Section 171 of the Income Tax Act, 1961 defines the partition of HUF and deals with the provisions of assessment after its partition.
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.The Hindu Law does not
require that the property in every case be partitioned by metes and bound or
physically into different portions to complete a partition. But the Income Tax
Law introduced certain additional conditions of its own to give effect to the
partition under section 171. Thus a transaction may be treated as severance of
status under Hindu Law but not a partition under 1961 Act as physical division
of property is necessary under 1961 Act.
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:
[1] Partial partition.
[2] Total or complete partition;
The
Partition of HUF can be categorized as under:-
[1] Partial
Partition
Partition could be partial also. It
may be partial vis-a-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-a-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-a-vis properties and members both.
Partial partition is not recognized under the Act
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. For
instance, say one coparcener is getting certain property in the HUF via setting
apart of that asset of HUF on the condition that no further claim in properties
will be made by him, is nothing but a partial partition and not a family
arrangement and this situation is not recognized in the Act.
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)]
Sub-section
(9) of section 171 is an exception to sub-section (1) of section 171. For the
applicability of sub-section (9) of section 171, two pre-requisites are
essential. Firstly, the partial partition should have taken place after 31.12.1978
and secondly, such partial partition must have taken place in a HUF which
hitherto before was assessed as a HUF.
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 partition under Income Tax Act
Setting apart of certain assets of HUF in favor 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 recognized in view of section 171(9) of the Act.
Consequences of Partial Partition
Notwithstanding anything contained in the
foregoing provisions of this section, 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.
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.
[2] 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 |
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.
Claim of partition by any coparcener
It is mandatory that any
member of the HUF must make a claim of partition at the time of making
assessment under section 143/144 of the Income Tax Act, 1961
Distribution of assets at the time of partition of HUF
· On
a full partition of the assets of a Hindu Undivided Family (HUF), all the
coparceners get their shares in the property.
· After
the amendment in 2005, of Section 6 of Hindu Succession Act, 1956, daughters
are also made coparceners and their rights are equal to those of the sons and
therefore sons and daughters get the same share in the HUF property on
partition.
· It
is not only all the living members but also the child in the womb which is born
subsequently entitled to get share in the HUF property.
· When
partition takes place between father and his child, the mother also gets an
equal share that of a son. Likewise, on partition of the HUF property after
death of the father, mother gets a shares equal to the share of a son/daughter.
· The
share of each branch of the family will be per stripe and then it will be
distributed between the coparceners of the branch per capital.
For Example :
Suppose Mr. A has an HUF
having his wife W and sons B and C as well a married daughter D. Both the sons
are married and have two children each. On a partition of the assets of the HUF
each one of A, W, B, C and D will get 1/5 share in the HUF assets.
The shares of B and C in
the HUF assets will be further shared amongst themselves and their children
equally. So each one will get 1/15 share of the HUF assets (1/3 of 1/5 share
allotted on the partition).
Rights to be claimed by the coparceners
There is no provision under
the Income Tax Act, 1961 regarding the equal or unequal right in share during
the partition of HUF. The right of the coparceners in the share during division
is governed by Section 6 of the Hindu Succession Act, 1956. 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.
(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).
Partition of HUF property can be done either through family settlement or through a partition deed
Partition of HUF property can be done either
through family settlement or through a partition deed. Family settlement does
not attract stamp duty and is not required to be registered, but partition deed
attracts stamp duty and must be registered. To avoid expenses inherent with
“Partition deed” family settlement is preferred, but must be ensured that:-
·
The
family settlement is bona fide, for fair and equitable division of property
amongst the members and to resolve family disputes.
·
It
must be voluntary and without any force, threat, coercion, misrepresentation
and fraud.
·
Fair
and equitable family settlement, though unstamped and unregistered, is final
and binding on the family members.
Must have assessed as HUF
once
For recognition of a HUF to
be partitioned under Section 171 of the Income Tax Act, 1961 it is necessary
that the HUF must have once assessed as a HUF. Otherwise, section 171 shall be
inapplicable.
Inquiry by the Assessing Officer regarding the partition of HUF
Where, at the time of
making an assessment u/s 143 or 144, it is claimed by or on behalf of any
member of a Hindu family assessed as undivided that a partition, 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.
Satisfaction of Assessing
Officer that the total partition has taken place
Where the Assessing Officer
is satisfied upon the findings that the total partition of HUF has taken place during
the previous year then he shall proceed for the computation of income.
There should be actual partition and not fictional to avoid tax
Partition of a HUF has to
be done in such a way that it gives a legal finding to the Assessing Officer
that a complete partition has actually been taken place since then only he is
authorized to compute the income of the HUF as if the partition has taken in
the manner as described under section 171.
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.
Requirement of registered 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. In the case of Popatlal Devram v. CIT (1970) 77 ITR 1013 (Orissa)
wherein it was held by the Hon’ble orrissa High Court that Law is well settled
that a partition of the joint family properties can be effected by an oral
agreement irrespective of the value of the property.
Section 17 of the
Registration Act, 1908 talks only when immovable property is transferred.
Therefore, family settlement without registration is okay if no immovable
property is involved. However, in respect of transfer of immovable property
separate registered documents only for immovable property can be made.
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.
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.
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.
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.
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.
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.)]
An asset which is not capable of
physical division can be partitioned by making entries in books.
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 and that would be satisfactory
evidence of the partition of such an asset. The partition was held valid.—[CIT
v. K. G. Ramakrishnier (1963) 49 ITR 608 (Mad)]
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 whether married or
unmarried shall also be entitled to equal share on partition as she has also
been treated as coparcener like son. |
Partition of property under Hindu law and under
Income tax Act are different on two accounts:-
(a) For
partition under Hindu law division of the property by metes and bounds is not
necessary, but for partition recognized under Income tax Act, division of
property by metes and bounds is necessary.
(b)
Partial
partition of HUF property, either property specific or member specific is valid
under Hindu law, but under Income tax Act, 1961 it is not recognized.
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 NOT 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 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 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 ITR 514(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. CIT 111 ITR 539 (Mad); CIT v. Satpal Bansal 162 ITR 582
(P&H)(FB) |
In case of CIT v. Maharani Rajlaxmi Devi 224 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. |
|
As per Kalwa Devadattam v. UOI, even
where there is complete partition by metes and bounds the family will be deemed
to continue (i) if no claim of partition is made by the members at the time of
the assessment; or (ii) if a claim is made but no finding is given by the
officer recording the partition.—[Kalwa Devadattam v. UOI (1963) 49 ITR 165
(SC)]
Applicability of Capital gain taxation
In a judgement by Karnataka
High Court in the case of CIT v. R.
Nagaraja Rao, wherein it was held that the word ‘transfer’ does not include
partition or family settlement as defined under the Act. It is well-settled
that a partition is not a transfer, What is recorded in a family settlement is
nothing but a partition. Every member has an anterior title to the property
which is the subject-matter of a transaction, that is, partition or a family
arrangement. So there is a adjustment of shares, crystallization of the
respective rights in the family properties and therefore it cannot be construed
as a transfer in the eye of law. When there is no transfer there is no capital
gain and consequently no tax on capital gain is liability to be paid.
In course of appellate
proceedings, Tribunal recorded a finding that there was no transfer of assets
and amount received by assessee was a part of family arrangement which did not
give rise to liability of capital gain tax, said finding being a finding of
fact, no substantial question of law arose therefrom
The
questions of law raised by the Revenue in this appeal reads thus:
(i) Whether the consideration received under the
family settlement on transfer of right, title and interest in the family
property is a transfer under Section 2(47) of the I.T. Act and liable to be
taxed as Capital Gain under Section 45 of Income Tax Act?
(ii) Whether on the facts and circumstances of the
case and on true and proper interpretation of the family settlement dated 15th
October, 2003 the consideration of Rs. 2,25,00,000/- received by the assessee
on transfer of his right, title and interest in the family property to the
party of the second part under family settlement is a Capital Gain liable to be
taxed under section 45 of Income Tax Act?"
