitaben Hariprasad v. CIT (2009) 180
Taxman 213 : 224 CTR 306, 320 ITR 698(Guj)]
Validity
of partition between widow-mother and sole surviving coparcener-son
A wife
or mother has no right to claim partition, but if a partition is effected a
mother or the wife gets a share equal to that of the son.
The
property which devolves on a Hindu under section 8 of the Hindu Succession Act
would be individual property. Thus individual property shall continue to be
individual property on inheritance and HUF property on partition shall be that
of the joint Hindu family subject to the existence of family during the
relevant assessment year (Refer CWT v. Chander Sen (1986) 161 ITR 370 (SC);
CIT v. P.L Karuppan Chettiar (1992) 197 ITR 646 (SC).
Ownership
of Property received by a member on a total partition of HUF
Partition
on death of coparcener
A
partition is an act effected inter vivos between the parties agreeing to
the partition. A death of partner cannot bring about an automatic partition and
on such a death, the other surviving members continue to remain joint. However,
under the provisions of Hindu Succession Act, 1956, there is a deemed partition
for a limited purpose of determining the share of the deceased coparcener for
the purpose of succession under the Act.
Procedures
for recognition of partition
The
procedure by which the partition gets its recognition are as follows:—
(a) The
HUF, which has been hitherto assessed, must make a claim to the assessing
officer that the Hindu undivided family (HUF) properties have been subjected to
total partition.
(b)
Then, the Assessing Officer will make an inquiry into the claim after giving
notice to all members of the HUF; and
(c) if
he is satisfied that the claim is correct, then, he will record a finding that
there was a total partition of the HUF, and he will also mention the date on
which it has taken place.
No
necessity of other coparceners to agree in order to entitle a coparcener to
claim for a partition
It is
not necessary that other coparceners should agree to the partition sought by
one of the coparceners.
But
merely because one member severs his relations with others there is no
severance between others. - [CIT v. Govindlal Mathurbhai Oza (1982) 138 ITR
711 (Guj)]
There
can be an oral partition
It is
not necessary to effect partition by a written partition deed. It can be
effected orally and be acted upon. Even a partition of an immovable property
can be by an oral agreement. - [Popatlal Devram v. CIT (1970) 77 ITR 1073
(Orissa); Padam Lochan v. State of Orissa (1972) 84 ITR 88 (Orissa)]
What
shall be the nature of the property received on partition?
The
nature of the joint family property on partition shall be as that of joint
family property as and when the recipient person is married. Hence the
character of the property shall remain that of the joint family property.
Such
property shall be assessed as individual property, as long as the recipient is
unmarried or is reduced to a single person.
There can be an unequal partition
It is at the sweet will of the
co-parceners and members as to whether to allot on partition in accordance with
the share specified under the Hindu Succession Act or to allot lower or more to
anyone or more persons. The partition in the family could not be considered to
be a disposition conveyance, assignment, settlement, delivery, payment or other
alienation of property. A member of a Hindu undivided family has no definite
share in the family property before division and he cannot be said to diminish
directly or indirectly the value of his property or to increase the value of
the property of any other coparcener by agreeing to take a share lesser than
what he would have got if he would have gone to a court to enforce his claim. -
[CGT v. N. S. Getti Chettiar (1971) 82 ITR 599 (SC)]
A complete
partition with unequal shares as may be agreed between the parties is not
illegal and can be final. However, an unequal partition between karta as the
sole adult member and the minor children may be challenged at the instance of
the minor children on attaining majority or having a partition reopened by the
Court. Such a reopening however, will only be permitted if the division is
unjust and unfair.
KEY
NOTE
In
the light of the said law, it can be a sound tool of tax planning by giving
larger share to the less financially sound coparcener and lesser share to the
affluent.
Partition
is not a transfer
Distribution
of the assets of an HUF in the course of partition, would not attract any
capital gains tax liability as it does not involve a transfer. There would be
no clubbing of incomes under section 64 as it would not involve any direct or
indirect transfer.
