D. SHANTILAL CHOUDARY & SONS v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2008-LL-0404-2]

Citation 2008-LL-0404-2
Appellant Name D. SHANTILAL CHOUDARY & SONS
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 04/04/2008
Assessment Year 1975-76
Judgment View Judgment
Keyword Tags benefits of partnership • assessment proceeding • joint family property • capital investment • complete partition • assessment record • partial partition • physical division • legal requirement • reasonable time • registered post • total partition • valid partition • competent court • regular return • share capital • res judicata • personal law • karta
Bot Summary: The AO under the WT Act accepted the claim of partial partition and assessed the bigger HUF on the assets retained by the bigger HUF. Therefore, it may not be correct to say that there was no partial partition at all. Since no order was passed for a long period and the WT return filed by the assessee showing the remaining assets was accepted, according to the learned counsel for the assessee, there was a presumption that the claim of partial partition was accepted by the AO. On the other hand, the contention of the learned Departmental Representative is that no claim for partial partition was made, and that if at all there was any claim, the partial partition claimed by the assessee is not valid. If any such partial partition causes any prejudice to any of the minor sons and if any minor son feels aggrieved by any such partial partition, he can always challenge the validity of such partial partition in an appropriate proceeding and the validity of such partial partition will necessarily have to be adjudicated upon in the proceeding on a proper consideration of all the facts and circumstances of the case. As there is no finding that the partial partition is sham or fictitious or not a genuine one, on enquiries made by the ITO, and as the partial partition is otherwise valid under the Hindu law, the partial partition has necessarily to be recognised under the provisions of s. 171 of the IT Act and the assessment must be necessarily made on the basis that there is partial partition of the said shares. The only exception taken by the CIT to the order of the ITO recording the fact of partition is that in the memorandum of partition, the share of each member of each group has not been defined and no valid partial partition could be said to have come into existence. Ultimately, the High Court held that when there was a partition, there is no continuance of the HUF. The Allahabad High Court in the case of CIT vs. Govind Narain 101 ITR 602, considered the issue of partition in HUF for the purpose of the IT Act. The ITO rejected the claim of the assessee for partition only on the ground that the agreement purporting to bring partial partition was typed on a stamp paper purchased subsequent to the date of partition.


N.R.S. Ganesan, J.M.: This appeal of assessee is directed against order of CIT(A)-I, Hyderabad, dt. 6th Nov., 2002, for asst. yr. 1975-76, confirming order of AO passed under s. 171 of IT Act, 1961. Shri N. Devanathan, learned counsel for assessee, submitted that assessee HUF was assessed since asst. yr. 1965-66. According to learned counsel, there was partial partition in year 1974. questionnaire was filed along with return of income for asst. yr. 1975-76 for recognition of partial partition. return of income was forwarded to AO by registered post by assessee s chartered accountant on 28th Jan., 1976. return filed by assessee was processed under s. 143(1) of IT Act. However, assessee has not received any order from AO under s. 171 of IT Act recognising partial partition. learned counsel for assessee further submitted that smaller HUF M/s Chowdhary Credit Corporation, which came into existence due to partial partition effected in year 1974, filed return of income for asst. yr. 1993-94. While going through return filed by smaller HUF, M/s Chowdhary Credit Corporation, AO reopened assessment of assessee by issuing notice under s. 148 on 28th March, 1995. In response to notice issued, assessee filed return of income. learned counsel further pointed out that in absence of any order rejecting claim of partial partition, assessee was under bona fide impression that order recognising partial partition was passed. learned counsel further submitted that in year 1974, partition took place in respect of gold jewellery, silver utensils and diamonds. recipient smaller HUF sold respective assets to raise capital fund for doing business in money lending. According to learned counsel, sale of assets took place during asst. yr. 1979-80. learned counsel further clarified that some of minor HUFs are doing business in Tirupathi and filing their returns regularly. few HUFs are doing business in Madras and they are also filing returns in status of minor HUF. returns were accepted by respective AOs. Against reopened assessment, assessee filed appeal before CIT(A). CIT(A) directed AO to verify claim made by assessee towards partial partition and whether any order was passed. CIT(A) further directed AO that if no order was passed, to record finding whether partial partition was effected by assessee in year 1974 as claimed and thereafter complete assessment. In pursuance to direction of CIT(A), AO passed order under s. 171 of IT Act on 22nd March, 2001 rejecting claim of assessee regarding partial partition. On appeal, CIT(A) confirmed order of AO passed under s. 171 of IT Act. According to learned counsel, one of reasons for