KALLOOMAL TAPESWARI PRASAD (HUF), KANPUR versus THE C. I T., KANPUR

KALLOOMAL TAPESWARI PRASAD (HUF), KANPUR

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THE C. L T., KANPUR

(AND VICE VERSA)

January 12, 1982

(R. S. PATHAK AND E. S, VENKATARAMIAH, JJ.]

Income Tax Act 1961, S. 171-Scope of,

Hindu Undivided Fam(ly-Ora/ panition in respect of immovable proparti~­

Properties incapable of physical division in equal shares-Capable of division by apPortionment and equali1alion by payment ofmCJney-."dere severa11ce of status Nor sufficient to record finding of partition-Whether entitles the inclusion of income from an asset which has ceased to belong to the Joint family in the assessment of joint Hindu family.

Hindu Law-Partition-What is-How brought about-Partition may be

total or partial.

The assessee, a Hindu Undivided Family was deriving income from various sources ,-such as income from property, income from money-lending business, income from speculaiion business and cloth bttsiness etc. There was a partial partition in the family in the year 1951, which was accepted and acted upon by the Income ta:t department, whereafter the doth business was treated as the business of a ti.Cm consisting of most of the coparceners as partners. On December 1, 1963 which fell within the assessment year 1964.65 there was another. partial partition orally, as a result of which eighteen immovable properties were divided amongst the ten members of the family: who held those properties as tenants-in-common from that date. These eighteen immovable properties were situated in different places and their valuation was about Rs. 7 lacs.

In the course of assessment proceedings; the assessee claimed that the mem bcrs of the family had commenced to maintain separate accounts with regard to the income from the eighteen immovable properties and to divide the nett profits amongst themselves according to their respective shares at the end of the year. When required by the Income-tax Officer to explain as to why the proper· ties were not divided in definite portions as required by section 171 of the Income Tax Act 1961, the assessee·stated that physical partition of the properties ainongst the ten members was impossible and th" only way to partition those properties was to define the respective shares and to enjoy the income from them separately. In support of his contention that the properties did not admit of physical division the assesse.e relied on an arbitration award. The Income-tax Officer did not'agrec with the assessce's contention that it was not possible to divide the properties iU definite portions. He rejected the claim of panial partition in respect of the eighteen immovable properties and proceeded to assess the income derived there from in the hands of the assessee.

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SUPREME COUltT REPORTS

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The assessec ft.led an appeal before the Appellate Assistant Commissioner. During the pendency of the appeal the assessec appointed another arbitrator to examine the possibility of physical division of each of the eighteen properties into ten portions. The artitrator by his award stated that the properties were not capable of physical division into ten shares by metes and bounds and that any practical division was that of allocation of proportionate shares in an the eighteen properties. The Appellate Assistant Commissioner held that the case of the assessee that it was not possible to divide the properties physically as untenable and dismissed the appeal.

In.further appeal to the Tribunal, the Tribunal held that the contention of the assessec that if the properties had been divided into ten shares they would have been either. destroyed or would have lost their values was not correct, and that the claim of the assessee under section 171 of the Act that there was a partial partition was to b.! rejected.

On an application by .the asscssee under section 256 ·(l) of the Act, the Tribunal referred two questions to the High Court : (1) Whether the Tribunal was right in holding that the properties in dispute were capable of division in definite portions amongst the ten coparceners as contemplated in Explanation (a) (i) to section 171 of the Act, and (2) whether the Tribunal was justified in holding that the income from the properties in dispute which were accepted to have been partitioned under the Hindu Law but with regard to which an order accepting the claim of partial partition was not made was liable to be included in the computa· tion of the assessee•s income '!

The High Court held : (I) that even though the eighteen properties could not individually be divided into ten Shares without destroying their utility but .after assessing the value of the properties they could be apportioned betwCen the ten members and the difference in the allocations could be equalised by payment of cash amounts by one to the other and in view of clause (a) (i) of the Explana tion to section 171, mere severance of status was not sufficient for recording a fin· ding of partition; and (2) that tbe income accruing from the eighteen immovable properties after December 11, 1963 was oot liable to be included in the computa tion of the joint Hindu Family's income.

Dismissing the Assessee's appeal and allowing

the Department's

appeal:

HELD : 1. (i) The law relating to assessment of Hindu undivided family underwent a change when the 1961 Act came into force. Section 171 of the Act provided for the assessment after partition of a Hindu undivided family. [24-I)]

(ii) A finding to the effect that partition bas taken place has to be recor ded under section 171 by the Income-tax Officer. He can record such a finding only if the partition in questiOn satisfies the definition of the expression 'partition' round in Explanation to section 171. A transaction can be recognised as a parti· tion under section 171 only If, where the property admits of a physical division a In such a case mere physical physical division of the property bas taken place.

KALLOOMAL V. C.J.T.

11

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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 1hen 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 Hindu Law is not sufficient to treat such a transaction as a parti· If a transaction does·not satisfy the above additional conditions it cannoi tioo. be treated as a ~artition under the Act, even though under 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 sub·section (1) of section 171. [30.A-D]

(iii) It is common knowledge that in every partition under 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 pro .. cess physical division of several items of property which admit of such physical It is not necessary to divide each item into the number division does take place. If a large nuOJber of items of property of shares to be allocated at a partition. are there, they are usually apportioned on an equitable basis and if necessary by asking the parties to make payments of money to equalise the shares. Such a partition is also a kind of physical division of the properties and is contemplated in the Explanation to section 171. [34-C-E]

In the instant case no attempt to divide the properties was made. The case clearly falJs under sub.cJause (i) of cJausc (a) of the Explanation to section 171 of the Act but does not satisfy the requirement of that sub-clause as no physi~ cal division of the properties was made even though they could be conveniently so divided. Sub-clause (if,. therefore does not apply to this case. [35-B]

2.