The
ITAT in para 19 of its order has recorded thus:
“19.
We find that in the instant case there has been a genuine dispute among the
family members and several suits were filed and judgements were pronounced.
Finally the parties to the suits decided to come to a settlement and the family
arrangement was reached and a Consent Decree was passed by the Bombay High
Court in Suit No. 4616 of 1998 on 16th October, 2003. The Royalty paid by the
Court Receiver was only an interim relief of their share of income from the
properties of G.D. Ambulkar, which right arose on account of their
preexisting right in the properties as per Will of G.D. Ambulkar. Family
arrangement is a device by which dispute between family members as to their
respective property rights were settled. Such settlement may involve division
of the property as between them and consequently a release of rights by one or
the other in favour of the allottees. Conflicting legal claims get so settled.
Since the settlement only defines a pre-existing joint interest as separate
interests, there is no conveyance, if the arrangement is bonafide. Since there
is no conveyance, there is no need for registration of such arrangements, when
orally made, even if later reduced to writing.”
The
ITAT following the decision of the Apex Court in the case of Maturi
Pullaiah v. Maturi Narasinham AIR 1966 SC 1836, held
that there is no transfer of assets in the family arrangement and the amount
received by the assessee is part of the family arrangement and not towards the
transfer of any capital assets and hence no Capital Gains Tax liability arises.
In our opinion, the decision of the ITAT is based on finding of facts, hence no
question of law arises. Accordingly, the appeal is dismissed.
– [CIT v. Sachin P. Ambulkar
(2014) 221 Taxman 67 : 42
taxmann.com 22 (Bom.)]
Family members of assessee were holding shares in different business concerns and assessee under a family arrangement had transferred his share held in a firm in favour of a family member, there was no transfer in instant case
Family members of assessee were
holding apart from personal properties, family properties and shares in
different business concerns. Disputes arose between assessee and other family
members. Thereupon a family arrangement was made between assessee and other
family members, whereby assessee had resigned from a partnership firm and
transferred his share of profit and loss in said firm to a family member for a
consideration of Rs. 35,000 being capital balance of firm. Assessee claimed
that in instant case there was no transfer, which gave rise to any capital gain.
Assessing Officer held that there was a transfer in instant case and
consequently there was a capital gain in hands of assessee. Since (i) it is
well-settled that a partition is not a transfer, and (ii) what is recorded in a
family arrangement is nothing but a partition, there was no transfer in instant
case. Therefore, there was no liability of assessee to pay capital gain tax’ [In
favour of assessee] (Related Assessment year : 1993-94) – [CIT v. R.
Nagaraja Rao (2013)
352 ITR 565 : (2012) 207 Taxman 236 : 21 taxmann.com 101 (Karn.)]
Applicability of Stamp Duty
There is no any specific
exemption in the Stamp Duty Acts for levy or exemption upon family settlement.
Stamp duty is levied on instrument. So, upon any agreement there may be levy of
stamp duty and therefore amount involved in the agreement is very important.
Therefore, the stamp duty of the agreement for transfer of immovable property
shall be applicable as per law.
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 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 and 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)
Ownership of Property received by a member on a total
partition of HUF
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)]
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.
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.
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.
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 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)]
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.
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)]
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 Govinddas 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. 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).
Assessee
legal heir of late A, inherited land and received a part of it as per oral
partition, since during lifetime of late A, family was never assessed as a HUF,
section 171 would not apply even when there was a division/partition of
property as such partition would not answer to definition of ‘partition’ in
Explanation to section 171
Assessee
was one of surviving legal heirs of late A who inherited agricultural land.
Said land was divided as per oral partition among legal heirs and sale proceeds
from sale of parcel of said land was received by assessee in proportion with
his respective share in land. Assessee claimed deduction under section 54F
which was allowed by Assessing Officer. Commissioner disallowed said exemption
in hands of assessee on ground that aforesaid division of income and property
was without physical division of property and would not amount to partition
under section 171 and therefore, capital gains should have been assessed in
hands of estate of HUF. Since during lifetime of late A, family was never
assessed as a HUF, section 171 would not apply even when there was a division
or partition of property as such partition would not answer to definition of
'partition' in Explanation to section 171. [In favour of assessee] (Related
Assessment year : 2008-09) – [A.P. Oree v. ITO (2021) 436 ITR 3 : 282 Taxman
57 : 127 taxmann.com 740 (Mad.)]
SLP
dismissed against ruling that where assessee-company waived off its right to
receive sale consideration of a property jointly held by its director with
other family members in order to avoid deadlock in management of company on
account of any disputes arising between family members who were also its
shareholders, in view of fact that an order to that effect was passed under
section 171 and, moreover, amount was duly written off in books of account,
assessee’s claim for deduction of said amount as bad debts was to be allowed
Assessee
was a private limited company consisting of two directors. Even though there
was a partition effected between brothers of one of directors, other brothers
were demanding a share in properties. One of such properties, standing in name
of director was purchased by assessee-company. Entire property was divided into
three blocks. First two blocks were reserved for sale to outsiders, whereas
third block was sold to members of Hindu Undivided Family (HUF) of director. Subsequently,
a family settlement arrangement was arrived between members of HUF and company
and it was decided therein that assessee would waive right to recover dues of
sale consideration. According to assessee, said decision was taken in order to
avoid future deadlock in management of company on account of any disputes
arising between family members who were also its shareholders. An order was
also passed under section 171. Assessee filed its return claiming sale
consideration waived off as bad debt. Assessing Officer opined that mere
possibility that there could be future disputes/quarrels/differences between
members of HUF, could not constitute a ground to hold that amount in question
was bad debts. He, thus, rejected assessee’s claim. Tribunal, however, allowed
claim raised by assessee. High Court by impugned order held that, on facts,
revenue could not contest assessee's claim even after passing of order under
section 171 and, further, even otherwise, since only requirement of law was
that amount should have been written off in books of account of assessee which
was admittedly done, Tribunal was justified in allowing assessee’s claim. Special
Leave Petition filed against impugned order was to be dismissed. [In favour of
assessee] (Related Assessment years : 2003-04 and 2004-05) – [CIT v.
