T.V. RAJAGOPALA RAO, J.M. Order These are two appeals filed by assessee. IT Appeal No. 476 is filed against adverse impugned order dt. 5th Jan., 1 9 83 passed by AAC, refusing to recognise partial partition dt. 13th June, 1 9 74in toto.IT Appeal No. 475 was directed against order of AAC, dt. 25th Jan., 1 9 83 partly allowing appeal filed. dispute is regarding price of property sold as on 1st Jan., 1 9 54. Both these appeals relate to asst. yr. 1 9 75-76 for which previous year ended by 31st March, 1 9 75. As assessee is common in both these appeals, these can be conveniently disposed of by common order. 2. Let us first take up appeal relating to partial partition, i.e., IT Appeal No. 476. assessee in this appeal is HUF. There are two coparceners in HUF during relevant period and they are related as uncle and nephew. Their relationship would be better understood by following genealogical tree : NANJAPPA Giddappa Peda died issueless. Sangappa Eldest daughter Sangappa His wife also (died in 143) died after him Mallayya Sivanandam (Bhagirathamma) Daughter born on died on 17th June, 1 24th Nov., 1 9 42 9 58 Sangamesh daughter daughter Babu Sangameswara Parvathamma Nagamani Sasikala Prasad Sangameswara and Sivanandam are two coparceners representing their respective branches in assessee's HUF. As can be seen, Sivanandam was born on 24th Nov., 1 9 42 and while he was minor he was looked after by his legal guardian, Smt. Bhagirathamma, who is mother of Sangameswara Prasad who was widow of Mallayya. She was discharged as legal guardian of minor Sivanandam only in 1 9 66 on his attaining majority. 3. Sivanandam filed civil suit OS 86 of 1 9 66 on file of Sub-Court for general partition of all joint family properties and for separate possession of his share and also to set aside alienation (sale deed, dt. 12th Oct., 1 9 53 executed) made by late Mallayya in favour of Shri V. Balappa of Personnayapalli village for Rs. 4,000 as not binding on him. said suit was later transferred to file of Addl. District and Sessions Judge and was disposed of by him as OS 55 of 1 9 68 on his file. learned Addl. and District sessions Judge granted preliminary decree in favour of Sivanandam for partition. He was also pleased to set aside alienation referred to above as not binding on Sivanandam. date of preliminary decree, thus, said to have been passed, by Addl. District and Sessions Judge is not available from record nor Shri Syed Zulfakar, learned counsel for assessee was able to provide us information about it. 4. assessee-HUF had got besides agricultural wet lands in Anantapur, dry lands in Upperpalli village, two vacant sites and seven houses besides factory complex known as Sangameswara Oil Mill in premises of which there are row of houses to its front, all situated in Anantapur. 5. For asst. yr. 1 9 75-76, assessment was originally completed on 8th Feb., 1 9 78 under s. 143 of IT Act, 1 9 61 (' Act ') on total income of Rs. 14,810. sources of income are said to have been derived from house property, lease amounts from factory and agricultural lands. assessment, thus, made originally was accepted by assessee-HUF as it was never disputed before anybody. In return of income there was property income of Rs. 835 and it is said to have been derived on following four houses. Old and new numbers as well as S. Nos. of properties with reference to partition deed dt. 13th June, 1 9 74 are all given below : S.No. in 'C' S. D. No. D.No. Schedule of partial No. (old) (new) partition agreement dt. 13th June, 1 9 74 1. 15/226 21/342 (9) 24/3 9 2. 20/2 (6) and 40 3. 18/17 24/1 9 (1) 4. 28/2 18/28 (2) Subsequent to assessment, on enquiries by Inspector of Income- tax, it came to light that assessee-HUF sold items 1 and 2 mentioned in above table in accounting year relevant to asst. yr. 1 9 75-76. However, capital gains derived by assessee-HUF resulting from sales were not disclosed in its return for 1 9 75-76. So also, enquiries further revealed that items 3 and 4 of above table were also sold in accounting year relevant to asst. yr. 1 9 76-77 and capital gains resulting from those transactions also were not disclosed by assessee-HUF in its return for 1 9 76-77. Then notice under s. 148 of Act was issued to assessee-HUF on 21st Aug., 1 9 7 9 intending to bring to tax resultant capital gains. notices were served on assessee on 21st Aug., 1 9 7 9 . 6. At that juncture assessee-HUF while furnishing return of income in pursuance of notice of reopening on 22nd Sept., 1 9 7 9 put forward claim for partial partition. It is stated that partial partition was evidenced by agreement dt. 13th June, 1 9 74. It is also stated that Schedule ' C ' properties mentioned under partial partition agreement dt. 13th June, 1 9 74 were being enjoyed both by Sivanandam and Sangameswara Prasad as co-owners and after sale of house in question, they divided sale proceeds though house property sold as such was not divided between them. Hence, according to assessee, no capital gains escaped in assessment of assessee-HUF. It is further stated in statement accompanying income-tax return that by mistake assessee-HUF wrongly admitted income derived from house properties in question in original return and it had to be excluded in reassessment proceedings. However, one month's rental income only is to be lawfully retained. 