MANUBHAI D. PATEL (HUF) v. INCOME TAX OFFICER
[Citation -1987-LL-0722-4]

Citation 1987-LL-0722-4
Appellant Name MANUBHAI D. PATEL (HUF)
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 22/07/1987
Assessment Year 1976-77
Judgment View Judgment
Keyword Tags co-operative housing society • hindu undivided family • urban land ceiling • partial partition • physical division • sale of property • avoidance of tax • registered deed • valid partition • partition deed • capital gain • sale of land • sale proceed • sale deed • karta
Bot Summary: 19th August, 1975: The partition of the lands was effected by a registered deed of partition. After protracted discussion/correspondence with the assessee, the ITO rejected the assessee's application for recording partial partition, vide his order dated 14-7-1981 made u/s 171 of the Act, in the following manner: The assessee had claimed partition of the land at Survey No. 769 situated a t Karelibaug, Baroda Kasba in City and District Baroda. At the relevant time of the alleged partition the property was made into plots and construction was going on and therefore the property was not in a state to admit partition, in the manner of the partition done by the assessee. The Commissioner upheld the action of the ITO, in the following manner: It appears that with a view to evade the tax of capital gain the appellant stated to have partitioned the landed property amongst the members of the HUF. The chronological statement for entering the agreement for the sale of property, for lay out of the plans, for plotting the land and other factors clearly show that the partition matter is after-thought, as stated there was a prohibition as per the the partition matter is after-thought, as stated there was a prohibition as per the Gujarat Urban Land Ceiling Act. The partition of the land stated to have been made in 1975 as per the partition deed is not a genuine one. The ITO has clearly stated all the facts as to how there is no real partition among the coparceners of the HUF. Mere receipt of the sale proceeds of the property by the members of the HUF is not the conclusive proof that there was a partition. Relying on the decision of the Hon'ble Supreme Court in the case of McDowell Co. Ltd. v. CTO 1985 154 ITR 148, the learned representative for the department submitted that since the only purpose of the assessee in claiming partial partition of the land in question was avoidance of tax, the IT authorities were fully justified in rejecting the assessee's claim for partial partition in respect of the land in question.


This is appeal against order of Commissioner (Appeals) wherein he has confirmed action of ITO rejecting assessee's claim for partial partition by passing order u/s 171 of Act. 2. chronological events till date of partition of land Survey No. 769 situated at Kareli Baug, Baroda Kasba in city of Baroda, are as under: "12th January 1971: karta of family Shri Manubhai D. Patel on behalf of family entered into Banakhat with Shri Sanmukhlal B. Shah for sale of land in question. 1st September, 1971: Application was made to Mamlatdar, Baroda for obtaining possession of land from farmer Shri Becharbhai H. Patel. 3rd September, 1971: farmer Shri Becharbhai H. Patel made application to Mamlatdar to vacate possession of land. 3rd October, 1971: farmer Shri Becharbhai H. Patel accorded his consent referred to above. 16th October, 1971: Circle Officer signed Record of Rights after taking testimony of farmer Shri Becharbhai H. Patel and name of tiller was deleted form Record of Rights. 24th January, 1972: Shri Sanmukhlal B. Shah (informed Karta of HUF) that tiller of land had been paid amount agreed to be paid for vacating possession and possession was received. 27th June, 1972: Baroda Municipal Corporation issued Raja Chithi approving lay out plans for plotting land. 11th August, 1972: Gujarat Urban Lands (Prohibition of Alienation) Act, 1972 was passed with effect from 1-7-1972 being date of preceding Ordinance. 7th January, 1974: land was declared to be for Non-Agricultural (N. A.) use by Collector. 15th February, 1974: registered Banakhat for sale of land was executed (the first one not having been registered) with same Shri Sanmukhlal B. Shah. 3rd May, 1975: SEcond Raja Chithi of Municipal Corporation No. L. 10/75-76 was received. 12th August, 1975: Gujarat Urban Lands (Prohibition of Alienation) Act, 1972 was repealed. 19th August, 1975: partition of lands was effected by registered deed of partition". On 29-8-1975, individual members of assessee-HUF sold lands by separate documents to ultimate purchasers viz. members of Damodar Park Co-op. Housing Society. 