Millennia Developers (P) Ltd. (2019) 266 Taxman 186 : 109 taxmann.com 94 (SC)]
Finding of Tribunal in search case of assessee-Karta of his HUF in respect of change of his status from Karta to individual on partition of his HUF, could not be a finding necessary for change of status in case of coparceners from individual to Karta of their respective HUFs
The
business of money lending was being carried out by the assessee as Karta of
HUF. A search operation was carried out under section 132 against the
assessee-karta. Tribunal found that in partition of assessee’s HUF business
years back his wife and sons were given equal shares and HUF business came to
an end. According to Tribunal, after partition, status of assessee-Karta became
sole surviving coparcener in his HUF and, thus, converted into an individual
while on receipt of property, his sons who were married having wife and
children, acquired status of HUF. Since assessee wrongly continued to file
return in status of HUF and his sons in status of individuals, Tribunal
directed Assessing Officer to make their assessment in new status for past
years. It was found that direction of Tribunal would have effect of lifting bar
of limitation prescribed for reopening assessment/completing assessment -
Further, Apex Court has held that a finding necessary for disposal of a
particular case, i.e., in respect of a particular assessee and in relation to
particular assessment year is not a finding necessary for disposal of case pertaining
to others. Since direction given by Tribunal was clearly contrary to law, it
deserved to be quashed. [In favour of assessee] – [CIT v. Harnarayan Bhagat
(HUF) (2019) 111 taxmann.com 514 (MP)]
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)]
Asset was disposed in favour of six minor daughters of Karta in form of fixed deposits, interest thereafter could not be treated as part of wealth of assessee-HUF and would not be taxable in hands of HUF
Family arrangement of assessee-HUF provided
for allotment of a sum to each of six minor daughters of Karta in form of fixed
deposits. Assessee claimed deduction of interest that accrued on fixed deposits
receipts. Assessing Officer held that document did not amount to partial
partition and though it was a family arrangement, it did not have effect of
taking away corresponding wealth from purview of HUF, and, accordingly, he
treated interest as income of HUF. Once HUF had settled a sum in favour of six
minor daughters of karta, corresponding amount ceased to be wealth or assets of
HUF. Amount could not be treated as part of wealth of HUF. [In favour of
assessee] (Related Assessment years : 1991-92 to 1996-97) – [P. Shankaraiah Yadav (HUF) v. ITO (2015) 371
ITR 386 : 232 Taxamann 757 : 59 taxmann.com 263 (Andhra Pradesh and Telangana)]
Before section 171 can be invoked so as to assess property of Hindu undivided family even after partition, as a Hindu undivided family, it should have been assessed as a Hindu undivided family before such partition
The assessee was a Hindu undivided
family (HUF). According to it, a partial partition had taken place on 30.04.1978
whereby the assets of the HUF, both movable and immovable, had been divided
among the coparceners. Thereafter, the property in question was sold and
proceeds were invested in fixed deposits. On maturity of the fixed deposits on 08.09.1996,
the monetary shares were apportioned among the members of the HUF. For the
relevant assessment year, the Assessing Officer made assessment of the assessee
in the status of HUF by invoking section 171. On appeal, the assessee contended
that the original property in the hands of the HUF, after partial partition
thereof on 30.04.1978, could not be assessed to tax under section 171. In the
alternative, the assessee contended that since it never hitherto before (i.e.,
prior to the assessment year 1997-98) had been assessed as an HUF, there was no
question of it being assessed as an HUF. The Commissioner (Appeals) allowed the
assessee’s appeal holding that it could not be assessed as an HUF under section
171. On the revenue’s appeal, the Tribunal held that the property was liable to
be assessed in the hands of the assessee as an HUF under section 171(9). On
appeal to the High Court :
Held : At some point of time the
assessee was a HUF, but there was no dispute whatsoever that it had not been
assessed as a HUF prior to the assessment year 1997-98. Section 171 caters to a
situation where a HUF has been partitioned. It deals with assessment after the
division of the HUF. Thus, before section 171 can be invoked, so as to assess
the property of the HUF even after partition, as a HUF, it should have been
assessed as a HUF before such partition.
Sub-section (9) of section 171 is
an exception to sub-section (1) of section 171. For the applicability of
sub-section (9) of section 171, two pre-requisites are essential. Firstly, the
partial partition should have taken place after 31.12.1978 and secondly, such
partial partition must have taken place in a HUF which hitherto before was
assessed as a HUF. In the instant case, the assessee had not been assessed as a
HUF ever before the assessment year 1997-98. Therefore, the second essential
ingredient for the applicability of sub-section (9) of section 171 could not be
treated to have been fulfilled in the facts and circumstances of the instant
case. Therefore, sub-section (9) of section 171 would be clearly inapplicable
to the facts of the instant case. In view of the above, the order passed by the
Tribunal was to be set aside and the assessee’s appeal was to be allowed. [In
favour of assessee] (Related Assessment year : 1997-98) – [Tirlochan Singh
v. CIT (2010) 228 CTR 390 : (2009) 180 Taxman 640 (P&H)]
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. – [CIT v. Hari Krishnan Gupta (2001) 117 Taxman 214 (Del.)]
Where properties (investments and monies deposited with bankers) which are capable of division are not actually divided, partial partition cannot be recognised
The assessee-HUF claimed that
partial partition in terms of section 171 had been effected in respect of
certain properties of the family comprising of cash in hand, shares and various
deposits, etc. It further claimed that though these properties were not divided
by metes and bounds but only visionally, it was permissible to do so under the
law in respect of partial partition of properties invested in business, in the
case of continuing business. The claim was rejected by the Tribunal but the
High Court allowed the assessee’s claim, holding that the said assets being
employed in business were not capable of division and, therefore, it was
possible for the family to have partial partition with regard to them without
physically dividing them. On appeal :
The members of a HUF may continue
doing the business and at the same time notionally divided the properties among
the various constituents of the family. As a proposition of law, the contention
may be correct but turning to the facts of the case, it was found that each of
the items of properties was capable of physical partition. This was not a case
where the HUF itself was carrying on its business before partial partition with
these assets. There was no reason why the parties could not divide these assets
by metes and bounds.
Although mere severance of the
status of the family may tantamount to partition under the Hindu law of Joint
family, the requirement of the Income-tax Act is a little more. A partition to
be recognised under the Act must lead to physical division of the joint
properties. The decision of the High Court was erroneous. If the properties
belonging to a HUF are not partitioned at all by dividing them among the
members, even though capable of division, then the members of the family cannot
say that so far as those properties are concerned they stand divided. In the
case of Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690/ 8 Taxman 5
(SC), a partial partition was effected in respect of properties which were not
physically divided. The ITO declined to record the partition. It was held by
the court that mere severence in status was not sufficient to establish
partition. The requirement of the Hindu law and the requirement of the
Income-tax Act are different in this regard. The basic principle appearing from
the section itself is that in order to claim partition in respect of any
property, division of the property is a pre-requisite. The HUF cannot say that
it stands divided in respect of the property and at the same time enjoy the
property jointly. Whatever may be the position under the Hindu law, section 171
of the Income-tax Act is quite clear in this regard. In that view of the matter
these appeals were allowed. The judgment under appeal was to be set aside. – [CIT v. Venugopal Inani (1999)
107 Taxman 258 (SC)]
Groupwise division is
permissible
When partial
partition qua the persons is permissible under the law, the members
of the HUF can divide themselves groupwise and it is not necessary to define
the share of each member of each group. When a property is held by two groups
and if the share of each group is well defined, the requirement of partial
partition will stand fulfilled. From the memorandum of partition, it was
manifest that the share of each group of the two was well defined and thus the
legal requirement was fully satisfied. For the above reasons, the view taken by
the Commissioner in his order under section 263(1) did not commend to be
accepted. The Tribunal was correct in holding that a valid partition had been
made between the members of the HUF, who divided themselves in two groups
defining the share of each group in regard to the HUF's interest in the firm.
[In favour of the assessee] (Related Assessment year : 1972-73) – [CIT v. Shrawan
Kumar Swarup & Sons (1998) 232 ITR 123 : 147 CTR 305 (All.)]
Partition of HUF under Income Tax Act, 1961 and its
assessment after Partition - Finding is necessary even in deemed
partition - Even in cases of deemed
partition under section 6 of Hindu Succession Act, 1956 in absence of claim and
finding of partition in terms of section 171(1), no part of income of HUF
should be excluded from assessment
Maharaja P. P. Singh of
Balrampur was being assessed as an individual up to and including the
assessment year 1964-65. He had no issue of his own. On 28.12.1963, he adopted
Mahraja Dharmendra Pratap Singh, who was a minor, as his son. After the said
adoption, the status of Maharaja P.P. Singh was taken as that of HUF. Maharaja
P.P. Singh died on 20.06.1964. Thereafter his wife, Maharani Raj Laxmi
Devi, became the karta of the HUF consisting of herself and the aforesaid minor
son, Maharaja Dharmendra Pratap Singh. For the assessment year 1966-67, the
assessee filed a return declaring the total income of the HUF as Rs. 28,935.
Subsequently she filed another return showing the total income as Rs. 25,288.