(i) The High Court having held that the assessee was not entitled to to claim that a partial partition had taken place under section 171, fell into an, error in holding that the income of the properties which were the subject-matter of partial partition could not be included in the total income of the assessee by relying upon the decisions which had been rendeRd on the basis of section 2SA of the 1922 Act which bad been construed as not being applicable to partial partition. [35-D]

(ii) The true effect of section 171 (1) is that property, which is the sub ject-matter of partial partition would continue to be treated as belonging to the family and its income would continue to be included in its total income until such a finding is recorded. [35-G]

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(iii) ~uh-section (1) of section l 71 contains a 'deeming' prov1s1on.

ft says that a Hindu family hitherto assessed as undivided shall be deemed for the ~urpose of the Ac.t to continue to be a H,indu undivided fa'mily except where and 10 so far as a ~~ding of partiti~n h~s been recorded in respect of it under- section 171. The pa~ution referred to 10 the section can include a partial partition also ~1ther ~s regar~s the ~rson~ con~tituting the undiJ.ided fan:-Uy or the properties ~~l~~rng ,to ,1t or. bo~hl in .v1~w, of the provisions contained in the other sub- secuons and the Explapation to the section. (29-F-GJ

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(iv) Whore there is no claim that a partition-total or partial-had taken place made> or where it is made and disallowed a Hindu undivided family which is hithefto being asseBsed as such will have to be assessed as such notwithstanding the fact a partition bad in fact taken place as per Hindu law. A finding to the effect that partition bad taken place has to be recorded under section 171 by the Income-tax Officer. He can record such a finding only if the partition in ques· tion satisfies the definition of the expression 'partition' found in Explanation to section 171. The transaction can be recognised as a partition under section 171 only if where the properties admit of a· physical division, a physical division of the property bas 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 a 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 Hindu Law is not sufficient to treat such a transaction as a partition. If a transac· tion does not satisfy the additional condition it cannot be treated as a partition under the Act even though under 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 sub-section (1) of section 171. [29 0.H, 30 A·D]

Govinddas & Ors. v. Income-tax Officer & Anr., [1976] 193 I.T.R. 123; Charanda1 Haridas & Anr. v. Commissiomr of lncome·tax, Bombay North, Kutch & Saurashlra, Ahmedabad & Anr., (1960] 39 I.T.R. 203; A. Kannan Chetty v. Commissioner of lm:ome-tax, Madras, [1963] 50 I.T.R. 601; referre>d to.

(v) As long as a finQing is not recorded under section 171 that a partia1 partition had taken place the Hindu undivided family should be decme>d for the purposes of the Act to be the owner of the property which is the subject matter of the partition and also the recipient of the income from such property. The assessment should be made as such and the tax assessed can be recovered as provided in the Act. [36 F·G]

3. Under section 25A of the 1922 Act, a Hindu undivide>d family which had been assessed to tax could be treated as undivided and subjected to tax under the Act in that status unless and until an order was made under ~ection 25A (1) and if in the course of the assessment proceedings it is claimed by any of the members of the Hindu undivided family that there has been total partition of the family property resulting in physical division thereof as it was capable of, the assessing authority should bold an enquiry and decide whether there has been If he held that such a partition had taken place, he such a partition or not. should proeeed to make an assessment of the total income of the family as if no partition had taken place and then proceed to apportion the liability as stated in see:tion 25A amongst the individual members of the family. If no claim was made or if the claim where it was made was disallowed after the enquiry, the Hindu undivided family would continue to be liable to be assessed as such.

[23 G·H, 24 A-CJ

4. Whm Parliament enacted section 171 it took note of tho decisions which had taken the view that a partial partition did not fall within the scope of It exprcgly stated in se>etion 171 of the Act that the said provision section 25A.

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It has also defined was applicable to both kinds of partitions-total or partial. partial partition as one which is partial as regards persons constituting the undi . Vided family or as regards the properties belonging to the undivided family or both. It deals with aU kinds of partitions, the nature of which sometimos may be difficult to predicate correctly. [31 D-E]

Sir Sunder Singh Majithia v. The Commissioner of Income-tax. C.P. & U.P., [1942] 10 I.T.R. 457, Gordhandas T. Manga/das v. C~mmlssloner of income-tax Bombay, [1943] 11 I.T.R. 183, Waman Satwappa Kalghatgl v. Commi8'iontr of incpme-tax [1946]14 I.T.R. 116, M.S.M.S. Meyyappa Chettiar v. Commissioner of income-tax, Madras, [1950] 18 f.T.R. 586, Lakhmtchand Baljnath v. Comm/8'/0ntr of income-tax West Bengal, [1959] 35 l.T.R. 416, Ka/wa Dnadatta and Or1. v. Vnion of india and Ors., [1963] 49 l.T.R. [S.C.] 165, Additional income-tax Officer, Cuddapah v. A. Thimmayya and Anr., [1965] 55 I.T.R. 666, Joint Family of Vdayan Chit:iubhai etc.·v. Commisrioner of Income-tax, Gujarat, [1967] 63 I.T.R. 416, referred to.

5. Partition may be several kinds.

It may be a total partition or a partial partition. A partition can be caned partial both as regards persons and as regards properties. The next kind of partition may be one where all the members divide amongst themselves only some of the family properties and continue as members of an undivided family owing the remainlog family properties. This is called a partial partition as regards property. Even here the division of the pro perty which is subject matter of partial partition may be groupwise also. In the case of a partial partition a_s regards property, one thing noticeable is that after such partition, the property which is subject-matte! of partition is held by the members of the family as tenants-in-common and the rest of the family proper ties Continue to be held by them as members of the undivided family.

[31 F-H, 32 A-E]

the members or the undivided

6. After a partial partition as regards property, the property divided family_ as divided members is held by with all the incidents flowing therefrom and the pr.operty not so divided as members of an undivided family. Section 171 (I) of the Act can, therefore operate in such a case also because the family which has become divided as regards the property which is the subject matter of partial partition is deemed to continue as the owner of that property and the recepient of the income derived from it except where and in so far.as a finding of partition has been given under ocction 171. [32 F-G]

7. Partition can be brought about, (I) by a father during his life time between himself and his sons by dividing properties equally amongst them, (2) by agreement, or (3) by a suifor arbitration. A declaration of intention of a copar-. cener to become divided brings about severance of status. [27 E]

8. A physical division of tho property which:,is the subject matter of partition is not necessary to complete the process of partition in so Car as the item of property is concerned under Hindu Law. Tho parties to the partition may citjoy tho property in question as tenants-in-common. [27 GJ

Appo•i1r v. Rama Subba Aiy1J11 [1866] ll M.I.A, 75, referred to.

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SUPREME COURT REPORTS

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9. Hindu Law does not require thal the property must in every case be partioned by metes and bounds or physically into different portions to complele a partition. Disruption of status can be brought about and it is open to the parties to enjoy their shares of property as tenants-in-common in any manner known to law according to their desfre. (28-C]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1370/74

and 1768 of 1975.

From the judgment and order dated the 29th September, 1972 of the Allahabad High Court in Income-Tax Reference No. 47 of 1971.

S.T. Desai J.B. Dadachanji and K.J. John for the Appellant

in C.A. 13;0/74 and for Respondent in C.A. 1768/75.

V.S. Desai, Miss A. Subhashini, K. C. Dua and S. P. Nayar for the Respondent in CA. 1370/74 and for the Appellant in CA. 1768/75.