7 . On 26th Sept., 1 9 7 9 Sivanandam filed another income-tax return voluntarily in status of smaller HUF for asst. yr. 1 9 75-76 for first time admitting half share in income from house properties. According to him, other half share should belong to other member Shri Sangameswara Prasad. However, in this return neither whole nor half of capital gains derived on sale of two house properties mentioned above was noted nor any note about it was mentioned in his return. Similar type of return for asst. yr. 1 9 75-76 was never filed by Shri Sangameswara Prasad. income-tax inspector went on record to say that he had contacted Sivanandam on 9 th Aug., 1 9 7 9 and he stated that there was no division either in part or in full in family so far, however, he refused to give same information in writing. 8. ITO refused to recognise partition under s. 171 of Act by his order dt. 27th March, 1 9 81. However, assessee-HUF carried matter in appeal before AAC. AAC by his orders dt. 9 th Nov., 1 9 81 set aside said order of ITO and directed matter to go back again to ITO to consider whether type of partition effected regarding Schedule ' C ' properties under deed dt. 13th June, 1 9 74 passes muster under s. 171 and directing ITO to furnish opportunity to assessee to substantiate its claim and to pass speaking order. He further held that claim for partition can be made at any time during assessment proceedings either under s. 143(3) or under s. 144 of Act. Such claim can be made in any assessment year and it need not be necessarily in previous year in which partition took place. He also recorded finding that assessee-HUF made claim for recognition of partition in asst. yr. 1 9 75-76. That means AAC considered that reopened assessment proceedings under s. 147(a) of Act is synonymous to assessment proceedings under s. 143(3). ITO who later purported to implement AAC's order gave opportunity to assessee-HUF to produce further evidence, if any, in support of its claim for partial partition. assessee- HUF appeared to have filed copy of partition agreement dt. 2 9 th March, 1 9 78 which is in English and another partition agreement dt. 1st Nov., 1 9 80 which is in Telugu. He also recorded statements from Sivanandam as well as Sangameswara Prasad on 28th Jan., 1 9 82. As regards Schedule ' C ' properties as per partial partition agreement dt. 13th June, 1 9 74, both of them appeared to have stated as follows : "When asked both members of assessee-HUF affirmed in their sworn statements that properties mentioned in Schedule ' C ' of partial partition agreement dt. 13th June, 1 9 74 have not been partitioned by metes and bounds but are enjoyed by them as ' co-owners ' with equal shares instead of as coparceners. In view of this it cannot be deemed to be ' partition ' within meaning of Explanation to s. 171, insofar as it relates to Schedule ' C ' properties of so-called partial agreement dt. 13th June, 1 9 74." He held that such claim at time of reassessment under s. 147 cannot be considered to be in course of assessment proceedings under s. 143(3) or s . 144 for any assessment year. According to him, as claim for partial partition was made in reopened proceedings but not during course of assessment proceedings under s. 143(3) or under s. 144, claim itself is not tenable. We are constrained to observe that this portion of order of ITO is against clear finding of AAC whose order he is implementing. Ultimately for seven reasons which he has listed out in his orders dt. 18th Feb., 1 9 82 ITO held that claim for partial partition brought at time of reassessment under s. 147 is not genuine claim but only make belief one and rejected same as such. He no doubt seeks to rely upon Supreme Court decision inKalloomal Tapeswari Prasad (HUF) vs. CIT (1 9 82) 26 CTR (SC) 415 : (1 9 82) 133 ITR 6 9(SC)and claimed to have kept in view Supreme Court decision inITO vs. Bachu Lal Kapoor (1 9 66) 60 ITR 74 (SC). 9 . Aggrieved against total dismissal of partial partition claim made by assessee-HUF, matter was carried in appeal to AAC. AAC by his impugned orders held that there was partial partition in respect of properties in Schedule ' ', Schedule ' B ' and item 1 of Schedule ' C ' (Sangameswara Oil Mill premises) in terms of s. 171 and rest of properties were not partitioned in terms of Act. As against items of properties regarding which partial partition was recognised Revenue was not in appeal. assessee only was in appeal as regards properties with regard to which claim of partial partition was negatived. Now assessee-HUF's claim is restricted to items 2 to 9 of Schedule ' C ' properties under partial partition agreement dt. 13th June, 1 9 74. 