rejecting claim of assessee was that AO had misplaced file and he could not trace out same. According to learned counsel, merely because AO misplaced assessment folder, it cannot be reason to reject claim of assessee. learned counsel pointed out that after partial partition, bigger HUF was assessed for asst. yrs. 1975-76 and 1976-77 under WT Act. According to learned counsel, only balance of wealth after partial partition was assessed in hands of bigger HUF. This itself shows that partial partition was recognised by Department. learned counsel further pointed out that chartered accountant who sent return of income by post along with questionnaire claiming partial partition, filed affidavit stating that claim of partial partition was made along with return of income for asst. yr. 1975-76. Moreover, AO, under WT Act, recognised partition and remaining assets alone were assessed in hands of bigger HUF. Merely because assessment record for asst. yr. 1975-76 could not be traced out, assessee cannot be blamed. According to learned counsel, it is responsibility of AO to trace out assessment record. learned counsel further pointed out that AO referred to judgment of Andhra Pradesh High Court in case of Satish Chandra Modi (HUF) vs. CIT (1995) 128 CTR (AP) 155: (1995) 216 ITR 717 (AP), and came to conclusion that partial partition claimed by assessee is invalid. According to learned counsel, judgment of Andhra Pradesh High Court is not at all applicable to facts of this case. According to learned counsel, group-wise partition is permissible under Hindu law as family arrangement. According to learned counsel, what is prohibited is third parties who are not coparceners or family members cannot be brought in as members of HUF by way of agreement. However, coparceners who are natural members of family, by way of groups can effect partial partition in respect of family property. Therefore, according to learned counsel, judgment of Andhra Pradesh High Court in case of Satish Chandra Modi (supra) is not applicable to facts of this case. learned counsel placed his reliance on judgment of Allahabad High Court in case of CIT vs. Amrit Lal & Ors. (2007) 295 ITR 505 (All), and judgment of apex Court in case of Kalloomal Tapeswari Prasad (HUF) vs. CIT (1982) 26 CTR (SC) 415: (1982) 133 ITR 690 (SC), and submitted that group-wise partition is permissible under IT Act, 1961, as family arrangement. Therefore, according to learned counsel, partial partition claimed by assessee is valid. learned counsel further pointed out that no stage is prescribed for claiming partition. learned counsel further placed his reliance on judgment of Delhi High Court in case of Transworld International Inc. vs. Jt. CIT (2004) 192 CTR (Del) 97: (2005) 273 ITR 242 (Del), and submitted that when AO accepted WT return filed by assessee by recognising partial partition, he cannot change his opinion when matter comes under IT Act. learned counsel further submitted that all HUFs have filed affidavits acknowledging receipt of jewellery, silver utensils and diamonds which were subject-matter of partial partition. In spite of affidavits, AO has not chosen to examine anyone. Therefore, according to learned counsel, claim of assessee for partial partition cannot be doubted without examining individuals who filed affidavits before AO. learned counsel again invited our attention to p. 213 of paper book and submitted that smaller HUFs entered into agreement for purchase of house property. learned counsel took us through various pages of paper book in which agreements for sale and sale deeds are available, to show that smaller HUFs have entered into agreements for sale of landed property and they also purchased property. Therefore, according to learned counsel, existence of smaller HUFs cannot be doubted at all. Referring to p. 235 of paper book filed by assessee, learned counsel submitted that smaller HUFs have also filed P&L a/c before AO while filing regular return of income. According to learned counsel, all P&L a/cs filed by various income. According to learned counsel, all P&L a/cs filed by various smaller HUFs are available in paper book. Therefore, according to learned counsel, it is not correct to say that partial partition was invalid. learned counsel again referred to p. 39 of paper book and submitted that since AO has not passed order within reasonable time, there is presumption that AO has accepted claim of assessee for partial partition. Since existence of smaller HUFs and bigger HUF is not in doubt, claim of partial partition made while filing return for asst. yr. 1975-76 cannot be denied. AO under WT Act accepted claim of partial partition and assessed bigger HUF on assets retained by bigger HUF. Therefore, it may not be correct to say that there was no partial partition at all. Since there is no prohibition under Hindu law for group-wise partition of property, according to learned counsel, partial partition claimed by assessee is valid and, therefore, lower authorities are not justified in rejecting claim of assessee. On contrary, Shri Vijay Bhaskar Reddy, learned Departmental Representative, submitted that AO has examined all issues raised by assessee and found that partial partition claimed by assessee is invalid in view of judgment of Andhra Pradesh High Court in case of Satish Chandra Modi (supra). Referring to p. 79 of paper book, learned Departmental Representative submitted that Shri Devraj Shantilal Choudhary (HUF) claimed partition w.e.f. 14th Nov., 1974. AO, after completing enquiry, found