The Judgment of the Court was delivered by

VENKATARAMIAH, J. These two appeals by certificate-one by the assessee and the other by the Commissioner of Income-tax, Kanpur are filed against the judgment and order dated September 29, 1972 of the High Court of Judicature at Allahabad in Income-tax Reference No. 47 of 1971 under section 256(1) of the Income-tax. Act, 1961 (hereinafter referred to as 'the Act') made by the Income· tax Appellate Tribunal, Allahabad Bench, Allahabad (for short '1he Tribunal'). The two questions which were referred by the Tribunal for the opinion of the High Court were :

"(l) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the pro perties in dispute were capable of division in definite portions amongst the 10 coparceners as con temp lated in Explanation (a) (i) to section 171 of the Income tax Act, 1961 and that even otherwise the. mere seve· ranee of status was not sufficient to entitle the assessee to succeed in. its claim for partial partition ?

(2) Whether on the facts and in the circumstances of the case. the Tribunal was justified in holding th at the

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KALLOOMAL v. c.l.T. (Venkataramlah, J.)

15

income from the properties in dispute which were accepted to have been partitioned under the Hindu Jaw .but with regard to which an order accepting the claim of partial p~rtitic;in was not made was liable to be included assessee's computation of income?"

in the

the

The assessee is a Hindu undivided family known as M/s. Kalloomal Tapeshwari Prasad and the year of assessment is 1964·65. The assessee is governed by the Mita ks hara school of law. The following genealogical tree represents the relationship amongst the members of the family :

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I I Chandoolal (His wifo Rampiari died on 17.9.63)

Phakki Lal I I

Bishambhar Nath (died issueless in 1940-wife predeceased him)

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I I I I I I I I I Roop Narain

I Jagat Narain

I I Gopalji

- I Swamp Narain

I Sh yam Narain

I Bimal Narain

I I Sitaram (wife·Kripa Devi) I I

I

I I Ramji

During the relevant previous year, the family consisted of Chandoolal, Sitaram and his wife Kripa Devi, Jagat Narain, Roop Narain, Swamp Narain, Shyam Narain and Bimal Narain who were the five sons of Chandoolal and Gopalji and Ramji, the two Sons of Sitaram. The assessee (Hindu undivided family) was deriving income from various sources such as income from property, income lending business, income from speculation. busi· from money ness and cloth business etc. There was a partial partition in the family in the year 1951 when a sum of Rs. 5,00,000 out of its total capital of Rs. 12,85,423 was divided amongst the coparceners at the rate of Rs. 41,666/10/8 amongst members of Chandoolal's branch and at the rate of Rs. 83,333/5/4 among~ the members of Sitaram's branch. Kripa Devi did not receive any share at that partition. The said partial partition was accepted and acttd upon by

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fl 982] 3 S.C.R •.

the

the business of a

the coparceners as

immovable properties were

partners. Again. on December

in question i.e. 1964-65, according

Income-tax Department where after treated as

cloth business the firm consisting of most was II, of 1963 which fell within the previous year relevant for the assess ment year to the assessee, there was another partial partition orally as a result of which its eighteen ten members of the family and that they held those properties as tenants-in-common from that date. It was claimed by the assessee in the course of the assessment proceedings that the members of the family had commenced to maintain separate accounts with regard to to divide their respective shares at the end of each year. The eighteen immevable properties were situated in different places and their valuation was as follows :

income said the net profits amongst

eighteen themselves according to

divided amongst

properties

from

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the

S. No.

Municipal number of the property

l. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

75/2 76/162 76/169 47/110 47/26 48/203 55/124 55/361 55/37 J . 70/87 71/150 71/89 71/112 63/61 51/68 51/73 86/37 1/301A

Value

1,78,875/- 27,000/- 45,000/- 13,500/· 20,7001- 16,200/- 90,000/-

41,400/· 1,57,500/- 8, 100/- 3,600/- 19,800/- 7,425/- 17,100/- 14,400/- 20,520/- 45,000/-

. 7,26,120/·

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KALLOOMAL v. 0.1.T. (Vmkataramiah, J.)

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When required·by the Income·tax Officer to explain as to why the properties were not divided in definite portions as required by section 17 l of the Act, the assessee stated that physical division of the properties in question amongst the ten members was impossible and the only possible way to partition those properties was to define their respective shares and to enjoy the income from them separatly. In support of the above claim the assessee relied upon a copy of an award dated April 15, 1964 made by one S.B. Tandon which was made into a decree in Suit No. 60 of 1964 on the file of the Court of the First Civil Judge, Kanpur dated September 21, 1964. In that award the arbitrator had stated that the properties did not admit of physical division. The Income·tax Officer did not agree with the asscssee's contention that it wa• not possible to divide the properties in question :n definite portions. Accordingly he rejected the claim of partial partition in respect · of the eighteen immovable properties ,and proceeded to assess the income derived· therefrom in the hands of the assessec. Against the order of the Income-tax Officer, the assessec filed an appeal before the /\ppellate Assistant Commissioner of Income·lax. During the pendency of that appeal the assessee appointed another arbitrator by the name Lakhsman Swaroop, a retired Chief Engineer to examine the posssibility of a physical division of each of into ten portions and if that was not possible to suggest any other mode or modes to divide them into ten parts in accordance with the share allotted to each of the parties to the partition. By his award dated February 3, 1965, Lakshman Swarwp stated tl1at the aforesaid properties were "not capable of physical division into ten shares by metes and bounds and that any practical division is that of alloca tion of proportionate shares in all the 18 properties in question." It may be mentioned here that out of the ten shares, six shares were I/12th each and four shares were I/8th each. Chandoomal and his five sons had been allotted l/ 12th each and Sitaram, his wife and his two sons had been allotted l /4th each. Lakshman Swaroop was the Appellate Assistant also examined as Com missioner by the assessee and cross-examined by the Income tax Officer. The Appellate Assistant Commissioner on a considera tion of the material before him including the decree of the court referred to above and the evidence of Lakshman Swaroop held that the case of the assessec that it was not possible to divide the pro perties physically into ten shares referred to above was not tenable and dismissed the appeal. The assessee, thereafter took up the matter before the Tribunal in appeal. The Tribunal also was of the view that the contention of the assessee that if the properties had

the eighteen properties

a witness before

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been divided into ten shares, they would have· either been destroyed or would have lost in value was not correct. Accordingly tile claim of the assessee under section 171 of the Act that there was a partial partition was rejected. Thereupon on an application of the assessee made under section 256(1) of the Act, the two questions set out above were referred by the Tribunal to the High Court for its opinion.

After hearing the parties, the High Court recorded its answer to the first question in the affirmative and in favour of the Depart ment and in reaching that conclusion, it observed thus :

"We have seen the evidence of the arbitrator as well as the Chief Engineer, and it is apparent there from' that even though the 18 properties could not indivi dually be divided into I 0 shares without destroying their utility but after assessing the value of the pro perties. they could l>e apportioned between the ten members and the difference in the allocations could be equalised by payment of cash amounts by one to the other. In our opinion, it cannot, in such a situation, be said that. these 18 properties were incapable of physical division in 10 shares, and so, in view of clause (a) (i) of the Explanation, mere severance of status was not sufficient for recording a finding of partition."