3. On aforesaid facts, members of assessee-HUF made application u/s 171 of Act, to ITO to record and recognise partial partition of property in question. It may be mentioned that members of assessee-HUF consisted of karta, his wife and their two major sons and one minor son. After protracted discussion/correspondence with assessee, ITO rejected assessee's application for recording partial partition, vide his order dated 14-7-1981 made u/s 171 of Act, in following manner: "The assessee had claimed partition of land at Survey No. 769 situated t Karelibaug, Baroda Kasba in City and District Baroda. Necessary enquiries under section 171(2) were made and it is revealed that property was agreed to be sold by Manubhai D. Patel, karta of HUF on 12-1-1971 i.e. much earlier than alleged partition of property. Most of sale proceeds were received by assessee much earlier than date of sale and also of alleged partition deed. argument of assessee that amounts were given to individual members of HUF, such payment is not partition of property but appropriations of sale proceeds. alleged partition deed states partition of property in sq. ft. Shri Manubhai D. Patel is getting 2,233 sq. ft. and other 4 members 9,787 sq. ft. each. But at relevant time of alleged partition property was made into plots and construction was going on and therefore property was not in state to admit partition, in manner of partition done by assessee. It is argued on behalf of assessee that as per Hindu Law any division by metes and bounds of assets is not necessary. However as per Explanation to section 171 where property admits physical division, physical division of property is required to be made and where such physical division of property is not possible then such division as property admits of is required to be made. fact that property was agreed to be sold by karta of HUF in 1971 and receipt of money is much earlier than alleged partition shows that property in fact was sold by HUF and members of HUF and since property was not in condition to be divided as done in partition deed at time of alleged partition I hold that there was no partition of property by members of HUF. Hence assessee's application for partition of property is rejected". 4. In appeal before Commissioner (Appeals), it was argued by assessee that ITO had wrongly rejected its application for recording partial partition u/s 171 of Act. In this connection, it was further submitted that (i) property in question was actually partitioned amongst members of assessee-HUF, (ii) karta of assessee-HUF had negotiated for sale of land in question and same was sold subsequently after partition amongst members of assessee-HUF, (iii) sale proceeds were received by individual members of assessee-HUF and therefore ITO was not justified in taxing capital gains in hands of assessee-HUF, (iv) as there was physical division of property in question amongst members of assessee-HUF, actual partition had taken place during year, and (v) ratio of various decisions of Hon'ble Gujarat High Court relied upon by assessee support its claim. It was, therefore, urged that ITO may be directed to record and recognise partial partition in respect of land in question. Commissioner (Appeals), however, upheld action of ITO, in following manner: "It appears that with view to evade tax of capital gain appellant stated to have partitioned landed property amongst members of HUF. chronological statement for entering agreement for sale of property, for lay out of plans, for plotting land and other factors clearly show that partition matter is after-thought, as stated there was prohibition as per the partition matter is after-thought, as stated there was prohibition as per Gujarat Urban Land Ceiling Act. This fact has prompted appellant to sell property. However, partition of land stated to have been made in 1975 as per partition deed is not genuine one. ITO has clearly stated all facts as to how there is no real partition among coparceners of HUF. Mere receipt of sale proceeds of property by members of HUF is not conclusive proof that there was partition. statement of Shri S. B. Shah is very pertinent and relevant and reliance has to be made on deposition made by said person. In fact, Shri A. V. Shah has made statement on oath before ITO about sale matters. It is also been seen that there was no physical division of property as required for partition. Thus, taking into account these facts I feel that ITO has rightly rejected partition petition and order passed by ITO u/s 171 is confirmed." 5. Being aggrieved by order of Commissioner (Appeals), assessee has come up in appeal before Tribunal. learned counsel for assessee reiterated submissions which were made before IT authorities and kly urged that Commissioner (Appeals) ought to have directed ITO to recognise and record partial partition as claimed by assessee. In this connection, he invited attention of Tribunal to his paper book containing various documents and pointed out that (i) assessee-HUF, as indicated in map (at page 55 of paper book), (ii) deed of partition (pages 18 to 21 of paper book) contained description and allocation of share of land to each member of assessee-HUF in land in question, (iii) second banakhat dated 15-12-1974 (pages 37 to 43 of paper book) which executed by all members of assessee-HUF contains fact that land in question was divided in which sale proceeds are to be received by members of assessee-HUF, (iv) sale documents (pages 27 to 30 of paper book) were executed between purchaser and members of t h e assessee-HUF separately in respect of their shares in property in question. recital of these documents contained fact of division/partition of land in question amongst members of assessee-HUF, (v) entry No. 8478 in record of Baroda Kasba Talati (page 52 of paper book), records fact about division/partition of land in question amongst