that family business assets and liabilities have been partitioned w.e.f. 14th Nov., 1974. Accordingly, partial partition of family business w.e.f. 14th Nov., 1974 was accepted. Referring to p. 81 of paper book, learned Departmental Representative submitted that similar claim for partial partition was made in respect of cash w.e.f. 12th Nov., 1977. AO has also accepted and passed order on 30th March, 1981. learned Departmental Representative further pointed out that Shri Devraj Shantilal Choudhary (HUF) has also made another claim for asst. yr. 1980-81 on ground that there was partition in respect of cash on 1st Nov., 1978. claim of assessee was accepted by order dt. 30th March, 1974 (sic). Therefore, according to learned Departmental Representative, whenever claim for partition was made, AO accepted claim of partial partition as claimed by assessee. Since no claim was made in respect of so-called partition dt. 13th Nov., 1974 for asst. yr. 1975-76 as contended by assessee, no order was passed. Therefore, according to learned Departmental Representative, it is not correct to say that assessee has made any claim for partial partition along with return for asst. yr. 1975-76. learned Departmental Representative further pointed out that assessee has filed WT return, but it is not known whether claim for partial partition was made or not. learned Departmental Representative very fairly conceded that in case assessee proves that claim for partial partition was made in WT return and that was accepted by AO, then Department may not have any case at all. However, no such material is available to show that assessee made claim of partial partition in WT return filed by assessee. Moreover, material available on record does not suggest that assessee made claim of partial partition along with IT return filed for asst. yr. 1975-76. Referring to returns filed by assessee and minor HUFs, learned Departmental Representative pointed out that all these orders were passed in summary manner by accepting returns without any enquiry. Therefore, there cannot be any presumption that AO might have passed order under s. 171. learned Departmental Representative further pointed out that assessee also has not made any correspondence with AO with regard to claim of partial partition. Referring to p. 1 of assessment order, learned Departmental Representative pointed out that assessee failed to prove possession of gold jewellery. Referring to para 4.5.2 of order of AO, learned Departmental Representative pointed out that signature of assessee in March, 1987 is exactly same as in year in which questionnaire claiming partial partition was said to have been filed. Therefore, assessee might have signed questionnaire in March, 1987, just before filing return for asst. yr. 1986-87 under Amnesty Scheme. learned Departmental Representative further pointed out that for asst. yr. 1974-75, no WT return was filed. According to learned Departmental Representative, assessee has not proved that claim for partial partition was made while filing return of income for asst. yr. 1975-76 on 28th Jan., 1976. Even assuming that assessee filed claim for partial partition, according to learned Departmental Representative, such claim was not valid in view of judgment of Andhra Pradesh High Court in case of Satish Chandra Modi (supra). Therefore, according to learned Departmental Representative, lower authorities have rightly rejected claim of assessee. We have considered rival submissions on either side and also perused material available on record. contention of assessee is that while filing return for asst. yr. 1975-76, claim for partial partition was made. However, AO has not passed any order on claim made by assessee with regard to partial partition. It is admitted fact that return filed by assessee for asst. yr. 1975-76 was processed under s. 143(1). Since no order was passed for long period and WT return filed by assessee showing remaining assets was accepted, according to learned counsel for assessee, there was presumption that claim of partial partition was accepted by AO. On other hand, contention of learned Departmental Representative is that no claim for partial partition was made, and that if at all there was any claim, partial partition claimed by assessee is not valid. In view of above, first issue that arises for consideration is whether assessee has made any claim for partial partition along with return for asst. yr. 1975-76. lower authorities rejected claim of assessee on ground that assessment records were not available. chartered accountant who sent return by post along with claim for partial partition, filed affidavit saying that return was sent by registered post along with claim of partition. statement of chartered accountant made in affidavit was not denied by Revenue. covering letter said to have been enclosed while sending return of income is available at p. 33 of paper book. assessee has filed copies of partition questionnaire at pp. 1 to 6 of paper book. AO accepted return of assessee for asst. yr. 1975-76 while processing same under s. 143(1) and issued intimation. assessee also filed WT return for asst. yr. 1975-76 reducing assets given to smaller HUFs. Under WT Act, partial partition has been accepted and wealth which was given to smaller HUFs was reduced. When assessee filed WT return for asst. yr. 1975-76 reducing assets given to smaller HUFs, which was asst. yr. 1975-76 reducing assets given to smaller HUFs, which was accepted by Department, similar claim might have been made in IT