The difference between the original and revised returns was explained on the
basis that the revised return had been filed by the HUF after excluding
one-sixth share belonging to the minor son, Maharaja Dharmendra Pratap Singh,
as an individual, because according to section 6 of the Hindu Succession Act,
1956, one-third share of Late Maharaja P.P. Singh in the HUF property devolved
on his two heirs Maharaja Dharmendra Pratap Singh (minor son) and Maharani
Raj Laxmi Devi (wife). The ITO held that the Act is a separate, distinct
and complete statute in itself and under the Act a change in the HUF status can
be effected only by claiming partition either partial or complete and that such
partition could become operative if a claim of partition has been preferred and
after examining the evidence produced, an order under section 171 of the Act
accepting the claim of partition has been accepted by the ITO, and that in the
case of the assessee both the elements were missing. He, therefore, held that
the assessee-HUF continued to be as it was before. The said view was followed
by the ITO in the assessments for the subsequent assessment years 1967-68 to
1970-71. The said view of the ITO was upheld in appeal by the AAC. On further
appeal, the Tribunal reversed the said view and held that the case of the
assessee was not of a partition contemplated in section 171 and, therefore, no
claim was necessary and absence of an order under section 171 does not mean
that the whole estate should be deemed to belong to the assessee-HUF. The
Tribunal, following the decision of the Allahabad High Court in the case
of Kalloomal Tapeswari Prasad (HUF) v. CIT, further held that
assuming the assessee’s case came under section 171 the estate of the
assessee-HUF having been diminished in terms of section 6 of the Hindu
Succession Act, 1956 but with regard to which an order accepting the claim for
partial partition has not been made, the income from such property could not be
included in the computation of the income of the HUF. The Tribunal referred the
question above-mentioned to the High Court for its opinion and the said
question was answered by the High Court in favour of the assessee and against
the revenue. On
reference, the High Court upheld the view of the Tribunal. On appeal to Supreme
Court:
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). Therefore, in the instant case, one-sixth
income from the computation of income of the assessee-HUF could not be
excluded. - [In favour of revenue]
(Related Assessment
years : 1966-67 to 1970-71) - [Addl. CIT v.
Maharani Raj Laxmi Devi (1997) 224 ITR 582 : 139
CTR 487 : 91 Taxman 20 (SC)]
It is obligatory for Assessing Officer to make an enquiry after giving notice of inquiry to all members of HUF and record a finding as to whether there was or was not a total or partial partition of Joint family property and date of partition, if any – The assessing authority can reject the claim for partition only after holding an inquiry as envisaged by the law, and recording the finding about non-existence of the partition - A finding without such inquiry is no finding in eye of law
The assessee was being assessed as HUF. During
the relevant assessment years, the assessee claimed the benefit under section
171. It was asserted that there was a partial partition in the family by which
a coparcener had separated from the family by taking a house and another house
was given to the wife of the karta of the aforesaid family. This claim was
based on the deeds of relinquishment without consideration. It was held that
these deeds did not constitute partial partition and manifested mere severance
of status. The Tribunal, therefore, rejected the assessee’s claim under section
171. On reference :
Partition is not a transfer but
total severance of status brought about by physical division of property. In a
joint Hindu family property, each coparcener has an antecedent title. On
partition, this antecedent, i.e., joint title is transformed into separate
titles of individual coparceners. The nature of the transaction is not a
transfer, but creates a division of jointness into separation.
In terms of section 171, the
Assessing Officer was required to make an inquiry and record a finding as to
whether there had been a total or partial partition of the joint family
property, and if so, the date on which it had taken place. The provision of law
thus obligates the Assessing Officer to make an inquiry after giving notice of
inquiry to all members of the family. The expression used in this provision is
that the Assessing Officer shall make an inquiry. Indisputably, no such inquiry
was made in the instant case before recording the finding that there was no
partition. A finding without the inquiry is no finding in the eye of law. In
these circumstances, it could not be said that the ITO rightly rejected the
assessee's claim under section 171. It was, therefore, necessary that the
appropriate authority should hold an inquiry into the claim as set up in terms
of the aforesaid provision and then record the finding whether or not there was
partition and if so whether the properties were required to be included in the assets
of the HUF for the purposes of wealth-tax. [In favour of assessee] (Related
Assessment year : 1976-77) – [Ramchandra
Gopalji Sugandhi v. CIT (1996) 217 ITR 647 (MP)]
Order is binding on all parties - An order under section 171 is a judicial order to be passed after full detailed enquiry, and is to be binding between the parties till the same is set aside in accordance with law
As regards the petitioner’s contention that an
order under section 171 having been passed by the ITO recognizing the
partition, it was not permissible for him to ignore the same subsequently and
assess the family as undivided without setting aside that order. It was
contended by the revenue that this order was passed on insufficient grounds and
the correct facts were not disclosed. The only important fact relied upon by
the respondent was that in the account books of the firm the capital continued
to stand in the name of the petitioner and no partition was effected in the
books of that firm. As this fact had been brought to the notice of the ITO
concerned, this contention was not accepted to be true. The order dated
27.11.1971 mentioned the manner of partition stating that this had been
effected by dividing the amount in the personal set of account books of HUF,
meaning thereby that the ITO knew that in the books of the firm the capital
remained as it was or he could have with reasonable efforts found out the same.
The order was passed in the assessment proceedings of the petitioner-individual
and the partition was recognised year after year till the impugned notice was
issued. Further, the provision in sub-sections (2), (3) and (4) of section 171
indicate that an order under section 171 is a judicial order to be passed after
full and detailed enquiry and is to be binding between the parties till the
same is set aside in accordance with law. Admittedly, in the instant case, the
order dated 27.11.1971 had not been set aside and, therefore, as long as that
order was effective, the ITO could not take any steps to assess the erstwhile
HUF by ignoring the said order.
The contention of the revenue that the sons of
the petitioner were minors and, therefore, he could not effect a partition was
not tenable because the Supreme Court in its decision in Apoorva
Shantilal Shah v. CIT (1983) 141 ITR 558 (SC) had
upheld the authority of a father to effect even partial partition of some of
the family properties and consent of the sons was not held to be necessary. In
the instant case, however, the partition effected by the petitioner of the
property received on the partition of the bigger HUF was a complete partition
and not a partial partition and the same could not be challenged on the ground
of lack of authority of the karta. For the above reasons, the writ petition was
allowed and the impugned notice dated 30.03.1980 issued to the petitioner by
the respondent under section 148 for the assessment year 1971-72 was to be
quashed. [In favour of assessee]– [Gokul Chand v. ITO (1995) 211 ITR 738 : 175 CTR 146 : (1994) 77 Taxman
320 (All.)]
Respondent
formed assessee - HUF with his wife and sons - He inherited share in properties
of his deceased father which had been allotted to him on partition of HUF in
which respondent was also a member - Income from properties inherited by
respondent was not assessable as income of assessee - HUF
There was one ‘P’ who,
along with his wife, ‘A’, their son, ‘K’ and their daughter-in-law, constituted
a HUF. There was a partition in this family on 22.03.1954, under which ‘P’ was
allotted certain properties as and for his share and he got separated.
Thereafter ‘K’, son of ‘P’, and his wife and their subsequently born sons and
daughter constituted a HUF.
‘P’ died on 09.09.1963
leaving behind his widow and ‘K’, this son, who was also the karta of the
assessee-HUF as his legal heirs. These two persons succeeded to the properties
left by ‘P’ under section 8 of the Hindu Succession Act, 1956 and divided the
same between themselves.
In the assessment made
on the assessee - HUF, the ITO included in the computation of the total income,
the income received from the properties inherited by ‘K’ from his father. The
AAC affirmed the order of ITO. The Tribunal, however, held that properties
inherited by ‘K’ did not form part of joint family properties so that income
therefrom could not be assessed in the hands of assessee - HUF. The High Court
upheld the order passed by the Tribunal. On appeal to the Supreme Court:
Held : In view of
decision of this Court in CWT v. Chander Sen (1986) 161 ITR 370, it was
to be held that the income from the properties in question was not assessable
in the hands of the assessee - HUF. [In favour of the assessee] (Related Assessment
year : 1977-78) - [CIT
v. P. L. Karuppan Chettiar (1992) 197 ITR 646 (SC)]
Provisions of section 171 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
A
HUF, consisting of two coparceners, one of whom was KA underwent partial
partition on 30.03.1970. Lands were allotted to KA, the Karta, his wife and two
minor sons, which, thus, became properties of the KA-HUF being the
assessee-HUF. Under Government Notification under section 4 of Land Acquisition
Act, dated 15.01.1970 abovesaid lands were acquired for Gujarat Housing Board.