The High Court answered the second question in favour of the assessee holding that the income accruing from the eighteen immovable properties after December 11, 1963 was however not liable to be included in the computation of the joint Hindu family's this answer, the High Court observed income. thus:

In recording

"Sec. 171 of the 1961 Act in essence, is a re-actment · of Sec. 25A with the difference that it applies not only to cases of toial partition but also to cases of partial partition. There are some incidental changes as well, e.g. sec. 171 applies also for purposes of levying and collecting penalty, fine or interest and in addition requires the Income-tax Officer to record a finding as to the date on which total or partial partition took to a partial place. The fact partition (meaning a partition which is partial as

that sec. 171 applies

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KALLOOMAL v. C.l.T. ( Venkararamiah, J.)

19

regards the persons or as regards the properties of the family or both) as well shows that a findin11 of partial partition can be recorded and on such a finding being ·recorded under sub-section (4) the total income of the joint family in respect of the period upto the date of partition is to be assessed .as if no partition had taken · place and each member of the family was to be liable, notwithstanding anything contained in clause (2) of sec. I 0, jointly and severally for the tax on the income so assessed. Thus sec. 171, like sec.'25A, seeks to nullify the effect of sec. 10 (2) under which a member was not liable to be taxed on the income received as ·a member of Hindu undivided family.· The section does not entitle the inclusion of income from an asset which has ceased to belong to the joini family, in the assessment of the joint Hindu family.

In the present case, on the· findings, the position is that the joint Hindu family stood disrupted in rela- tion to the 18 immovable properties as a result of. the oral partition dated 1 lth December, 1963. Thereafter the income of these properties belonged to the indivi- dual members and not to the joint family. It could not be included in the assessment of the family."

Aggrieved by the answer to the first question, the assessee has filed Civil Appeal No. 1370 of I 974 and aggrieved by the answer to the second question, the Revenue has filed Civil Appeal No. 1768 of 1975.

It is necessary to refer to the history of the relevant provisions in order to decide the questions raised before us. Under the Indian Income-tax Act, 19i2 (for short 'the 1922 Act') a Hindu undivided family could be assessed on its income. Section 3 of the 1922 Act laid down that where any Central Act enacted that income·tax should be charged for any year at any rate or rates, tax at that rate or those rates should be charged for t.hat year in ilccordance with and subject to the provisions of that Act in respect of total income family of the previous year of every etc. But section 14 (I) of the 1922 Act provided that no tax was pay~ble by an individual assessec in respect of any sum which he received as a member of a Hindu undivided. family w4ere such sum had been paid out of the income of 'the family. Section 25-A was

individual, Hindu undivided

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[ 1982] 3 S.C.R;

inserted in the 1922 Act in the year 1928 providing for the machi .nery for assessmdnt after partition of a Hindu undivided family. That section immediately before the repeal of the 1922 Act read as follows:

that a partition has

"25A. Assessment after partition of a Hindu undivided family-(!) Where, at the time of making an assess· ment under section 23, it is claimed by or on behalf of any memper of a Hindu family hitherto assessed as undivided taken place among the members of such 'family, the Income-tax Officer shall make such inquiry there-into as he may think fit, and, if he is satisfied that the joint family property has been partitioned among the various members or groups of members in definite portions he shall record an order to that effect :

Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family.

(2) Where such an order has been passed, or where any person has succeeded to a business, pro fession or vocation formerly carried on by a Hindu undivided family whose joint family property bas been partitioned on or after the last day on which it carried on such business, profession or vacation, the Income tax Officer shall make an assessment of the total income received by or on behalf of the joint family as such, as if no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and not withstanding anything contained in sob-section (I) of section 14, be liable for a share of tbe tax on the income so assessed according to the portion of the joint family property alloted to him or it; and the Income-tax Officer shall make assessments accordingly and groups of members on the various members in accordance with the provisions of section 23 :

Provided that all ~he members and groups of mem bers whose joint family property has been partitioned

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l:ALLOOM.l.L v. C.I T. (Venkataramiah, J.)

21

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shall be liable jointly has severally for tax assessed on the total income received by or on behalf of the joint family as such.

the

(3) Where such an order has not been passed in respect of Hindu family hitherto assessed as undivided, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family".

Section 25-A of the 1922 Act as it stood then (subsequent modifications in it being immaterial for the purposes of this case) came up for consideration by the Judicial Committee of the Privy in Sir Sunder Singh Majithia v. The Commissioner of Council Income-tax, C.P. and U.P.(') The Privy Council held that section 25-A[ of the 1922 Act provided that if it be found that the family property bad been partitioned in definite portions, assessment might be made, notwithstanding section 14(1) on each individual or group in respect of bis or its share of the profits made by the undivided jointly and severally liable for the tax. It was further held that if, however, though the joint Hindu family bad come to an end, it be found that its property bad not been partitioned in definite portions then the family was to be deemed to continue-that is, to be an existent Hindu family upon which assessment could be made on its gains of the previous year. But it was of. the view that section 25-A bad nothing to say about any Hindu undivided family which continued in existence never having been disrupted. Such a case was held to fall outside sub-section (3) of sectiOn 25-A and in effect, it held that the said section did not apply to cases of partial partition.

family, while holding

the members

all

In (Jordhandas T. Manga/das v. Commissioner of Income-tax, Bombay,(') Kania, J. (as be then was) who agreed with Beaument, C.J. explained the scheme of section 25-A of the 1922 Act (as it stood then) in his concurring judgment thus :

"It is material to bear in mind the scheme of the Income-tax Act, in the first instance. Under sections 2 and 3 the different units stated therein are' liable to be taxed as such. One of them is a joint Hindu family. In order to avoid double taxation, Section 14 lays down

(I) [1942] 10 I.T.R. 457. [1943] 11 I.T.R. 183. (2)

A

B

c

D

E

F

G

H

.A

B

c

D

E

F

G

ff

22

SUPREME COURT REPORTS

(1982) 3 s.c.1

again. Then comes

that when the individual member is being assessed, his income as a member of a joint family ~should not be assessed the stage, what happens when a family, which has once been so assessed, comes to a partition. To meet that con tingency, Section 25-A has been enacted. In the sec tion, as it existed before the amendment of 1939, in terms the Income-tax Officer required proof, (i) that a separation of the members of the joint family bad taken place and (ii) that the joint family property had been partitioned amongst the various members or groups of members in definite portions. On being satis fied on those points he had to record an ·order to that effect. The effect of such a recording was that the joint family income would be assessed and recovered in terms of sub-section (2). In the absence of such order, under sub-section (3) the joint family continued to be assessed as before."