return also. affidavit filed by Shri Sreedharan, chartered accountant, and WT return filed by assessee for asst. yr. 1975-76 clearly suggest that assessee filed claim of partial partition along with return for asst. yr. 1975-76. Merely because AO could not trace out file, in our opinion, blame cannot be shifted to assessee. Therefore, in our opinion, claim for partial partition was made by assessee for asst. yr. 1975-76 while filing return of income. Even otherwise, assessee can make claim for partial partition in process of assessment as held by Punjab & Haryana High Court in case of Rajmal Paharchand vs. CIT (1950) 18 ITR 1 (Punj). In that case, assessment was pending and assessee in addition to claim made along with return of income for asst. yr. 1975-76, continued to claim in process of assessment that there was partial partition. Therefore, even assuming that assessee had not made any claim for partial partition along with return of income for asst. yr. 1975-76, claim made by assessee during course of assessment proceeding would be sufficient enough to conclude that there was claim of partial partition before AO. next issue that arises for consideration is whether claim of partial partition is valid or not. AO, on basis of judgment of Andhra Pradesh High Court in case of Satish Chandra Modi (HUF) (supra), found that claim of partial partition is invalid. We have carefully gone through judgment of Andhra Pradesh High Court in case of Satish Chandra Modi (HUF) (supra). In case of Satish Chandra Modi (HUF) (supra), assessee filed writ petition before High Court seeking direction to CIT to accept partial partition effected in family for asst. yrs. 1979-80, 1981-82, 1984-85 and 1985-86. claim of assessee before Andhra Pradesh High Court was that on 19th Jan., 1976, partial partition was effected in respect of sum of Rs. 30,000 belonging to assessee HUF. assessee claimed that sum of Rs. 10,000 was given to minor Sohan and balance Rs. 20,000 had been jointly allotted to remaining members of family. second partition was claimed on 16th Oct., 1978 with regard to another sum of Rs. 30,000, in which sum of Rs. 10,000 was allotted to minor Sourabh and balance Rs. 20,000 remained with HUF. In those facts and circumstances, Andhra Pradesh High Court held that High Court cannot, in exercise of jurisdiction under Art. 226 of Constitution, direct IT authorities straight away to accept claim of partial partition made on behalf of petitioner by bypassing provisions of s. 171 of IT Act. High Court further held that there cannot be any unnatural combination of coparceners for purpose of constituting smaller HUF. We find that Andhra Pradesh High Court had occasion to consider similar issue in case of CIT vs. Dhanpal Jagadishwar (2000) 161 CTR (AP) 111: (1999) 237 ITR 354 (AP). In case before Andhra Pradesh High Court, assessee was individual and also Karta of HUF consisting of his wife and five minor sons. Before his last son was born, there was partial partition in respect of capital investment in two firms on 29th Oct., 1970 between him and his four sons. last son was born shortly thereafter. last son was admitted to benefits of partnership on 6th Nov., 1972. partial partition made between assessee and his four sons was recognised by AO by order dt. 24th Feb., 1974. contention of assessee before Andhra Pradesh High Court was that for purpose of partnership assessee, his wife and last son would form separate smaller HUF excluding four other minor sons. AO assessed smaller HUF. AO later came to different conclusion on ground that assets received on 29th Oct., 1970 belonged to assessee in his individual capacity. assessee s wife was given Rs. 5,000 at time of partial partition. Therefore, assessee was only n individual partner. However, on appeal by assessee, appellate authority excluded income of minor from assessment which was also confirmed by Tribunal. On reference, High Court held that mere provision made for maintenance of wife does not make HUF cease to exist. High Court further found that assessee and his wife would continue to be HUF and subsequent to birth of last son, smaller HUF would continue. Therefore, High Court found that even after partial partition, smaller HUF would continue to exist. From above judgment of Andhra Pradesh High Court, it is obvious that even after partial partition, smaller HUF would continue to exist for purpose of assessment. It is well settled principle of law that partial partition may be partial as It is well settled principle of law that partial partition may be partial as regards coparceners making it or property divided. Even after partial partition of property between coparceners, remaining coparceners would continue to enjoy property jointly and, therefore, smaller HUF, after partition, would continue under provisions of IT Act. apex Court in Bhagawathi Prasad vs. Rameshwari 1951 SCR 603, held that member of joint family on separation is entitled to have his share in property of joint family ascertained and partitioned for him and that remaining coparceners, without any special agreement among themselves may continue to be copaceners to enjoy as members of joint family what remained after such partition of family property and that remaining members continued to be joint. similar view was taken by apex Court in case of CIT vs. Nand Lal Agarwal (1966) 2 SCR 612, also. In case of Kalloomal Tapeswari Prasad (HUF) vs. CIT (supra), apex Court considered issue of partial partition under s. 171 of IT Act. apex Court found that no