After partial partition, the assessee-HUF entered into an agreement with the
said Board on 05.05.1970 for the transfer of the abovesaid lands at the rate of
Rs. 17.75 per Sq. Yd. On 14.09.1970, there was partial partition of the
properties of the assessee under which lands were divided amongst the members
of the assessee-HUF.
The
assessee-HUF, after said partial partition, did not file return of income for
the assessment year 1971-72 as, according to it, it had not earned taxable
income. However, the ITO held that it had earned income by way of capital gain
on acquisition of land. Therefore, it was liable to make return under section
139 and consequently issued notice under section 148, read with section 147(a).
The assessee-HUF filed a return showing income of Rs. 99 on 22.04.1974,
pointing that partial partition had taken place on 14.09.1970, and lands were
divided amongst the HUF's members and it was after partial partition that the
land was transferred to Gujarat Housing Board. The ITO, however, held that
since the partial partition was not by metes and bounds, it was an
afterthought. According to the ITO, the partition was contrary to section 171
and, hence the partial partition was not genuine. He determined the value of
land as on 01.01.1964 at Rs. 3 per Sq. Yd. and accordingly worked out the
capital gains. Relying upon his assessment order passed under section 143(2),
read with section 147(a), for the assessment year 1971-72, he held that since
the partial partition was not valid, the interest income earned on account of
compensation paid to the members of the assessee was taxable in the hands of
assessee-HUF in the assessment years 1972-73 to 1975-76.
KA
had invested his share of compensation in firm KTB and became a partner in this
firm. According to the ITO that amount which KA had invested in the firm, was
not his individual money, but money belonging to HUF and, therefore, share of
profits received from the said firm was also assessable in the hands of a HUF.
On appeal, the AAC held that as the assessee-HUF was not assessed to income-tax
any time prior to 1971-72, the provisions of section 171 were not applicable
and the entire proceeding was misconceived. He determined the value of land as
on 01.01.1984 and directed the ITO to work out capital gains on that basis. On
appeal by the revenue, the Tribunal held that since the assessee-HUF was not
previously assessed, section 171 had no application. The partial partition was
genuine and there was no material on record to show that partial partition was
a sham and the revenue had not challenged the partial partition on any ground
other than the legal ground, namely that it had to be invalid under section
171. It held that it was not necessary for it to enter into the question of the
value of the land as on 1-1-1984. The Tribunal, relying on its earlier
decision, was of the view that the question of the value of land as on 01.01.1984
was required to be re-examined and, therefore, for statistical purposes it
allowed the cross-objections of the revenue. On reference:
Held
: Section 171 has no application to a case of Hindu family which has never had
been assessed before as joint family. In the instant case, since HUF-KA was
never assessed to income-tax in the past, section 171 had no application at all
to the facts of the instant case.
Genuineness
of the partial partition had not been challenged on any ground other than the
legal ground of section 171. Therefore, the partial partition was valid and, thus,
the capital gains was not assessable in the hands of HUF-KA. It followed as a
necessary corollary that income earned on the compensation amount received by
the members of the HUF would not be taxable in the hands of HUF-KA. Again KA
admittedly invested his share of the compensation amount in the firm KTB and
became a partner therein. The amount invested by KA did not belong to HUF and,
therefore, share income earned from the firm of KTB was not assessable in the
hands of HUF-KA (the assessee). Hence, the Tribunal’s decision was to be
upheld. (Related Assessment years : 1972-73 to 1975-76) - [CIT v. Kantilal
Ambalal (HUF) (1991) 192 ITR 376 : 98 CTR 105 : 59 Taxman 232 (Guj.)]
Section 171 does not
recognise a partition even if it was effected by a decree of court unless there
is a physical division of properties by metes and bounds
The definition of partition
given in Explanation to section 171 does not recognise a partition even if it
is effected by a decree of court unless there is a physical division of the
property and if the property is not capable of being physically divided then
there should be division of the property to the extent it is possible.
Otherwise the severance of status will not amount to partition. In considering
the factum of partition for the purposes of assessment it is not permissible to
ignore the special meaning assigned to partition under the Explanation, even if
the partition is effected through a decree of the Court. Ordinarily decree of a
civil court in a partition suit is good evidence in proof of partition but
under section 171 a legal fiction has been introduced according to which a preliminary
decree of partition is not enough, instead there should be actual physical
division of the property pursuant to final decree, by metes and bounds. The
Legislature has assigned special meaning to partition under the aforesaid
Explanation with a view to safeguard the interest of the revenue. Any assessee
claiming partition of a HUF must prove the disruption of the status of a HUF in
accordance with the provisions of section 171 having special regard to the
Explanation. The assessee must prove that a partition effected by agreement or
through court's decree, was followed by actual physical division of the
property. In the absence of such proof partition is not sufficient to disrupt
the status of a HUF for the purpose of assessment of tax.
Under the Hindu law members
of a joint family may agree to partition of the joint family property by
private settlement, agreement, arbitration or through court's decree. Members
of the family may also agree to share the income from the property according to
their respective share. In all such eventualities joint status of family may be
disrupted but such disruption of family status is not recognised by the
Legislature for purposes of income-tax. Section 171 and the Explanation to it,
prescribes a special meaning to partition which is different from the general
principles of Hindu law. It contains a deeming provision under which partition
of the property of a HUF is accepted only if there has been actual physical
division of the property. In the absence of any such proof, the HUF shall be
deemed to continue for the purpose of assessment of tax. Any agreement between
the members of the joint family effecting partition, or a decree of the Court
for partition cannot terminate the status of HUF unless it is shown that the
joint family property was physically divided in accordance with the agreement
or decree of the Court.
In the instant case, there
was no dispute that prior to the assessment year 1967-68 the assessment was
made against the HUF of which the respondent was a member. The assessee for the
first time raised the plea of partition and disruption of HUF in the
proceedings for the assessment years 1967-68 to 1969-70. There was no dispute
before the ITO that there had been no physical division of the properties by
metes and bounds. Therefore, the ITO was justified in holding that the status
of a HUF had not been disrupted and the income derived from the properties for
the purposes of assessment continued to be impressed with the HUF character.
The High Court committed an error in quashing the order of the ITO. In the
result, the order of the High Court was set aside. Decision of Kerala High
Court reversed. – [ITO v. Smt. N.K. Sarada Thampatty (1991) 187 ITR 696
(SC)]
Section 171 recognises that income which ceases to be HUF’s income cannot be assessed in HUF’s hands
The income which does not belong to the HUF cannot
be taxed in the assessment of the HUF if in fact the income has ceased to be
the income of the HUF and this has been verified by the ITO – [M.V. Valliappan v. ITO (1988)
170 ITR 238 (Mad.)]
HUF must have earlier been assessed
to tax - If a HUF was not subjected to tax, the provisions of section 171(1)
will have no application
S carried on business of plying
buses. After his death, his second wife D claimed that the business was the
individual business of S and that under a will executed by S, she was entitled
to carry on the business in her own right. On a contrary claim set up by the
first wife of S and also his brothers, the Supreme Court held that the business
was that of the joint family of which S was the karta and that D had no
interest whatsoever in the business. However, in a civil suit filed in the
Court of the subordinate judge for partition of HUP, there was a preliminary
decree on 27.03.1950. For the assessment years 1962-63 to 1968-69 proceedings
were initiated for assessment of the income from plying of the buses in the
hands of the joint family and the assessments were completed accordingly. The
assessee urged before the Tribunal that the joint family became extinct on the
filing of a suit in 1947 or, in any event on 27.03.1950 when the subordinate
judge passed a preliminary decree for partition and, thus, no assessment could
be made against a joint family which was not in existence in the previous years
relevant for the assessment years 1962-63 to 1968-69. The Tribunal accepted the
above contention and quashed the assessments made on the joint family as not
maintainable. On reference, the revenue contended that though there was a
preliminary decree in March 1950, but for the purposes of tax law, the joint
family must be deemed to be in existence as no joint family properties were
partitioned in definite portions and no order was recorded under section
171(1).