The same view was followed in Waman Satwappa · Kalghatgi in M.S.M.S. Meyyappa

v. Commissioner of Income-tax(') and Chettiar v. Commissioner of Income-tax, Madras.(")

This Court had to consider the true meaning of section 25-A in Lakhmichand Baijnath v. Commissioner of of the 1922 Act Income-tax, West Bengal.(') Venkatarama Aiyar, J. speaking for the Court observed in the above case thus :-

"Now, when a claim is made under section 25-A, the points to be decided by the Income-tax Officer are whether there bas been. a partition in the family, and if so, what the definite portions are in which the divi sion had been made among the members or groups of members. The question as to what the income of the family assessable to tax under section 23 (3) was would be foreign to the scope of and enquiry . under section 25-A. That section was, it should be noted, intro· duced by the Indian Income-tax (Amendment) Act, 1928 (3 of· 1928) · for removing a defect which the

(I) (1946] 14 l.T.R. 116. (2) [1950] 18 I.T.R. 586. (3) [1959] 35 I.T.R. 416.

1

.r

~

' ,.\

', -

~1

,;

-r

ltALLOOM~L v. C.l.T. (Venkataramiah, J.)

23

. working of the Act as enacted in 1922 had disclosed. Under the provisions of the Act as they stood prior to the amendment, when the assessee was an undivided family, no assessment could be made thereon if at the time of the assessment it had become divided, because at that po(nt of time, there was no undivided family in existence which could be taxed, though when the income was received in the year of account the family was joint. Nor could the individual membe.rs of the family be taxed in respect of such income as the same is exempt from tax under section 14 (1) of the Act. The result of these provisions was that a joint family which had become divided at the time of assessment escaped tax altogether. To remove this defect, sec tion 25-A enacted that until an order is made under that section, the family should be deemed to continue as an undivided family. When an order is made under that section, the family sh.mid be deemed to continue as an undivided family. When an order is made under that section, its. effect is that while the tax payable on the total income is apportioned among the divided members or groups, all of them are liable for the tax the total income of the family. What payable on that tax is would depend on the assessment of income in proceedings taken under section 23, and an order under section 25-A would have no effect on that assessment.''

The above view was reiterated by this Court in Ka/wa Deva dattam and Ors. v. Union of India and Ors.(') in Additional In.come-tax Offi~er, Cuddapah v. Thimmayya and Anr.(') and in Joint family of Udayan Chinubhai etc. v. Commissioner of Income-tax, Gujarat.(') · The substance of all these decisions was that under section 25-A of the 1922 Act a Hindu undivided family which had been assessed to tax could be treated as undivided and subjected to tax under the-Act in that status unless and \lntil an order was made under section 25-A (!)and ifin the course of the assessment proceedings it is claimed by any of the members of the Hindu undivided family th11t there

(I) [1963) 491.T.R. (SC} 165. (2) [196S]'55 I.T.R. 666. (3) [1967] 63 I.T.R. 416.

A

B

c

D

E

F

G

K

24

SUPREME COURT REPORTS

( 1982] 3 s.c.R.

has been total partition of the family property resulting in physi cal division· thereof as it was capable of, the assessing authority should hold an enquiry and decide whether there had been such a If he held that such a partition had taken place, partition or not. he should proceed to make an.assessment of the total income of the family as if no partition had taken place and then proceed to appor tion the liability as stated in section 25·A amongst the individual If no claim was made or if the claim where members of the family. it was made was disallowed after enquiry, the Hindu undivided family would continue to be liable to be assessed as such. This was the legal position under the 1922 Act.

The law relating to assessment of Hindu undivided j family, the Act came into force. however, underwent a change when Section 171 of the Act which corresponds to section 25-A of the 1922 Act reads thus :

"171. (I) A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family.

T

'

(2) Where, at the time of making an assessment under section 143 or section 144, it is claimed by or on· behalf of any member of a Hindu family assessed as undivided that a partition, whether total or partial, has taken place. among the members of such family, the Income-tax Officer shall make an inquiry tbereinto after giving notice of the inquiry to all the members of the family.

·

(3) On the completion of the inquiry, the Income-tax Officer shall record a finding as to whether there has been a total or par\ial partition of the joint family property, and, if there has been such a partition, the date on which it has taken place.

B

c

D

E

F

G

' ; H

(4) Where a finding of total or partial partition has been recorded by the Income-tax Officer under

kALLOOMAL· v,. C1l.'I'. ( Venkat«romlalr, i.)

this section; and th.e partition. took place during the previous year :

(a)

the total income or the joint family in respect or the period up to the-date of partition shall be assessed ai ir no partition had taken place; and

(b) each member or group or members shall, in · addition to any tax for which he or it may be separately -liable a~d n~twithstanding ·any thing contained in clause (2) or section IO, be jointly and severally liable for the tax on the income so assessed.

(5) Where a finding or total or partial partition has bten· recorded-· by the· Income-tax Officer under thM section; and the• pactition took place arter the expiry of the• previous year, the total income or tilt previo111· year. or the joint farnily shall be· assessed as if no partition·haMaken place, and the provisions of clause (b) of sub-section (4) shall, so fir a•·may·bei apply to the case.

(6) Notwithstanding anything contained in this section if-the .Income.tax. Oftlcer· findthafter completion of the assessment of a Hindu undivided family that the family has already effected a partition, whether total or partial, the Income-fax, Ofllcer shall proce ed to recover the tax, from every person who was a member of the family before and partition, and every such person· shall< be jointly and severally liable for- the tax on the<income·so a!l6essed.

(7) For the purposes. of this. section, the several liability of any member or group. of members thereunder shall· be computed according to the portion of. the jqirit family property allotted to him or it at the· partition, whether total -0r partial.

·+

(Ii). The provisions of tbi~ section shall, so far as may .

be, apply in-relation to the levy.and colleotion,of

A

8

C·

D

E

F

G

H

A

B

c

D

E

F

G

H

[1982] :i s.c.fl.

any penalty, interest, fine or other s.um in respect of any period up to the date, of the partition, whether total or partial, of a Hindu undivided family as they apply in relation to the levy and collection of tax in .respect of any such period. In this section- Explanation-

(a) "partition" means-

(i) where the property admit of a physical <livision, a physical division of the pro perty, 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 admits of a physical division then such division as the p~operty admits of, · but a mere seve rance of status shall not be deemed to be a partition;

(b) "partial partition" means a partition which is partial as regards the persons constituting the Hindu undivided family, or the properties belonging to the Hindu undivided family, or both."