physical division of property was made even though property could be conveniently so divided. Further, for purpose of s. 171 of IT Act, finding has to be recorded by AO with regard to partition either partial or total. Unless such finding was recorded as required under s. 171 of IT Act, income from such property has to be included in total income of family by virtue of sub-s. (1) of s. 171. In fact, apex Court held as follows at p. 709 of ITR: "Having held that assessee was not entitled to claim that partial partition had taken place under s. 171, High Court fell into error in holding that income of properties which were subject-matter of partial partition could not be included in total income of assessee by relying upon decisions which had been rendered on basis of s. 25A of 1922 Act which had been construed as not being applicable to partial partitions. We have already held that s. 171 of Act applies to all partitions total and partial and that unless finding is recorded under s. 171 that partial partition has taken place income from properties should be included in total income of family by virtue of sub-s. (1) of s. 171 of Act. To put it in other words, what would have been position of HUF, which had claimed in assessment proceedings under 1922 Act that total partition had taken place and had failed to secure finding to that effect in its favour under s. 25A thereof, would be position of HUF, which has failed to substantiate its plea of partial partition as regards property under s. 171 of Act. property which is subject-matter of partial partition would continue to be treated as belonging to family and its income would continue to be included in its total income until such finding is recorded. That is true effect of s. 171(1)." apex Court further held, with reference to observations of Privy Council in case of Sir Sundar Singh Majithia vs. CIT (1942) 10 ITR 457, 465 (PC), relied on by assessee before them, as follows at p. 705 of ITR: "It is not necessary to make any comment on these observations as they h d held held until Act came into force with s. 171 inserted in it. Parliament enacted s. 171 after taking note of above decision and several other decisions following it, which had taken view that partial partition did not fall within scope of s. 25A. It expressly stated in s. 171 of Act that said provision was applicable to both kinds of partitions total or partial. It has also defined partial partition as one which is partial as regards persons constituting undivided family or as regards properties belonging to undivided family or both. Virtually present provision deals with all kinds of partitions, nature of which sometimes may be difficult to predicate correctly." It was further held by apex Court at pp. 706 and 707 of ITR as follows: "After partial partition as regards property, property divided is held by members of undivided family as divided members with all incidents flowing therefrom and property not so divided as members of undivided family. fiction enacted in s. 171(1) of Act can, therefore, operate in such case also because family which has become divided as regards property which is subject-matter of partial partition is deemed to continue as owner of that property and recipient of income derived from it except where and insofar as finding of partition has been given under s. 171. In such case it is obvious that real state of affairs is in fact different from what is created by fiction and it cannot be said that there is no occasion for fiction to operate. That is true meaning of s. 171(1) of Act. In view of substantial changes that are brought about in s. 171, we find it impossible to accept contention that fiction in s. 171(1) of Act does not operate in case of partial partitions as regards property where composition of family has remained unchanged." apex Court in case of Apoorva Shantilal Shah (HUF) vs. CIT (1983) 33 CTR (SC) 153: (1983) 141 ITR 558 (SC), had occasion to consider issue of partial partition. In case before apex Court, HUF consisted of assessee, his wife and two minor sons. assessee was governed by Mitakshara School of Hindu law. assessee claimed that there were two partial partitions on 24th Dec., 1973 in respect of 200 shares in company and on 29th Dec., 1973 in respect of 1977 shares of same company. AO, however, refused to record claim of partial partition under s. 171 of IT Act on ground that other shares of family were not distributed either to assessee or his wife. On appeal by assessee, AAC held that partial partition between coparceners in respect of shares of company was genuine and even if distribution was not made equally, that would not affect validity of partition. On further appeal to Tribunal, it was held that partial partition was outside framework of Hindu law and, therefore, it could not be recognised as valid partition under s. 171 of IT Act. On reference to High Court, High Court held that assessee had no authority or power to effect partial partition between him and his minor sons. On further appeal to apex Court, apex Court, reversing judgment of High Court, held that since there was no finding that partial partitions were sham or fictitious, partial partitions were valid in law and had necessarily to be recognised under s. 171 of IT Act. apex Court further found that assessee being father of minor sons, in exercise of his superior right, was entitled to bring about complete disruption of joint family and to effect complete partition of joint family property. This right, which father enjoys, is