Held : The expression ‘hitherto
assessed’ occurring in section 171(1) puts beyond any controversy that only a
HUF which has suffered tax assessment in the past can be deemed to continue to
be a HUF till an order of partition under section 171(1) is recorded. If a HUF
was not subjected to tax, the provisions of section 171(1) will have no
application. The fiction that a joint family shall be deemed to continue,
enunciated in section 171(1), is for the limited purpose of roping in cases of
joint families which had hitherto been assessed. It is not possible to extend
that fiction beyond the field legitimately intended by the statute. The fiction
in section 171(1) must necessarily be confined to the purpose for which it was
specified in that section, and for no other purpose. In the present case, a
suit for partition of the HUF had been filed in 1947 and a preliminary decree
had been passed in 1950. These steps had the necessary consequence of rendering
the joint family non-existent in law and that position prevailed for income-tax
purposes also as the matter was not saved by the provisions of section 171. In
the circumstances, assessment could not be made on the HUF in respect of the
income derived from the business in plying motor buses for the assessment years
1962-63 to 1968-69. [In favour of the assessee] – [Addl. CIT v. P. Durgamma
(1987) 166 ITR 776 (AP)]
Death of a coparcener cannot bring about an automatic partition and on such a death, the other surviving members continue to remain joint
A partition is an act effected inter vivos
between the parties agreeing to the partition. A death of a coparcener cannot bring about an automatic partition and on such a
death, the other surviving members continue to remain joint. However, under
the provisions of section 6 of the Hindu Succession Act, 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. The right of a female heir to the
interest inherited by her in the family property gets fixed on the death of a
male member under section 6 of the Act but she cannot be treated as having
ceased to be a member of the family without her volition as otherwise it will
lead to strange results which could not have been in the contemplation of
Parliament when it enacted that provision and which might also not be in the
interest of such female heirs. The female heir shall have the option to
separate herself or to continue in the family as long as she wishes as its
member though she has acquired an indefeasible interest in a specific share of
the family property which would remain undiminished whatever may be the
subsequent changes in the composition of the membership of the family. - [State
of Maharashtra v. Narayan Rao Sham Rao Deshmukh (1987) 163 ITR 31(SC)]
Before levying penalty
on assessee-HUF for concealment of income, ITO passed order accepting its claim
for partition - In view of section 171(8), ITO could levy and collect penalty
up to date of partition from assessee-HUF as if no partition had taken place
and assessee-HUF was still in existence
On a combined reading of the provisions of
sub-sections (1) and (4) of section 171, it is clear-that in a case where an
order has been made recording the partition of joint family property, the total
income of the joint family has to be computed up to the date of partition and
the tax payable by the joint family has to be determined as such, as if no
partition had taken place and as if the joint family was still in existence.
Again, on going through the provisions of section 171(8), it becomes clear that
this sub-section expressly enacts that the provisions of the section in
relation to the levy and collection of any penalty, interest, fine or other sum
in respect of any period up to the date of total or partial partition of a HUF
apply as they apply in relation to the levy and collection of tax. In other
words, with regard to the levy and collection of penalty relating to assessment
up to the date of partition, one has to proceed on the basis as if no partition
had taken place and also that the joint family was still in existence. Hence,
the fact that in the instant case the order recording partition was passed
prior to the order levying penalty would be of no consequence as the provisions
of section 171(8) read with section 171(4)(a) give express authority for the
levy and collection of penalty in respect of period up to the date of partition
where the HUF had been disrupted.
It is well settled law that reference to the
provisions of the Act in support of the stand taken could not be equated with
the raising of a new question of law or of fact which had not been canvassed earlier
and may not be permitted to be raised for the first time before the Tribunal.
In the instant case, it was apparent that the
stand taken by the department throughout was that it was competent for the ITO
to impose penalty in respect of the period up to the date of partition. The
mere fact that reference was not made to the provision of the Act which
empowered the ITO to levy penalty could not debar the revenue from referring to
the relevant provisions of the Act for the first time at the stage of the
application under section 256(1). In the application under section 256(1), the
department did not take any new stand but only brought to the notice of the
Tribunal the relevant provisions of the Act which justified its action.
Accordingly, the department was justified in law in raising the question of
applicability of section 171(8) in application filed under section 256(1). – [CIT
v. Raghuram Prasad (1983) 143 ITR 212 : 12 Taxman 50 (All.)]
On partition of bigger HUF, two pieces of land were
apportioned to smaller HUF, comprising of G and other five members, which
agreed to sell the same to P - By a partition deed, smaller HUF decided to
allot land to G (karta) on his agreeing to pay five-sixth share of its sale
proceeds to other five members who were paid eventually - There was a valid
partition in terms of section 171
The bigger-HUF, consisting of M, G
and V, was partitioned on 06.04.1950 when two pieces of land were apportioned
to a smaller HUF, consisting of G and his four sons and wife. By a registered
partition dated 12.09.1966, the members of smaller HUF decided to allot the
land to G who had agreed to pay five-sixth share of its sale proceeds to the
other five members. For the assessment years 1967-68 and 1968-69, the ITO
rejected G's application under section 171 for recording a finding of partial
partition on the grounds (i) that five-sixth share of the sale proceeds was, in
fact, not paid to the members as mentioned in the partition deed ; and (ii)that
there was no partition as required by the Explanation to section 171. Accordingly,
he assessed the capital gains arising out of the sale of land in the hands of
smaller HUF. The AAC sustained the ITO's order. On second appeal, the Tribunal
held (i) that there was a valid partition effected in respect of the impugned
land ; and (ii) that the sale proceeds were, in lact, apportioned and paid to
the respective members. On reference, the revenue contended, inter alia, that
the impugned transaction was, in effect and substance, a sale by the smaller
HUF to G.
Held : The term “sale” mean transfer
of property for a price. Partition is, on principle and authority, not a
transfer of the property but is merely a change in the mode of enjoyment.
Partition of joint Hindu family consists in ascertaining and defining the
shares of its coparceners in the joint property. Its actual division by metes
and bounds is not immediately necessary and such a division may take place
subsequently. Partition may be effected, inter alia, by agreement or conduct
which evidences an intention to sever the joint family status. The real test of
an instrument of partition is whether there was any property co-owned by the
parties which is divided by that deed in severality. The courts are only
concerned with the construction of its terms and not with legality of the claim
set up by one or the other.
In the instant case, the parties to
the instrument dated 12.09.1966 were co-owners of the impugned land which was
agreed to be divided in severality. Their shares were ascertainable. In
anticipation of the realisation of the sale proceeds, G executed promissory
notes of the respective amounts falling to the shares of other family members
who were subsequently paid accordingly. It could not be said that there was any
transfer of property in the sense of the transactions being sale. It was for
all intents and purposes a change in the mode of enjoyment. Therefore, there
was a valid partition and the ITO was bound to recognise and record it.
Accordingly, capital gains arising out of the sale transactions in question
were not taxable in the hands of the assessee. [In favour of the assessee] –
[CIT v. Govindlal
Mathurbhai Oza (1982) 138 ITR 711 : (1981) 22 CTR 165 : 6 Taxman 253
(Guj.)]
When HUF is reduced to a single
individual, section 171(1) will not apply
Section 171(1) will not apply where
a HUF has disappeared because of being reduced to a single individual – [Seethamma
v. CIT (1982) 136 ITR 238 (Mad.)]
Partition in the case of HUF can be effected orally
and entries in the books is the evidence of partition
In
CIT v. Shiolingappa Shankarappa Mendse and Bros. had occasion to deal with a
case where there was a partition of HUF and subsequent formation of a
partnership firm by the erstwhile members of the HUF. Transaction of partition
was evidenced by book entries. Partnership was held valid. The fact of
partition specifically stated in the partnership deed, but the partnership deed
refers to the document of partition and the relevant entries in the books of
the HUF were produced before the Commissioner. Having regard to the principles
of Hindu law, it is clear that the Tribunal was justified in taking the view
that the joint family of the three brothers had disrupted and they had formed a
partnership firm which was entitled to registration under the Act. [In favour
of assessee] - [CIT v. Shio Lingappa Shankarappa and Brothers (1982) 135 ITR
375 (Bom.)]