Partition
is not a transfer. Each coparcener has an antecedent title to the joint Hindu
family property. Though its extent is not determined until partition takes
place. That being so, partition really means that whereas initially all the
coparceners had subsisting title to the totality of the property of the family
jointly, that joint title is transformed by partition into separate title of
the individual coparceners in respect of several items of properties allotted
to them respectively. As this is the true nature of a partition, the contention
that partition of an undivided Hindu family property necessarily means transfer
of the property to the individual coparceners cannot be accepted. - [Ajit
Kumar Poplai and Another AIR (1965) SC 432)]
Partition
does not give a coparcener a title or create a title in him, it only enables
him to obtain what is his own in a definite and specific form for purposes of disposition
independent of the wishes of his formal co-shares . - [Girija Bhai v. Sadha
Shiv Dund Raj AIR 1916 PC 104]
In view
of the unit of ownership and community of interest of all coparceners in a
joint Hindu family business the position on partition of the joint Hindu family
business, whether it be partial or complete, is very similar in law to the
position on dissolution of a partnership firm. On partition the shares of the
coparceners in the joint family business become defined and their community of interests
is separated. Division of assets is a matter of mutual adjustment of accounts
as in the case of a dissolved partnership firm. The property which so comes to
the share of the coparcener, therefore, cannot be considered as transfer by the
joint family to a coparcener or the extinguishment of the right of the joint
family in that property, the joint family not having its own separate interest
in that property which can be transferred. - [CIT v. S. Balasubramanian
(1988) 230 ITR 934 (SC)]
The
partition does not effect any transfer as generally understood in the Transfer
of Property Act.—[CIT v. N. S. Jetty Chettiar (1971) 82 ITR 599]
An
order under section 171 is not required when an HUF has not been hitherto
assessed
Section
171(1) of the Act starts with the expression “a Hindu Family hitherto assessed
as undivided”. Hence, if an HUF has not been assessed to tax, section 171 shall
be inapplicable. Section 171 of the Income Tax Act, 1961, has no application to
a case of a Hindu undivided family which has never been assessed before as a
joint family i.e. as a unit of assessment. In other words, this section has
application to a Hindu undivided family which has been assessed before as a joint
family and if the Hindu undivided family has never been assessed to tax, this
section has no application.
Responsibility
to pay Tax After partition of an HUF up to the date of partition
As per
section 171(6), every member of the HUF before partition shall be jointly and
severally liable for the tax on the income assessed of the HUF. The same
section empowers the assessing officer to recover the tax due on completion of
the assessment on the disrupted HUF from every person who was member of the HUF
before partition. Further, as per section 171(7), the several liability of the
member shall be computed according to the portion of the joint family allotted
to him at the time of the partition.
It may
however be noted that joint liability of the member is personal and distinct
from the personal and several liability as found by the Supreme Court in the
case of Govindas v. ITO (1976) 103 ITR 123 (SC). As such a member of an
HUF before partition is not personally liable, after partition in respect the
liability of HUF, ex-members liability is personal.
Also,
unlike the several liability, the joint liability is not limited to the asset
received by the member on partition as noticed by the Supreme Court in the case
of Addl. ITO v. A.S. Thinmaya (1965) 55 ITR 666 (SC).
Validity
of Penalty on HUF after a total partition
The
provisions of section 171(8) give the mandate to an assessing officer to levy
penalty on an HUF disrupted after partition.
No co-coparcener (son) has a
right to challenge the sale made by the Karta of his family
Once the factum of existence of
legal necessity stood proved, then, in our view, no co-coparcener (son) has a
right to challenge the sale made by the Karta of his family. The plaintiff
being a son was one of the co-coparceners along with his father-Pritam Singh.
He had no right to challenge such sale in the light of findings of legal
necessity being recorded against him. It was more so when the plaintiff failed
to prove by any evidence that there was no legal necessity for sale of the suit
land or that the evidence adduced by the defendants to prove the factum of
existence of legal necessity was either insufficient or irrelevant or no
evidence at all. - [Kehar Singh (D) Thr. L.Rs. & Ors. v. Nachittar Kaur
& Ors. - Date of Judgement : 20.08.2018 (SC)]
Setting apart of certain assets
of HUF in favour of certain coparceners on a condition that no further claim in
properties will be made by them, is a partial partition under Income Tax Act
Setting apart of certain assets
of HUF in favour of certain coparceners on the condition that no further claim
in properties will be made by them, is nothing but a partial partition and not
a family arrangement and not recognised in view of section 171(9) of the Act. -
[ITO v. P. Shankaraiah Yadav (2004) 91 ITD 228 (ITAT Hyderabad)]
Order under section 171 not
required where an HUF has not been assessed to tax
The wordings of section 171 show
that the section has no application to an HUF, which has not been hitherto
assessed. The authorities in support of this proposition are :—[Addl. CIT v.