members of assessee-HUF, (vi) chart (page 64 of paper book) showing amount received by members of assessee-HUF on sale of their respective portion of land received on partition of land in question. Relying on decision of Hon'ble Madras High Court in case of Aruna of Estates v. State of Madras [1965] 55 ITR 642, learned counsel for assessee submitted that since every member of Hindu family has indivisible birth right of becoming divided and he can exercise that right by unequivocal declaration to do so, it is of no consequence that in doing so, there is reduction in tax payment. He also relied on yet another decision of Madras High Court in case of M. V. S. Kathirvelu Nadar v. CAIT [1968] 68 ITR 786. Relying on decision of Hon'ble Gujarat High Court in case of CIT v. Govindlal Mathurbhai Oza [1982] 138 ITR 711, learned counsel for assessee submitted that since facts and circumstances obtaining in present case are almost parallel to facts and circumstances obtaining in Govindlal Mathurbhai Oza's case (supra), IT authorities ought to have accepted assessee's claim for partial partition in respect of land in question. In fact, according to learned counsel for assessee, facts and circumstances obtaining in present case are mush ker in favour of assessee than that considered by Hon'ble Gujarat High Court in case of Govindlal Mathurbhai Oza (supra). He, therefore, urged that assessee's claim for partial partition ought to have been accepted by IT authorities. 6. learned representative for department, on other hand, kly relied on orders of IT authorities and justified their action. Relying on decision of Hon'ble Supreme Court in case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148, learned representative for department submitted that since only purpose of assessee in claiming partial partition of land in question was avoidance of tax, IT authorities were fully justified in rejecting assessee's claim for partial partition in respect of land in question. Inviting attention of Tribunal to chronological events (reproduced above), learned learned representative for department submitted that entire transaction of sale of land in question was "colourable". According to him, fact that each of members of assessee-HUF had deposited sale realisation in their respective bank account would not in any way further their claim for recognising partial partition. He, therefore, urged that we should uphold order of Commissioner (Appeals). He also made reference to decision of Hon'ble Supreme Court in case of Raj Kumar Singh Hukam Chandji v. CIT [1970] 78 ITR 33. 7. learned counsel for assessee, in his reply, invited attention of Tribunal to sub-clause (ii) of clause (a) of Explanation to section 171 of Act, and submitted that IT authorities ought to have accepted assessee's claim for partial partition of land in question. Inviting our attention to decision of Hon'ble Supreme Court in McDowell & Co. Ltd.'s case (supra), learned counsel for assessee submitted that according to majority decision "tax planning may be legimate provided it is within framework of law" (see page 171). Since in instant case, member of Hindu family has birth right of claiming partition under Hindu Law, same cannot be treated as illegitimate in tax matter as was done by IT authorities. 8. We have carefully considered rival submissions of parties as well as material to which our attention was invited by parties and we find considerable force in submissions made on behalf of assessee. On proper appreciation of evidence already brought on record, it is not possible to come to conclusion that IT authorities have rightly rejected assessee's claim for partial partition. We entirely agree with submissions made on behalf of Hon'ble Gujarat High Court in case of Govindlal Mathurbhai Oza (supra) are almost identical with facts and circumstances obtaining in instant case. facts and circumstances in reported decision read as under: "A few facts need to be noticed which have led to these two references. One Mathurbhai Mansukhram purchased two pieces of agricultural lands of S. Nos. 5 and 7 admeasuring 3 acres 5 gunthas and 1 acre 35 gunthas, respectively, situate within revenue limits of village Amraiwadi within City of Ahmedabad. corresponding area of land was 24,200 sq. yards. said Mathurbhai Mansukhram had two sons Govind and Vasudev. They constituted joint family of Mathurdas Mansukhram. Govindbhai has four sons, namely, Kandarp, Sudhir, Pankaj and Pradeep and his w ife, Ramaben. It appears that partition of Hindu undivided family (hereinafter refered to as "the HUF") of Mathurbhi Mansukhram was effected on April 6, 1950, in pursuance of which aforesaid two pieces of land, inter alia, came to share of Govindbhai. Since there was smaller-HUF of Govindbhai comprising of himself, his four sons and wife, two pieces of land belonged to his smaller HUF. It appears further that out of aforesaid land, portion of land admeasuring about 5,090 sq. yards was acquired by Ahmedabad Municipality leaving to joint family remaining land admeasuring 19,110 sq. yards. It appears further that Govindbhai on behalf of family entered into agreement to sell said remaining piece of land admeasuring 19,110 sq. yards at Rs. 14 per sq. yard for aggregate amount of Rs. 2,67,540 to