Section 4 (I) of the Act which levies the charge of income-tax states that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, the Act in respect of the total income of the previous year or previous years, as the case may be, of every person. The expression 'person' is defined in section 2 (31) of the Act as including within its meaning a Hindu undivided family. In order to. avoid double taxation of the same income under the Act, any sum received by an individual ~s a member of a Hindu undivided family where such sum has been paid out of the income of the family is required by section 10 (2) of the Act not to be included in compu ting the total income of a previous year of any person. This require ment, however, is subject to section 64 (2) of the Act with effect from April I, 1971. Then follows section 171 of the Act which

•

r

.l

< .\ '

..

kAi.tooMAL v. C i.T. (Venkataramiqh, 1.)

provides for the assessment after partition of a Hindu undivided family.

A

Under Hindu law partition may be either total or partial. A partial partition may be as regards persons who are members of the family or as regards properties which belong to it. Where there has been a partition, it is presumed that it was a total one both as to the parties aad property but when there is a partition between brothers, there is no presumption that there has been partition between one It is, however, open to a party who of them and his descendants. alleges that the partition has been ·partial either as to persons or as to property to establish it. The decision on that question depends on . proof of what the parties intended whether they intended the parti tion to be partial either as· to persons or as to properties or as to both. When there is partial partition as to property, the family ceases to be undivided so far as properties in respect of which such partition has taken place but continues to be undivided with regard to the remaining family property. After such partial partition, the rights of inheritance and alienation differ accordingly as the property in question belongs to the members in their divided or un divided capacity .. Partition can be brought about (l) by a father during his lifetime between himself and his sons by dividing proper· ties equally amongst them, (2) by agreement or (3) by a suit or arbitration. A declaration of intention of a coparcener to become divided brings about severance of status. As observed by the Privy Council in Appovier v. Rama Subba Aivan(1)" when the members of an undivided family agree among ihemselves with regard to a particular property, that it shall thenceforth be the subject of owner ship, in certain defined shares, then the character of undivided property and joint enjoyment is taken away from the subject-matter so agreed to be dealt with, and in the estate each member thence forth a definite and certain share, which he may claim the right to receive and to enjoy in severalty, although the property itself has not been actually severed arid ·divided". A physical division of partition is process of partition in so far as that item of proper4y is concerned under Hindu Jaw. The parties to the partition may enjoy the property in question as te~aots In Approvier's case (supra)· the Privy Council further in common. laid down that "if there be a conversion of the joint tenancy of an

the property which not necessary

the subject-matter of

is complete

the

to

(l) [1866] 11 MIA 75.

B

c

D

E

F

G

H

28

SUl'RBMB Couat, RBPOllTS

[1!182] 3 s.c.ll.

undivided .family into a tenancy in common of the members of that undivided family, the undivided family becomes a divided family• with reference to the property that is the subject of that agreement, a separation in interest and in right, although not and that is immediately followed by de facto actual division of the subject· matter. This may, at any time, be claimep by virtue of the separate right."

It is thus clear that Hindu Jaw does not require that the pro· perty must in every case be partitioned by metes and bounds or physically into different portions to complete a partition. Disrup· lion of status can be brought about by any of the modes referred to above and it is open to the parties to enjoy their share of pro· perty as tenants-in-common in any manner known to law accord ing to their desire. But the income-tax law introduces certain con ditions of its own to give effect to the partition under section 171 of the Act.

·

--..

Section 171 of the Act applies to a case Vi here there is a Hindu undivided family which had been assessed as such under the Act until a claim is made under section 171(2) that there has been a partition-total or partial in it. The partition contemplated under section 171 of the Act may be either total or partial. Here there is a departure made f.om section 25A of the 1922 Act which wa.s concerned with a total partition only. In sub-sections (2) to (5) and (8) of section 171 of the Act, the word 'partition' is qualified by words 'total or partial'. The Explanation to section 171 of the· Act to which we shall revert again also defines the expression 'partial partition' as meaning a partition which is partial as regards the persons constituting the Hindu undivided family, or the pro perfies belonging to the Hindu undivided family, or both. Sub section (2) of section 171 provides that where at the time of mak ing an assessment under section 143 or section 144 of the Act it is claimed by or on be1ialf of any member of a Hindu undivided family assessed as undivided that a partition, whether total or par tial, has taken place among the members of such family, the Income tax Officer shall make an inquiry into the said claim after giving notice to all the members of the family, On the completion of the inquiry, the Income-tax Officer is required by sub-section (3) of section 171 to record a finding as to whether the claim of partition, total or partial is true or not and if tl. ere has been such a· partition, the date on which it has taken pla, e. Sub-section (4). of section 171 states that when a finding of total or partial partition bas been

B

c

E

F

G

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KALLOOMAL v. c.E.T. ( Venkatar~miah, J.)

29

recorded by the Income-tax Officer and the partition had taken place during the previous year the total income of the joint family in respect of the period upto the date of partition shall be assessed as if no partition had taken place and each member or group of members shall in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10 be jointly and severally liable to the tax on the income so assessed Where the finding recorded is that the parti tion had taken place after the expiry of the previous year then the joint family has to be assessed under sub.section .(5) of section 17 J as if no partition had taken place and the tax shall be recoverable mutatis mutandis as provided in clause (b) of sub-section ( 4) there of. The several liability of a member or a group of the undivided family has .to be determined under sub-section (7) of section 171 according to the share of family property allotted to him or to the group, as the case may be. Sub-section (8) of section 171 ex tends the above rules of assessment and liability to levy and collec tion of any penalty, interest, fine etc. payable by the family upto the date of partition. Sub-section (6) of section 171 which contains -11- non ob&tante clause empowers the Income-tax Officer to recover the tax due from a family from e.very member of the family before the partition even if he finds after the completion of assessment that the family has undergone a partition already. The true effect of this provision is discussed in Govinddas & Ors. v. Income-tax Officer & Anr, (1 )

~· '

Now we come to sub-section (I) of section 171 of the Act which contains a 'deeming' provision. It says that a Hindu family hitherto assessed as undivided shall be deemed for the purposes of the Act to continue to be a Hindu undivided family except where and.in.so far•as a finding of partition has been recorded in respect of.it under.section· 171. Partition referred to here can obviously include a partial partition also either as regards the persor;s consti tuting .the undivided family or the properties belonging to it or both, in view ·of the provisions contained in the other sub-sections in and the Explanation to section 171. Where there is no claim that a partition-total or partial had taken place made or where it is made and disallowed a Hindu undivided family which is hitherto being assessed as such will have to be assessed as such notwith taken place standing

i:>art\tion

fact

fapt

had

the

jq

a

A

B

c

D

E

F

G

H

, (I) (1976] 103 ITR 123.

/

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•

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A

B

c

D

E

F

G

H

30

SUPREME COURT REPORTS

•

[1982] 3 s.c.R.

as per Hindu law. A finding to the effect that partition had taken place has to be recorded under sectionjl 71 by the Income-tax Officer. He can record such a finding only if the partition in question satis fies the definition of the expression 'partition' found in Explana tion to section 171. 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 theri. 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 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 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 sub-section (1) of section 171.