10. We heard Shri Zulfakar, learned counsel for assessee and Shri V.R. Rao, learned Departmental Representative. Firstly, it is sought to be contended that though there was no physical division of properties between coparceners regarding items 2 to 9 of Schedule ' C ' properties, agreement clearly shows that they agreed to enjoy them as co-owners, that Sivanandam was to be incharge of those properties and he was given powers to arrange for sale of those properties, and two coparceners agreed to share sale proceeds of those properties after their sale and in meanwhile they wanted to enjoy those properties as co-owners and not as coparceners. According to learned counsel for assessee, it is well-known method of division between coparceners and it should be held to be valid partition which can be recognised under law. Therefore, according to him, lower authorities went wrong in not according recognition to such partition. learned counsel for assessee also argued that at no time there was any agreement between two coparceners for amicable partition of these items of properties and this is made clear in following portion of preamble to partial partition agreement. "Whereas parties hereto have also been frequently clashing over division of other properties described in Schedule ' C ' and held in joint as co- owners, from time to time, ever since they started living separately, as none of parties hereto wants to forego any of said valuable properties (which have been fast growing in their values)." It is also argued by Shri Zulfakar, learned counsel for assessee, that agreement to share sale proceeds is one of known methods of partitioning properties as per decision of Gujarat High Court inCIT vs. Govindlal Mathurbhai Oza (1 9 81) 22 CTR (Guj) 165 : (1 9 82) 138 ITR 711 (Guj). Hon'ble Gujarat High Court in above case held as follows : ". . . though parties to partition did not effect partition by metes and bounds of land, they decided to divide sale proceeds of land which G had agreed to sell to P, which was legitimate course which parties could have adopted, inasmuch as only right which HUF had under agreement was to receive sale proceeds and partition could be effected only of sale proceeds. parties to instrument were co-owners of property and they agreed to divide by partition deed property in severalty, their shares were ascertained and in anticipation of realisation of sale proceeds, G executed promissory notes of respective amounts falling to shares of other members of family, in pursuance of which amounts were paid to each of them. It could not be said that there was any transfer of property in sense of transactions being sale. It was for all intents and purposes change in mode of enjoyment. Therefore, transaction by which parties agreed to divide sale proceeds of land for purposes of effecting partition of land was valid partial partition of property and ITO was bound to recognise and record it." learned Departmental Representative argued that Gujarat High C o u r t decision in case ofGovindlal Mathurbhai Oza(supra) is clearly distinguishable on facts and in case we do not agree with him he went on to argue it is against ratio of decision of Supreme Court inKalloomal Tapeswari Prasad (HUF's)case (supra) and, therefore, ratio of Gujarat High Court should be held to be no longer good law and it must be deemed to have been overruled by Supreme Court. Gujarat High Court decision is already distinguished by AAC when it was quoted before him in his impugned orders. We fully approve points of distinction adopted by him. Firstly, we hold that on fact there is difference between Gujarat High Court decision and case on hand. InGovindlal Mathurbhai Oza'scase (supra) at time of partition itself manager of HUF already executed agreement of sale in favour of third party with regard to item of HUF and as such property which HUF sought to be partitioned was only right to receive consideration under agreement. But, however, that is not case here. At time of partition in this case house properties were never sold under agreement or otherwise. After partition only houses were sold. Further, there is no scope for Gujarat High Court to consider decision of Supreme Court inKalloomal Tapeswari Prasad (HUF)'scase (supra) as Gujarat High Court decision was rendered on 16th March, 1 9 81 whereas Supreme Court decision was rendered on 12th Jan., 1 9 82. purport of ratio of Gujarat High Court decision is that transaction by which parties agree to divide sale proceeds of land for purposes of effecting partition of land was valid partial partition of property and ITO was bound to recognise and record it. As against above Supreme Court is categorical in laying down following law : "Though under Hindu law item of property need not in every case be