one Shri P. V. Patel by agreement of sale of September 25, 1963. It appears further that consequent to aforesaid agreement, Shri P. V. Patel in his turn agreed to sell on 22nd October, 1963, his rights under agreement to Bapudas, Amthalal & Company, which, aga in, in its turn, agreed to sell its rights to Dhanjibhi Bhailalbhai by agreement of November 19, 1966. It appears further that said two pieces of land admeasuring 19,110 sq. yards were divided in five plots, to E and were conveyed to three different parties by three different deeds of conveyance; first was executed in favour of Udyog Kamdar Society for 6,703 sq. yards for Rs. 1,07,248 on September 12, 1966; second deed of conveyance was in respect of part of land admeasuring 6,884 sq. yards in favour of Umiyadevi Co-operative Housing Society for Rs. 96,326 by deed of conveyance of April 27,1967, and third was in respect of remaining [portion of land admeasuring 5,523 sq. yards for Rs. 77,322 in favour of Prakash Co-operative Housing Society under deed of conveyance of September 16, 1967. Meanwhile, it appears that there was registered partition deed between members of HUF of Govindbhai executed on September 12, 1966, agreeing to divide said land and for that matter sale proceeds of said land which Govindbhai had agreed to sell to Shri P. V. Patel, which he sold to t h e aforesaid three societies. Each one of members was given 1/6th shares in property which was agreed by divided. It appears that in course o f assessments for assessment years 1967-68 and 1968-69, question arose relating to aforesaid partial partition of land when Govindbhai made application to ITO under section 171 of IT Act, 1961, to record finding regarding partial partition between himself and members of his family. ITO, however, rejected application on two grounds, (i) that amount of Rs. 2,22,950 being 5/6th share of sale proceeds allotted to other five members of family of Govindbhai was in fact not paid as mentioned in partition deed dated September 12, 1966, and (ii) that there was no partition as required by Explanation to section 171 of IT Act, 1961. It appears that same claim was advanced in course of assessment for assessment year 1968-69, which for same reasons, was rejected by ITO. assessee, therefore, carried matter before AAC, who was not impressed by claim of assessee and, therefore confirmed order of ITO for both assessment years. assessee, therefore, carried matter in further appeal by preferring two appeals in respect of two assessment years involved. Tribunal allowed appeals, since, in opinion of Tribunal, there was valid partial partition inasmuch as, since parties did not consider it beneficial to actually divide land in to small pieces, they decided to allot whole of land to Govindbhai who agreed to pay Rs. 2,22,950 being 5/6th share of sale proceeds to other members of family. Tribunal was, therefore, of opinion that this was one of modes adopted for partitioning properties and merely because whole of land was allotted to one of members of family, it could not be said that there was no valid partition and that there was sale as contended on behalf of Department. Tribunal also found amount of Rs. 2,22,950, which Govindbhai had agreed to pay under said partition deed was in fact paid to different members as established from different investments made by respective members. Tribunal, therefore, upheld claim of assessee that was valid partition effected in respect of land in question." It would appear from above that in reported case sale proceeds were allotted to members of family after land was sold by karta of family. In instant case there is enough material on record to show that land in question was demacrated amongst members of assessee-HUF as shown in map at page 55 of paper book. Further, in deed of as shown in map at page 55 of paper book. Further, in deed of partition description and allocation of shares of land of each of members of assessee-HUF, in land in question, have been given to show that land in question has been demarcated amongst members of assessee-HUF. second banakhat dated 15-2-1974 which preceded execution of sale deed clearly records that land in question was divided amongst members of assessee-HUF. Not only that it also contains manner in which sale proceed were to be received by members of HUF. It is also pertinent to note that sale documents were not executed between karta of assessee-HUF and purchasers but were executed between purchasers and members of assessee-HUF separately in respect of their share in property in question. These documents also contain recitals stating fact of division /partition of land in question amongst members of assessee HUF. This fact is also recorded in Baroda Kasba Talati's record vide entry No. 8478 dated 23-2-1976. On proper appreciation of these facts, we are of view that assessee's claim for recognising and recording partial partition of land in question should have been accepted by IT authorities. We would, therefore direct ITO to record and recognise t h e partial partition of land in question as claimed by assessee by passing fresh order us 171 of Act. 9. In result, appeal is allowed. *** MANUBHAI D. PATEL (HUF) v. INCOME TAX OFFICER
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