At this stage one contention urged on behalf of the assessee It is asserted on behalf of the assessee ·that needs. to be considered. the fiction contained in section 171 ( 1) of the Act does not at all apply to an undivided family which continues to be in fact an un divided family even after a partial partition as regards some of its properties had taken place. The argument is that a 'deeming' pro vision can operate only where the real state of affairs is different from what the law deems as existing and it can not where the real state of affairs is the same as the one which law by a fiction treats It is urged that since the undivided family in fact con as existing. tinues ev :n after a partial partition as regards property, there is no need to enact a rule declaring that it shall be deemed to continue as an undivided family. Hence section 171(1) of the Act cannot In other words;· be construed as being applicable to such a case. it is urged that where all the members of an undivided family con tinue to be members of such family owning the remaining proper ties which are yielding income after a partial partition as regards some properties has taken place, the undivided family is liable to be assessed as such only in respect of the income derived by it from the remaining items of property owned by it and the income derived properties which have gone out of the ownership of the family by reason of the partial partition should be excluded from the total jncome of the family. Reliance is placed on the following obser•

+

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KALLOOMAL v. C.I.T. (Venkataramiah, J.)

31

the Privy Council

vations of Majithia 1922 Act arose for consideration :

in the case of Sir Sunder Singh (supra) where sub.section (3) of section 25·A of the

"!he section has nothing to say about t4e Hindu un divided family which continues in existence never having is outside sub-sectiori (3) been disrupted. Such a case because it is not within the section at all. No sub-section is required to enable an undivide'1 family which has never been .broken up to be deemed to continue. But it need not have the same assets or the same income in each year and it can part with an item of its property to its indivi dual members if it takes the proper steps."

inserted

It is not necessary to make any comment on these observa \ions as they had held the field until the Act came into force with section 171 in it. The Parliament enacted section 171 a(ter taking note of the above decision and several other decisions f qllowing it which had taken the view that a partial partition did It expressly stated in not fall within the scope of section 25-A. section 171 of the Act that the said provision was applicable to bo.th kinds of partitions-total or partial, It has also defined par tial partition as one which is partial as regards persons constituting· the undivided family or .as regards the properties belonging to the undivided family or both. Virtually the preseat provision· deals with all kinds of partitions the nature .of which sometimes may be difficult to predicate correctly. Take a joint family consisting of a father, his sons and grandsons as shown in the following genealo gical tree :

A I I I I c I I

I I B I I

I E

I I F

I I G

I I D I I

I

J

I '1

H

I

When a partition takes place in the above family there may be a partition when all of them-A. B, C, D, E, F, G, H, I and J . .

.

.

~

A

B

c

E

F

G

H

A

8.

c

D

E

32

SUPRBMI! COURT 4UlPOR1S

• (1982) 3 S.C-ll.

the

three· ·branches

the branch of · D

become divided each of them taking •.hit rightfill sharc in• ther·fitnily property. 'In this case there is ·a total ·partition. The llellOlld kind of partition may be amongst four "groups, the first· coaslitiug of A only, the second consisting of B, E and F, the third consisting of C, G and H and the fourth consisting of D, land J . each croup taking one fourth share in all the pto"perties a:tid the<brao.bh of B, the branch of C, and the branch of D continuing af utidivided families. The third kind of partition may be a pittition where the branch of ''B, or any one of the branch of C, or from separates the rest of the family taking its share thus te1Ulting in two undivided families one_ family which bas gone out of the family and the other In these cases the l)llrtition consisting of the remaining members. can be call:d partial both as regards persons and as regards proper ties. The next kind of part'ition may be one where al£ the- members divide amongst themselves only Sollie of the family propcrtles'arld continue as- members of an undivided family owning the remainitig family properties. This is called a partial partition "as regrids property. Even here the division of the property whieb is· sub~t matter of partial partition may be groupwise also. In the case ofa partial partition as regards property, one· thing noticeable is that after such partition, the properly whieh is the subject· matter of partition is held by the members Of the family as tenants-in'common and the rest of the family properties continue to be held by them as members of the undivided family. This is the very principle \i/hich is expounded by the Privy Council in Appovler' s case (supra) in lhc two passages extracted above.

After a partial partition as regards property, the property divided is held by the members of the undivided family as divided members with all the incidents flowing therefrom and. the property · not so 1 divided as member; or an undivided family. The fiction enacted in section 171(1) of the Act con, therefore, operate in such a case also because the family whihb has become divided as regards · the• property which is the subject-matter of partial partition is deemed to continue as the owner of that property and the recipient of the income derived from it except where and in so far as a finding of partition has been given under section I 71. In such a- case it is obvious the real state of affairs is in · fact different from what is created by the fiction and it cannot be said that there is no occasion for the fidtion -to operate. Thal'is the true meaning ,of 'Rllli<>n 171 (I) 'of' the' Act. ! Iaivicw i>f'the°'8ubstaatial · cllanses: thatrare1"roa1ilt

G

H

L

•

' )

•

•

•

• ICALLOOMAL v .. -0.1.T, (Jl~lfkalaromiah, J.)

about in section 171, we find it · impos&ible to accept the contention that the fiction in section 171 (I) or the Actdoes not operate in the case of partial partitions as regards property where the composition ofthefamily has remained unchanged.

The answer to the first question referred to the High Court by the Tribunal depends upon the true construction of sub-clause (i) of claU!ie (a)''of the l!xplanatio11 to eeetion · 171• of the Act. The subject rnltt.er of partial partition as I1ietitioned"earlier, consisted of eighteen •items of i!llml>table property. 'The value ·of each of them is given in . the ellrlier ·p'1't of: this •judgment. Under the • partial partition in .question, six penons ·were "allo'ttdd I/ £2th share each in these :eJgtiteen:proptrtie1fand four pei'lk!ds•were·allotted ]/8ih share each. >The; totlll value of the'i!i&h~n properties \\tas 1Rs. 7;26, 120. Six of the membera•were, therefore,• entitled to ·properties of the value of 'Rs. fiO;SIO/" each atid four orthdtn wewentitllid' to properties or the valueiof Rs. 91),705-eaeh. Before the Tribunaltwo snbmissions were made on •behalf of the astessee in support of the ple1fthat the arrange · ·ment· entered into ·llmongsf the parties· providing · for division of the ·income of the · properties in ~uestioo without Teiorting to physical <livisioo of the properties was a partition ·as defined by the Bxplana don to section 171 of· the Act. The first'Sublllission was that the -.Votd 'protierty' occurring in clause .(a) (i} of the Bxplanation to set'!ion 171 refettc!d to an individual item of property which is 'divided and not to all the properties ·which are divided at the parti tion-total or partial-arid hence as it · had been accepted by the Department that each of the eighteen items •of property· could not be divided conveniently oiiito 1en portion·without destroying its utility ii had to 'be held 'that 'the properties · did not admit of physical 'division. The secdrid sublllissi~ whicb"Was urged in the alternative .was that even if it was pos~ble to distribute 1he said properties eqliitlibly-amotlgst · the 'shares· by asking them· to make necessary ·m<mbtary adjustment to equalise the shares as the Explanation to seetion 171 did not contemplete·any .such monetary adjustment, the a.ssessee could nbt 'be denied under section 171 the recognition of the 'ji&.rtial p$rtition which ·bad taken place as per Hindu law.' In support ·of this plea the a'ssessee depended •upon' the opinion Of the arbitrator 'Tandon, on the · basis ·of wlrose award the decree had been passed ·atld also the evidence bf Lakshman Swaroop tendered before the 'Appellate Assistant ComttliSsiotier. Taking into consideration all 'the ma:te-rillf'herore them·and having tegard to the shares allotted to each of the members, the ma,r]\et vi1lue, sitqation 1 si~e ;and the a~e