partitioned by metes and bounds or physically into different portions in order to effect partition, and disruption of status can be brought about by one of several modes, income-tax law introduces certain conditions of its own to give effect to partition under s. 171 of Act. ITO can record finding that partition has taken place only if partition in question satisfies definition of expression ' partition ' found in Explanation to s. 171. transaction can be recognised as partition under s. 171 only if, where property admits of physical division, physical division of property has taken place. In such case mere physical division of income without physical division of property producing income cannot be treated as partition. Even where property does not admit of physical division, such division, as property admits of, should take place to satisfy test of partition under s. 171. Mere proof of severance of status under Hindu law is not sufficient to treat such transaction as partition. If transaction does not satisfy above additional conditions, it cannot be treated as partition under IT Act even though under Hindu law there has been partition-total or partial." It can be seen from above that according to Supreme Court, mere physical division of income without physical division of property producing income cannot be treated as partition for purpose of Act. Thus ratio of Hon'ble Supreme Court, in our humble opinion, is diametrically opposite to ratio laid down by Gujarat High Court. Therefore, we are unable to give credence to Gujarat High Court decision. 1 1 . Then Shri Zulfakar tried to contend that properties under consideration do not admit partition and if partition is effected then whole value of asset of that property would be lost. In support of his contention he brings to our notice recital in registered relinquishment deed dt. 24th May, 1 9 74, copy of which is filed before us. This relinquishment deed is executed by mother and three sisters of Sangameswara Prasad in favour of Sangaraeswara Prasad relinquishing their right in scheduled properties. In that deed it is mentioned that all four executants of deed together got one-tenth share. further recitals go to show that they demanded their one- tenth share from properties. However, it is mentioned in said deed as properties do not admit division they relinquished their right after accepting Rs. 15,000 from Sangameswara Prasad. recitals in vernacular are as follows : Therefore, from above recitals of contemporaneous deed dt. 24th May, 1 9 74, physical division of properties is not possible unless we are ready to sacrifice whole worth of property or unless we are prepared to render properties useless. We are unable to agree with this contention. persons who had relinquished had got only one-fourth in half share which Sangameswara Prasad had got to his branch. His mother as well as his sisters claimed only under his branch. Virtually, four persons relinquishing their shares are entitled only to one-twentieth share all put together. Therefore, dividing one-twentieth share or one-eightieth share in whole in favour of each of persons relinquishing may result in carving out insignificant portion of each property which may not carry any commercial value at all. So in that sense partition of their share would render property valueless. But we are not prepared to admit plea that each of properties cannot be physically divided into two halves. AAC clearly found that properties in question clearly admit of physical division. He further held that if by physical division market value of properties merely comes down but result would not render property wholly valueless, in such cases it cannot be said that property does not admit of physical division. We entirely agree with this reasoning. Even under Partition Act, 18 9 3, only ' property which is not partible and whose partition renders property valueless is considered to be not partible. Simply because value of property comes down little by partitioning, it does not mean that it is not partible. Therefore, after following ratio of Supreme Court inKalloomal Tapeswari Prasad (HUF)'scase (supra) we are of opinion that items 2 to 9 of Schedule ' C ' properties in partition agreement dt. 13th June, 1 9 74 clearly admit of physical division and inasmuch as admittedly no such division took place between Sivanandam and Sangameswara Prasad, we are of view that mere severance in status does not bring about partition and there is no partition in this case by virtue of fact that there is no physical division of property which properties admit of between coparceners. Therefore, as far as appeal for recognition of partial partition is concerned, we are of opinion that there is no ground to interfere with order of lower appellate authority and appeal bears no merit. 1 2 . t o 14.(These paras are not reproduced here as they involve minor issues) *** B. SIVANANDAM v. INCOME TAX OFFICER