expected to be exercised in best interests of members of family and more particularly of his minor sons. apex Court further found that partial partition of joint family property is permissible under law. apex Court further held that it is not open to IT authorities to consider partial partition to be invalid on ground that shares have not been equally divided. Though AO has power to come to conclusion on proper scrutiny whether there was genuine partition as claimed by assessee or not, it is not open to AO to consider partition as invalid merely because property was not equally divided. apex Court observed as follows at pp. 575 and 576 of ITR: "In our opinion, partial partition of any joint family property by father between himself and his sons does not become invalid on ground that there has been no equal distribution amongst co-sharers. It is expected that father who seeks to bring about partial partition of joint family properties will Act bona fide in interest of joint family and its members, bearing in mind, in particular, interests of minor sons. If, however, any such partial partition causes any prejudice to any of minor sons and if any minor son feels aggrieved by any such partial partition, he can always challenge validity of such partial partition in appropriate proceeding and validity of such partial partition will necessarily have to be adjudicated upon in proceeding on proper consideration of all facts and circumstances of case. Till such partial partition has been held to be invalid by any competent Court, partial partition must be held to be valid. It is not open to IT authorities to consider partial partition to be invalid on ground that shares have not been equally divided and to refuse to recognise same. It is undoubtedly open to ITO before recognising partition to come to conclusion on proper enquiry whether partition is genuine or not. If ITO on enquiry comes to finding that partition is sham or fictitious, he will be perfectly within his right to refuse to recognise same. In instant case, there is no finding that partial partition is sham or fictitious or that partial partition is not genuine one and has not been acted upon. As there is no finding that partial partition is sham or fictitious or not genuine one, on enquiries made by ITO, and as partial partition is otherwise valid under Hindu law, partial partition has necessarily to be recognised under provisions of s. 171 of IT Act and assessment must be necessarily made on basis that there is partial partition of said shares." similar issue was considered by apex Court in case of Seth Gopaldas (HUF) vs. CIT (1983) 34 CTR (SC) 392: (1983) 141 ITR 577 (SC). apex Court, by following their earlier order in case of Apoorva Shantilal Shah (supra), held that partial partition between assessee and his minor son was valid. Accordingly, AO was directed to recognise partial partition of joint family properties claimed by assessee and proceed to make assessment on that basis. In case of Joint Family of Udayan Chinubhai, etc. vs. CIT (1967) 63 I T R 416 (SC), apex Court considered identical issue. assessee before apex Court claimed that HUF consisting of assessee, his wife and three sons was assessed under IT Act. assessee filed suit for partition and separate possession of his share in joint family property. By consent decree, High Court declared that joint family dissolved and all members had become separate in food, worship and estate from that date and that each member was entitled to 1/5th share in property subject to right t o maintenance of assessee s mother. Pursuant to consent decree passed by High Court, assessee took his share in property separately, but other properties remained undivided between assessee s wife and three sons, each of them holding 1/4th share in remaining property. assessee claimed that there was partial partition in family and in IT proceedings, AO accepted claim of assessee. In those circumstances, apex Court held that assessee s wife and his sons constituted group and order passed by AO accepting partial partition was valid order. It was further held that income has to be assessed in hands of HUF consisting of assessee, his wife and his sons as one HUF and in hands of assessee as another group. In fact, apex Court observed as follows at pp. 421 and 422 of ITR: "Under decree of High Court of Bombay assessees did not continue to remain members of HUF. It was expressly provided by decree that assessees were divided inter se and held property allotted to them s tenants-in-common. effect of order recording partition was to recognize, for purposes of income-tax administration, that joint family status was severed, and property was divided in definite portions between groups of members of family. After order was recorded original HUF had no existence in fact or in point of law---personal or income-tax. Sec. 25A(3), on which k reliance was placed by counsel for Revenue, only requires ITO to continue to assess HUF which has been divided under personal law so long as no order under s. 25A(1) has been recorded. Once order under s. 25A(1) has been recorded, cl. (3) of s. 25A has no application. If members of family, who constituted group between whom and other group there has been partition in definite portions, constitute HUF, that group may undoubtedly be assessed as HUF: they may be so assessed because of their relation inter se and not by virtue of s. 25A(3)." Further, apex Court observed as follows at p. 423 of report: "Counsel for Revenue sought to support order passed by