.c

D

E

F

·G

H

A

B

c

D

E

F

G

H

34

SUPREME COURT REPORTS

[ 1982] 3 S.C.R.

of each of the items of the,-property in question, the tax payable in respect of each of them and also the fact whether an item of pro perty is in the occupation of a tenant or .not, the Tribunal came to the conclusion that it was possible to divide the properties in question physically into different lots so 'that each member could take his rightful share in them. The High Court also has expressed the same opinion.

On the facts and in the circumstances. of the case, we approve of the above view of the High Court. We feel that the properties involved in this case admit\ed of physical division into the required number of shares and such division would not have adversely affected It is common knowledge that in every partition under their utility. 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 It is not necessary to divide each item into the number of place. 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 a•king 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 divo1ced from the realities of life. The case before us Is not a case where it was impossible to make such a division. Nor is it shown that the members were not capable of making payment of any amount for equalisation of shares. We are of the view that there is ·no material iµ the case sb,owing 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 and Lakshman ·swaroop's evidence which were rightly held to be insufficient by the Tribunal to uphold the claim of the assessee. The assessee cannot derive any assistance from the decision of this Court in Charand1s Haridas Anr. v. Commis sioner of Income-tax, Bombay North. Kutch and Saurarhtra, Ahmeda- . bad, and Anr.(1 ) There the item of asset which had to be partitioned was the right in certain managing agency agreements. The Court upheld the arrangement of division of commission amongst the members among whom the said right was divided as a partition satisfying the test laid down by the income-tax law as it was of the view that any physical division ol that right meant the dissolution of

(I) (1960) 39 I.T.R. 203.

•

•

-~

KALLOOMAL v. C.l.T. (V'enkataramiah, J.)

35

the managing agency firms and their reconstitution which was not altjgether in the hands of the 'karta of the family. The Court also was satisfied that the family took the fullest measure possible for dividing the joint interest into separate interests. In the present case we are satisfied that no such attempt to divide the properties was made. This case clearly falls under sub-clause (i) of clause (a) of the Explanation to section 171 of the Act but does not satisfy the requirement of that sub-clause as no physical division of the proper ties was made even though they could be conveniently so divided. Sub-clause (ii) thereof does not apply to this case at all. We, there fore, agree with the answer given by the Higli Court to the first question in the affirmative. The appeal of the assessee is, therefore, liable to be dismissed.

Having held

that the assessee was not entitled to claim a partial partition had taken place under section 171, the High Court . fell into an error in holding that the income of the properties which were the subject matter of partial partition could not be included in the total income of the assessee by relying upon the decisions which had been rendered on the basis of seetion 25-A of the 1922 Act which had been construed as not being applicable to partial parti tio'!s. We have already held that section I'll of the Act applies to all partitions-total and partial-and that unless a finding is record ed under section 171 that a partial partition has taken place tbe income from the properties should be included in the total income of the family by virtue of sub-section (I) of section 171 of the Act. To put it in other words what would have been the position of a Hindu undivided family which had claimed in an assessment proceedings under the l 922 Act. that a total partition had taken place and had (ailed to secure a finding to that effect in its favour under section 25-A thereof would be the position of a Hindu undivided family which has failed to substantiate its plea of partial partition as regards property under section 17 l of the Act. The property which is the subject-matter of partial partition would continue to be treated as belonging .o the family and its income would continue to be included in its total income until such a finding is recorded. That is .the true effect of section 171 (l}. · It was, ·however, urged on the analogy of the income from a family property alienated by a karta in favour ofa stranger that the income which was not iJ,Ctually received by the f<111!ilY col!ld not be taxed l!nd in support of

'

-.

,-

.

A

B

c

D .

E

F

G

H

A

B

c

.n

E

F

G

H

36

· SUPRBMB COURT lllll'ORTS

(1982) 3 s.c.11.

this plea reliance was placed on a decision of the Madras High Court 'in A. Kannan Chetty v. Commissioner of Income-tax, Madras(!) In. that decision it is observed thus :

•

'.'For instance, if the karta.of a f!lmily effects an alieoa· tion or even makes ,a gift. in so far as tho tuing department is concerned it is the income of the members of the Hindu undivided family that can be assessed, and if by reason of an alienation, whether it is binding upon the members of the joint family or not, an item of property ceases to be in the hands of the joint family, it would not be open to the department to say that they would ignore such an alienation, notwith· standing that the possession of the properties and its income may pass into the hands of a stranger. It may be different in cases where the joint \family deals with one or more items of property or converts it into a different estate retaining both possession and income in its own hands. That may properly be a case where the departm~nt may ignore such a transac tion."

It is significant that in the passage extracted above the Madras High Court has distinguished the case of an alienation in favour of a stranger from the case where the joint family deals with one or more items of property or converts it into a different estate retaining both possession and income in its own hands. We do not consider that such a plee is available to the assessee because the acceptance of such a plea would lead to the nullification of the scheme of section 171 of the Act itself. As long as a finding is not recorded under section 171 holding that a partial partition had taken place the Hindu undivided family should be deemed for the purposes of the Act to be the owner of the property which is the subject matter of partition and also the recipient of the income from such property. The assessment should be made as such and the tax assessed can be recovered as provided in the Act. Io the circumstances, the decision of the High Court on the 'second question has to be reversed. We accordingly record our answer to the second question in the affir mative and in favour of.the Department.

. (IJ [19631 SO {.T.R.. 601, .

ltALLOOMAL V. C.I.T. ('Venkataramiah, J,)

37

+

In the reeult, CiviLAppeal. No. 1370. of 1914is dismissed and Civil Appeal No. 1768 of 1975 is.l!llowed. The assessee shall pay the costs of the Department. Hearing fee one set.

N.V.K.

(

Civil Appeal 1370(1974 dismissed and Civil Appeal 1768/1975 allowed.

A.

B

v---' '