Durgamma (P) (1987) 166 ITR 776 (AP); CIT v. Hari Krishnan Gupta (2001) 117
Taxman 214 (Del)]
The
property received by male member on total partition will retain its character
as a joint family property. If he is single, it will be HUF property on the
marriage. - [CIT v. Arun Kumar Jhunjhunwala and Sons (1997) 223 ITR 45
(Gau)]
The
Partition of HUF should be recognized as per the Income Tax Act and not as per
the Hindu Law. Section 6 of the Hindu Succession Act would govern the rights of
the parties but insofar as income-tax law is concerned, the matter has to be
governed by section 171(1) of the Income Tax Act, 1961. - [Add. CIT v.
Maharani Raj Laxmi Devi (1997) 91 Taxman 20 (SC)]
Section
171 of the Income Tax Act, 1961 has no application to a case of a Hindu
Undivided Family which has never been assessed before as a joint family, i.e.,
as a unit of assessment. - [CIT v. Kantilal Ambalal (HUF) (1991) 192 ITR 376
(Guj)]
Order under section 171 not
required where an HUF has not been assessed to tax
The wordings of section 171 show
that the section has no application to an HUF, which has not been hitherto
assessed. - [Addl. CIT v. Durgamma (P) (1987) 166 ITR 776 (AP); CIT v. Hari
Krishnan Gupta (2001) 117 Taxman 214 (Del)]
The
levy of such penalty has also been upheld by the Allahabad High Court in the
case of CIT v. Raghuram Prasad (1983) 143 ITR 212 (All).
It was
held that the partition in the case of HUF can be effected orally and entries
in the books is the evidence of partition. - [CIT v. Shio Lingappa
Shankarappa and Brothers (1982) 135 ITR 375 (Bom)]
There should be physical
partition of the property and not the notional partition
Therefore a transaction can be
recorded as a partition under section 171 only if, where the property admits of
a physical division, such division has actually taken place. - [Kalloomal
Tapeshwari Prasad (HUF) v. CIT (1982) 133 ITR 690 (SC)]
Assessing Officer bound to take
decision on application for partition
It was held that the Assessing
Officer cannot continue to make assessment on HUF without disposal of the
application made for partition. If such assessment is done, it shall not be
valid and it has to be set aside so that assessment can be made in conformity
with the order under section 171 which the Assessing Officer is bound to pass
in accordance with law. - [Kapurchand Shrimal v CIT (1981) 131 ITR 451 (SC)]
Therefore,
where credit balances in capital account in books of firm in which assessee HUF
was a partner is partitioned, it was held that there was a valid partition. - [Motilal
Shyam Sunder v. CIT (1972) 849 ITR 186(All)]
It was
held that the term “hitherto assessed as undivided” will mean as assessment
made by the ITO meaning “actually assessed”. The Supreme Court further held
that it will not include a case in which return has been filed and the
proceedings for the assessment are pending. - [Roshan Di Hatti v. CIT (1968)
68 ITR 177 (SC)]
It was
held that an asset which is not capable of physical division can be partitioned
by making entries in books. Here, entries relating to partition were passed in
books of HUF and not the partnership firm where HUF was a partner. The
partition was held valid. - [CIT v. K. G. Ramakrishnier (1963) 49 ITR 608
(Mad)]
Family
business can be partitioned by making necessary entries of division of capital
of the family
The
family business can be partitioned by making necessary entries of division of
capital of the family. Such division must, of course, be effective so as to
bind the members. For an asset like family business or share in partnership,
there cannot be said to be any other mode of partition open to the parties if
they wish to retain the property and yet hold it not jointly but in severalty
and the law does not contemplate that a person should do the impossible. - [Chandas
Haridas and another v. CIT (1960) 39 ITR 202 (SC)]
It has
been held that a business cannot be partitioned by metes and bounds. [R.B.
Bansidhar Dhandhania v. CIT (1944) 12 ITR 126 (Patna)] Therefore, where a
business of HUF was partitioned by well defined shares and partnership formed
was held valid.
