:1: IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (L) NO.209 OF 2006 The Commissioner of Income Tax. ..Appellant. Vs. Shri. Mohanlal K. Shah(HUF). ..Respondent. Mr. R. Ashokan with Mr.P.S.Sahadevan for the Appellant. Mr. B.D. Damodar i/by Kanga & Co. for the Respondent. CORAM : F.I. REBELLO & R.S. MOHITE, JJ. DATED : 26th March,2008. PC : 1. Heard parties. 2. This appeal filed by the Commissioner of Income Tax impugns an order passed by the Income Tax Appellate Tribunal in ITA NO.7228/Mum./2003. The substantial questions of law as enumerated in Para-4 of the appeal memo are as follows. i) Whether on the facts and circumstances of the case and in law, the partition of the assessee HUF has taken place in accordance with the provisions of the Income Tax Act,1961? ii) Whether on the facts and circumstances of the case and in law, the arbitration award dated 24.9.1994 can be treated as a partition or a :2: partition deed in respect of the assessee HUF? 3. The brief facts of the case are as follows: a) One Mohanlal Kishore Shah, Karta of Mohanlal K. Shah (HUF) had acquired a plot of land bearing Plot No. 298 admeasuring 947 sq.yards on 12th road Khar Mumbai on lease from the then Government of Bombay by an agreement dated 20.10.1926. He constructed a two storey building thereon, the total constructed area being 1/3rd of the total area of the plot. b) Shri. Mohanlal K. Shah expired on 4.10.1954 after which Shri. Bachubhai M. Shah became the Karta of the said Mohanlal K. Shah-HUF. His widow Smt. Taraben and two married daughters and younger son Ramesh Mohanlal Shah were the legal heirs. Since the inception, the property was shown as being the property of Mohanlal Kishore Shah (HUF). In 1985 an agreement was entered into for family partition between Bachubhai M.Shah Karta of Mohanlal K. Shah (HUF) and Ramesh M. Shah in respect of the Khar property and two other properties in Gujarat. This deed of partition was however, not acted upon. Subsequently, Mr.Ramesh M.Shah filed a suit for partition in the Bombay City Civil Court against the other coparceners and after settlement between the coparceners, consent terms were filed in the suit on :3: 5.9.1985. In the consent terms, it was declared and agreed upon by the parties that the immovable properties described in the partition agreement dated 7.8.1985 would be divided amongst coparceners by metes and bounds and each coparcener should hold his share in an independent capacity. c) However, even the consent terms were not acted upon and the property continued to be held by the HUF and was not divided by metes and bounds or in any other manner. As the dispute remained between the parties, the entire family dispute was referred for arbitration to Arbitrator Shri. S.K.Desai, retired Judge of the High Court. In this Arbitration proceeding an Award was passed by the sole Arbitrator on 24.9.1994. Under the award it was provided that the right, title and interest of all the coparceners in the said property would be released to one Mr. Harish B.Shah for the consideration payable to each coparcener as set out in the said award and till such payment was made, a charge would remain created on the property for securing such payment. It was provided that on the payment being received by each coparceners, the charge created in their favour would automatically stand extinguished. Mr. Harish B.Shah, after obtaining permission of the Income Tax Department U/s.269 UL(3) of the Income Tax Act on 15.5.1995, ultimately sold the said property to M/s. Narad Builders vide conveyance dated 17.4.1996 and payments :4: were made, as per the directions given in the award, to all the copartners. The total consideration distributed by Ms. Farad Builders was RPS.9.00 Crores and the same was distributed as per the awarded shares. Subsequently in response to the notice under Section-148, the appellant-HUF filed a return of Income Tax for the Assessment year 1997-98, claiming shelter of Section 47(i) on the footing that there was total partition of property vide Arbitration award passed on 24.9.1994. They also filed an application under Section 171 of the Income Tax Act on 19.4.2002 seeking a declaration that there was a partition in the family. d) After due enquiry by his order dated 27.12.2002, the Assessing Officer rejected the respondent’s application under Section 171 of the Income Tax Act. e) The respondent carried the matter in appeal and by his order dated 4.3.2003, for the reasons, stated in the orders, the Commissioner of Income Tax (Appeals) was pleased to dismiss the respondent’s appeal. The respondent then carried the matter further to the Income Tax Appellate Tribunal and their appeal came to be allowed. It is in these circumstances, the present appeal came to be filed. 4) It is contended on behalf of the appellant that the Assessing Officer as well as CHIT (Appeals) had :5: correctly proceeded on the footing that under Section 171 of the Income Tax Act, where the property admits of a physical division, what was required was actual physical division of the property. That without a physical division of the property there would be no partition for the purpose of Section 171. It was contended that the property in question had been held, by the Assessing Officer as well as CIT (Appeals) to be capable of physical division. It was pointed out that they had placed reliance on the partition agreement of the year 1975 which contemplated such a physical division. It was contended that the requirement of physical division contemplated by Section 171 of the Income Tax Act was lost sight by the Tribunal. 5) On perusing the record, we find that the entire dispute relating to the house property at Char was referred to arbitration precisely because there could be no amicable partition between the family members in spite of a consent decree. The solution ultimately found by the Arbitrator in the award was to direct all the copartners to transfer their rights to a third party in return for compensation. It appears that when the family partition was arrived at in the year 1985 then family partition agreement was entered into. The said partition agreement not only pertained to property at Char but also to property in Gujrath State. The explanation (is) to Section 171(1) contemplates that :6: where the property does not admit of physical division then such division as the property admits of would amount to partition. In our view, the record of the case do not indicates that the property admitted of a physical division and in the circumstances, it was required to be sold to an outsider with the division of the proceeds as per the arbitration award. This situation, in our view, would be covered under the definition of partition as contemplated by explanation (is) of Section 171(1) of the Income Tax Act. 6) In this view of the matter, in our opinion, the substantial question of law as raised would not arise. Hence, appeal is summarily rejected. (R.S. MODISTE, J.) (F.I. REBELLED, J.)