ITO, Ahmedabad, and confirmed by Tribunal, on ground that it was open to ITO, notwithstanding order passed under s. 25A(1) in previous year to ignore that order in proceedings for assessment relating to subsequent year, and to hold that there was no severance in fact between members of family and to assess them as HUF, as if no partition had taken place. It was said that each assessment year is self-contained unit and whatever view may have been taken in proceedings for assessment of earlier year, it is open to ITO to arrive at independent conclusion contrary to that decision in respect of another year, if circumstances of case so warrant. It is true that assessment year under IT Act is self-contained assessment period and decision in assessment year does not ordinarily operate as res judicata in respect of matter decided in any subsequent year, for AO is not Court and he is not precluded from arriving at conclusion inconsistent with his conclusion in another year. It is open to ITO, therefore, to depart from his decision in subsequent years, since assessment is final and conclusive between parties only in relation to assessment or particular year for which it is made. decision reached in one year would be cogent factor in determination of similar question in following year, but ordinarily there is no bar against investigation by ITO of same facts on which decision in respect of earlier year was arrived at. But this rule, in on which decision in respect of earlier year was arrived at. But this rule, in our judgment, does not apply in dealing with order under s. 25A(1). Income from property of HUF, hitherto assessed as undivided, may be assessed separately if order under s. 25A(1) had been passed. When such order is made, family ceases to be assessed as HUF. Thereafter, that family cannot be assessed in status of HUF unless order is set aside by competent authority. Under cl. (3) of s. 25A if no order has been made notwithstanding severance of joint family status, family continues to be liable to be assessed in status of HUF, but once order has been passed, recognition of severance is granted by IT Department, and cl. (3) of s. 25A will have no application." From above judgment of apex Court, it is clear that one coparcener can divide property to extent of his share when other coparceners join together to constitute smaller HUF. In view of this judgment of apex Court, claim of partial partition made by assessee in case before us would be justified. As we have already observed, partial partition can be with regard to property or with regard to person. When partial partition was effected in respect of certain property and with regard to certain person, it cannot be considered as invalid in view of judgment of apex Court in case of Joint Family of Udayan Chinubhai (supra) and in case of Kalloomal Tapeswari Prasad (HUF) (supra). In case of ITO vs. Smt. N.K. Sarada Thampatty (1990) 89 CTR (SC) 154: (1991) 187 ITR 696 (SC), apex Court considered issue partition in HUF. apex Court held that under s. 171 of IT Act, partition cannot be recognized unless there is physical division of property of family and if property was not capable of being physically divided, there must be division of property to extent it is possible. Otherwise, severance of status will not amount to partition. In case before us, there is actual division of property and it is nobody s case that property was not physically divided. In those circumstances, there was clear partition as required under provisions of IT Act. Therefore, there is no justification on part of lower authorities to reject claim of partition under s. 171 of IT Act. Allahabad High Court in case of CIT vs. Shrawan Kumar Swarup & Sons (1998) 147 CTR (All) 305: (1998) 232 ITR 123 (All), had occasion to consider identical issue. In case before Allahabad High Court, HUF consisted of assessee, his wife and two minor children. There was partial partition in respect of share capital and rights in profits of firm in two groups on 1st Jan., 1971. two groups consisted of assessee and his minor daughter on one side and assessee s wife and minor son on other side. total share capital invested by assessee family, which was about Rs. 50,000, was divided into two equal shares between two groups. AO accepted claim of partial partition under s. 171 of IT Act. However, CIT, in exercise of his power of revision under s. 263, held that partial partition of HUF by dividing interest of HUF in firm and capital invested therein was not according to law because partial partition had not been made defining shares of each and every person entitled to get shares. On appeal by assessee, Tribunal set aside order of Admin. CIT on ground that notice under s. 263(1) was not served at all. Moreover, Tribunal accepted claim of partial partition on merits. On reference to High Court, it was held that to effect partial partition, it is not necessary to define share of each member of each group. When partial partition qua person is permissible under law, members of HUF can divide themselves group-wise and it is not necessary to define share of each member of each group. Allahabad High Court has observed as follows at p. 128 of ITR: "Another issue for consideration is whether CIT was right in cancelling order passed by ITO under s. 171 on ground that interest of HUF in firm was divided in two groups without defining shares of members inter se falling in each group. Tribunal has found that partition was qua property as well as qua parties. question is when partial