A transaction can be recorded as a
partition under section 171 only if, where the property admits of a physical
division and not the notional partition, such division has actually taken place
A
transaction can be recognised as a partition under section 171 only if, where
the property admits of a physical division, a physical division of the property
has taken place. In such a case, mere physical division of the income without a
physical division of the property producing income cannot be treated as a
partition. Even where the property does not admit of a physical division, then
such division, as the property admits of should take place to satisfy the test
of a partition under section 171. Mere proof of severance of status under the
Hindu law is not sufficient to treat such a transaction as a partition. If a
transaction does not satisfy the above additional conditions, it cannot be
treated as a partition under the Act even though under the Hindu law there has
been a partition total or partial. The consequence will be that the undivided
family will be continued to be assessed as such by reason of section 171(1).
It
cannot be gainsaid that the fiction in section 171(1) does not operate in the
case of partial partitions as regards property where the composition of the
family has remained unchanged.
It
is common knowledge that in every partition under the Hindu law unless the
parties agree to enjoy the properties as tenants-in-common, the need for division
of the family properties by metes and bounds arises and in that process
physical division of several items of property which admit of such physical
division does take place. It is not necessary to divide each item into the
number of shares to be allotted at a partition. If a large number of items of
property are there, they are usually apportioned on an equitable basis having
regard to all relevant factors and if necessary by asking the parties to make
payments of money to equalise the shares. Such apportionment is also a kind of
physical division of the properties contemplated in the Explanation to section
171. Any other view will be one divorced from the realities of life. The
instant case was not a case where it was impossible to make such a division.
Nor was it shown that the members were not capable of making payment of any
amount for equalisation of shares. In fact, there was no material in the
instant case showing that the assessee ever seriously attempted to make a
physical division of the property as required by law. All that was attempted
was to rely upon the arbitrator's award which were insufficient to uphold the
claim of the assessee. Accordingly the impugned properties were capable of
physical division.
Section 171 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. In the instant case, no order under saction 171
had been passed and, accordingly, the income from said properties was
assessable in the assessee’s hands. - [Kalloomal Tapeshwari Prasad (HUF) v.
CIT (1982) 133 ITR 690 : 26 CTR 415: 8
Taxman 5 (SC)]
Assessing Officer bound to take decision on
application for partition and must mandatorily hold inquiry and record a
finding - 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
Section 25A of the Indian
Income-tax Act, 1922 (Corresponding to section 171 of the income-tax Act, 1961)
- Assessment order passed by ITO in case of a HUF without holding an inquiry
into validity of claim of partition made within a reasonable time by a member
of HUF - Such assessment liable to be cancelled. Tribunal dealing with such
question in appeal can not merely cancel ITO’s order without a further
direction to assessing authority either to modify assessment suitably or to
pass a fresh order of assessment in accordance with law
From a fair reading of
section 25A, it appears that the ITO is bound to hold an inquiry into the claim
of partition if it is made by or on behalf of any member of the HUF which is
being assessed hitherto as such and record a finding thereon. When a claim is
made in time and the assessment is made on the HUF without holding an inquiry as
contemplated by section 25A(1), the assessment is liable to be set aside in
appeal as it is in clear violation of the procedure prescribed for the purpose.
Admittedly, in the instant case the claim for partition was not only made but
was made well before the impugned assessments. The Tribunal was, therefore,
right in holding that the impugned assessments were liable to be set aside as
there was no compliance with section 25A(1).
It is well known that an
appellate authority has the jurisdiction as well as the duty to correct all
errors in the proceedings under appeal and to issue, if necessary, appropriate
directions to the authority against whose decision the appeal is preferred to
dispose of the whole or any part of the matter afresh unless forbidden from
doing so by the statute. The statute does not say that such a direction cannot
be issued by the appellate authority in a case of this nature. In interpreting
section 25A(1), one cannot also be oblivious to cases where there is a
possibility of claims of partition being made almost at the end of the period
within which assessments can be completed making it impossible for the ITO to
hold an inquiry as required by section 25A(1) by following the procedure
prescribed therefore.
In the instant case,
however, since it was not established that the claim was a belated one, the
proper order to be passed was to set aside the assessments and to direct the
ITO to make fresh assessments in accordance with the procedure prescribed by
law. We do not, however,
agree with the orders made by the High Court by which it upheld the assessments
and directed the ITO to make appropriate modifications. Such an order is
clearly unwarranted in the circumstances of this case. The order of the High
Court is, therefore, set aside. The question referred by the Tribunal to the
High Court does not appear to be comprehensive enough to decide the matter
satisfactorily. The question may have to be read as including a further
question regarding the nature of the orders to be passed by the Tribunal, if
the orders of assessments are held to be contrary to law. In the light of the
above, we hold that the orders of assessments are liable to be set aside but
the Tribunal should direct the ITO to make fresh assessments in accordance with
law. – [Kapurchand
Shrimal v. CIT (1981) 131 ITR 451 (SC)]
Partition must be by metes and bounds if female member is allotted a share
One ‘S’, his wife, ‘K’, and
their sons ‘G’ (major) and ‘B’ (minor) constituted a joint Hindu family owing,
inter alia, a business. By a release deed dated 10.11.1956, ‘G’ relinquished
his interest in family business. ‘S’ died on 01.09.1961. He had executed a will
on 22.02.1960 bequeathing his one-third interest in family including business,
to his wife and two sons equally. ‘G’ released his interest in business which
he got under will in favour of other two legatees by document dated 11.09.1961.
It was also recited there in that there was partial partition between ‘K’ and
her son ‘B’ of business and thereafter they became partners in said business. Assessee-Hindu
undivided family contended that there was a partial partition of joint family
business and, therefore, income from business should not be assessed in hands
of HUF. A Hindu female has no right under Hindu law to demand a partition by
metes and bounds. Therefore, it was not open to ‘K’ in her capacity as guardian
of her minor son ‘B’ to effect a partition between herself and B’. Therefore,
by release deed dated 11.09.1961, no valid partition between mother and minor
son was effected. Therefore, after 11.09.1961, Hindu undivided family
consisting of 'K' and 'B' continued to have two-thirds interest in joint family
business and by virtue of release effected by ‘G’ in their favour on 11.09.1961,
each of them individually was entitled to one-sixth share in remaining income
of business. [In favour of revenue] (Related Assessment years : 1963-64 and
1964-65) - [CIT v. Shantikumar Jagabhai (1976) 105 ITR 795
(Guj.)]
Specific claim is necessary
before ITO initiates inquiry - Mere knowledge on the part of the ITO is
neither material nor relevant. It is evident that the ITO is called upon to
make an inquiry and record an order only when and if a claim to that effect is
made by or on behalf of any member of such family
Section 160 read with section 171 of
the Income-tax Act, 1961 (Corresponding to section 41(1) read with section
25A(3) of the Indian Income-tax Act, 1922) - The assessee was a HUF. One of the
members of the HUF instituted a suit for partition and a preliminary decree
came to be passed in 1931 partitioning the family property into five branches
and on passing of final decree in 1939 family properties and assets were
divided into five lots.
Mere knowledge on the part
of the ITO is neither material nor relevant. Section 25A(1) of the 1922 Act
provided that where at the time of making an assessment under section 23, it
was claimed by or on behalf of any member of a Hindu family hitherto assessed
as undivided that a partition had taken place among the members of such family,
the ITO should make such inquiry there into as he might think fit, and, if he
was satisfied that the joint family property had been partitioned among the
various members or groups of members in definite portions, he should record an
order to that effect. It is evident that the ITO is called upon to make an
enquiry and record an order only when and if a claim to that effect is made by
or on behalf of any member of such family. Where no such claim has been made
there was no question of an order being passed simply because the ITO had
knowledge of the pendency of the partition suit. In the absence of an order
under section 25A(1), the Hindu family is by force of sub-section (3) to be
statutorily deemed to continue to be a Hindu undivided family. [In favour of
assessee] (Related Assessment years : 1941-42 to 1950-51) - [Pratap
Chandra v. ITO (1975) 100 ITR 551 (All.)]