petition was made qua parties, meaning thereby when property stood divided in two or more groups, whether to make legal partial partition it is necessary to define share of each member of each group. In Daya Shanker Vijay Kumar vs. CIT (1980) 124 ITR 691 (All), this Court held that no particular method is required to effect partition, and all that is necessary is that there should be definite unequivocal indication of necessary is that there should be definite unequivocal indication of intention of member of joint family to effect partition. factum of partial partition is not in dispute before us. only exception taken by CIT to order of ITO recording fact of partition is that in memorandum of partition, share of each member of each group has not been defined and, therefore, no valid partial partition could be said to have come into existence. question is whether to effect valid partial partition it is necessary to define share of each member of each group. No law has been shown in this regard by standing counsel. When partial partition qua persons is permissible under law, members of HUF can divide themselves group-wise and it is not necessary to define share of each member of each group. When property is held by two groups and if share of each group is well defined, requirement of partial partition will stand fulfilled. From memorandum of partition, it is manifest that share of each group of two is well defined and thus legal requirement is fully satisfied." From above judgment of Allahabad High Court, it is obvious that partial partition can be made on group basis. similar view was taken by Allahabad High Court in case of CIT vs. Amrit Lal & Ors. (supra). Andhra Pradesh High Court in case of Addl. CIT vs. P. Durgamma (1987) 64 CTR (AP) 304: (1987) 166 ITR 776 (AP), had occasion to consider provisions of s. 171 of IT Act in respect of partition of HUF. Andhra Pradesh High Court held that fiction that joint family property shall be deemed to continue is for limited purpose as provided in s. 171 of IT Act. It is not possible to extend that fiction beyond field legitimately intended by statute. Andhra Pradesh High Court further held that fiction in s. 171 must necessarily be confined to purpose for which it is specified in that section and for no other purpose. Ultimately, High Court held that when there was partition, there is no continuance of HUF. Allahabad High Court in case of CIT vs. Govind Narain (1975) 101 ITR 602 (All), considered issue of partition in HUF for purpose of IT Act. ITO rejected claim of assessee for partition only on ground that agreement purporting to bring partial partition was typed on stamp paper purchased subsequent to date of partition. However, Tribunal held that partition as claimed by assessee was genuine and not sham. In those circumstances, Allahabad High Court held that even if share had been allotted to person who is not entitled to it, on partition of HUF, it can be no ground for holding that partition was illegal or void. Such partition may be voidable at instance of member of family affected by it, but as far as IT Department is concerned, it has no locus standi to hold that such partition was void ab initio. In view of above judgment of Allahabad High Court, duty of AO is to see whether there was partial partition in respect of property or person as claimed by assessee. Once AO finds that there was partial partition, AO has to record partition as claimed by assessee. Merely because some shares were allotted to third party who is not entitled to such shares on partition of HUF, which cannot be reason to reject claim of partition made by assessee. Madras High Court in case of M.V. Valliappan & Ors. vs. ITO & Ors. (1988) 67 CTR (Mad) 289: (1988) 170 ITR 238 (Mad), had occasion to consider issue of partial partition in HUF. Madras High Court held that legitimate transaction, which does not amount to dubious device, is not hit even by law laid down by apex Court in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC). right to partial partition being inherent in members of HUF, family has no right to resist demand for partial partition and hence HUF as assessee cannot be charged with resorting to dubious device for purposes of tax avoidance. In case before us, it is not case of Revenue that method adopted by assessee was dubious device to avoid tax. It is also not case of Revenue that claim of partition was not genuine. When t h e genuineness of partition is not doubted, legitimate transaction of partition cannot be rejected, as held by apex Court in case of Kalloomal Tapeswari Prasad (HUF) (supra) and Madras High Court in case of M.V. Valliappan & Ors. (supra). apex Court in case of Addl. ITO vs. A. Thimmayya & Anr. (1965) 55 ITR 666 (SC), had occasion to consider issue of partition in HUF and had taken similar view as in case of Joint Family of Udayan Chinubhai, etc. (supra). From above, it is very clear that property can be divided between father and son and it can be either partial with regard to property or partial with regard to person. In other words, apex Court recognised group-wise partial partition with regard to person and also properties. In view of above discussion, by respectfully following law laid down by apex Court, we hold that there was partial partition as claimed by assessee. Accordingly, we set aside orders of lower authorities. In result, appeal of assessee stands allowed. *** D. SHANTILAL CHOUDARY & SONS v. ASSISTANT COMMISSIONER OF INCOME TAX
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