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)]
Law is well settled that a partition of the joint family properties can be effected by an oral agreement, irrespective of the value of the property - A memorandum recording factum of partition, evidencing previous oral partition does not create any new jural relationship amongst parties and, hence, it is not hit by section 17(1) of Indian Registration Act, 1908 – Therefore, such a memorandum of partition was admissible in law even without registration under 1908 Act
The assessee-HUF effected an oral partition on 01.04.1957,
and the regular memorandum evidencing oral partition was drawn up on 01.05.1957.
The memorandum indicated that both movable and immovable properties were
divided. The share capital in two firms was also partitioned. It filed an
application under section 25A of the 1922 Act and an order was sought to the
effect that the joint family property had been partitioned among the various
members in definite portions as required under section 25A, sub-section (1).
The Income-tax Officer rejected this claim holding that the memorandum was
compulsorily registerable and that the properties which initially belonged to
the karta should have been transferred by another registered document to the
other members. The order of the Income-tax Officer was confirmed in appeal by
the Appellate Assistant Commissioner. On second appeal, the Tribunal affirmed
the order of the Appellate Assistant Commissioner. On reference:
In the instant case, the disruption of the joint
family with partition by metes and bounds in respect of properties covered by
the memorandum dated 01.05.1957, took place on 01.04.1957. Since, then, the
joint ownership was converted into individual ownership and the memorandum was
merely evidence of that fact. The memorandum by itself did not create any new
jural relationship amongst the parties. It merely recorded the factum of
partition which had already taken place. It is not hit by section 17(1) of the
Indian Registration Act. Therefore, the memorandum of partition dated 01.05.1957,
evidencing previous oral partition on 01.04.1957, was admissible in law and did
not require registration under the Indian Registration Act. - [In favour of the
assessee] (Related Assessment year : 1959-60) – [Popatlal Devram v. CIT
(1970) 77 ITR 1013 (Orissa)]
Provision
applies to both schools of Hindu law
Section
171 applies to families governed by the Dayabhaga School of Hindu Law as well
as to the Mitakshara School of Hindu Law. The interpretation that the
expression ‘group of members’ is intended to refer to a group consisting of a
head of a branch and his sons who remain undivided, cannot be accepted since
such an interpretation will be meaningless in relation to a Hindu family
governed by the Dayabhaga School – [Joint Family of Udayan Chinubhai v. CIT
(1967) 63 ITR 416 (SC)]
Failure to make an order on the claim for partition made does not affect the jurisdiction of the ITO to make an assessment of the HUF which has hitherto been assessed as undivided
In the instant case no
orders were recorded by the ITO at the time of making assessments in respect of
the five years, and therefore, no personal liability of the members of the
family arose under the proviso to sub-section (2). The ITO did not seek to reach
in the hands ‘T’ and ‘V’ the property which was once the property of the HUF he
seeks to reach the personal income of the two respondents. That the ITO could
do only if by virtue of the proviso to sub-section (2) a personal liability has
arisen against them. In the absence of an order under sub-section (1), however,
such a liability did not arise against the members of the HUF even if the
family is disrupted. The remedy of the income-tax authorities, in the
circumstances of the case, was to proceed against the property, if any of the
HUF. That admittedly they have not done. The appeals were dismissed
accordingly. (Related Assessment years : 1941-42 to 1946-47) – [Addl.
ITO v. A. Thimmayya (1965) 55 ITR 666 (SC)]
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 will not be invalid if minor is not represented by natural guardian
So long as the adult
members make a division which is fair and which is not unequal or prejudicial
to the minor's interest, the division would be binding, and if the minor after
attaining majority thinks that it was unfair or prejudicial, it would be open
to him to attack the partition by appropriate proceedings. So long as the
interests of the minor have not suffered, it is open even to a person other
than the natural guardian to represent the minor in the partition. Thus, a
partition is not invalid on ground that minor was not represented by his
natural guardian. – [Jakka Devayya &
Sons v. CIT (1952) 22 ITR 264 (Mad.)]
Claim for partition can be made at any time before assessment
Section 171 of the
Income-tax Act, 1961 [Corresponding to section 25A of the Indian Income-tax
Act, 1922] – Section 25A of the Indian Income-tax Act, 1922 requires a physical
division of property before an ITO can pass an order that joint Hindu family property
has been partitioned among various members or group of members in definite
portions. The expression ‘at the time of making an assessment’ stated in section 25A of
the Indian Income-tax Act, 1922 means in the course of the process of
assessment. Expression at time of making an assessment as stated in section 25A
is not restricted to time of making final order determining assessment and,
therefore, power of ITO to pass an order under section 25A(1) arises when at
time of making an assessment under section 23 of the Indian Income-tax Act,
1922 a claim is made by member that a partition has taken place but not
necessarily during accounting year. A partition after close of accounting year
may be put forward and is bound to be enquired into by ITO. Hence, even when a
claim for partition is made after the expiry of the accounting period but
before the assessment, it should be entertained by the ITO. (Related Assessment
year : 1943-44) – [Rajmal Paharchand v. CIT (1950) 18
ITR 1 (Punjab)]
SPECIMEN OF DEED OF PARTITION
This
DEED OF PARTITION executed at Chennai, this .................. day
of............. 2019 between:
1.
.......................... S/o Shri ............................ residing at
...................................
2.
.......................... S/o Shri ............................ residing at
....................................
Which
term shall mean and include their respective heirs, legal representatives, executors,
administrators, assigns etc.
WHEREAS
the property more fully set out in the Schedule A hereunder are the properties
of the late Shri.................... who died intestate at ................ on ................
leaving the parties herein as Class I legal heirs to succeed the said property;
WHEREAS
the parties herein have been enjoying the property more fully described in the
Schedule A hereunder-in common.
WHEREAS
certain misunderstanding arose between the parties herein and in order to avoid
the same and to preserve the dignity of the family and its members, it has been
decided to settle the issue in a fair and cheerful manner;
NOW THIS DEED OF PARTITION WITNESSETH:
THAT
in pursuance of the above, the Parties herein mutually agree as follows:
1. THAT
Party of the First Part is allotted the property more fully described in
the Schedule B hereunder and the said Party of First Part shall henceforth be
separate and exclusive owner of the said property allotted to her.
2. THAT
Party of the Second Part is allotted the property more fully described in
the Schedule C hereunder and the said Party of First Part shall henceforth be
separate and exclusive owner of the said property allotted to her.
3. Each
of the Parties herein shall hereafter hold and enjoy the property so
allotted in severalty and freed and discharged from all claims and demands of
the other thereto subject however to the terms and conditions hereinafter set
forth.
4. Each
of the Parties herein releases has no manner of any right and interest in
property allotted to others so much so that each of the parties hereto is the
sole and absolute owner in his/her right of the properties allotted to him/her
in the relevant Schedules.
5.
There are no encumbrances or charges on the properties hereby partitioned.
6. The
property hereby allotted to each party has been entered upon this day and
henceforth be held in severalty by such party without any interruption or
disturbance by the other or any one claiming through or under him/her.
7. Each
of the parties herein shall meet all the liabilities in respect of the public
charges, taxes, including urban land tax and other taxes attributable to the
ownership of the respective property allotted to each of them herein from this
day onwards.
8.
Each of the parties hereto shall at the cost of the other so requiring the same
do every such act or thing as may reasonably be required for further and more
particularly assuring the property hereby allotted to such party.
Schedule A
(Total Property
Partitioned)
Market Value of the
property
Schedule B
(Property allotted to
the First Party)
Market value of the
property
Schedule C
(Property allotted to
the Second Party)
Market value of the
property
In
Witness whereof the parties hereto have signed on the day, month and
year first above written in the presence of
WITNESSES:
First
Party
Second
Party
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