Case: Kalloomal Tapeswari Prasad , Kanpur Vs. Commissioner of Income Tax, Kanpur

The assessee is a Hindu undivided family known as M/s. Kalloomal Tapeswari Prasad and the year of assessment is 1964-65. The assessee is governed by the Mitakshara school of law. The following genealogical tree represents the relationship amongst the members of the familyPhakki LalChandoolal Bishambhar Nath Sitaram (His wife, (died issueless in (Wife--- Rampiari, 1940-Wife pre- Kripa died on deceased him) Devi) 17-9-1963)Gopalji RamjiJagat Roop Swarup Shyam BimalNarain Narain Narain Narainthe relevant previous year, the family consisted of Chandoolal, Sitaram and his wife, Kripa Devi, Jagat Narain, Roop Narain, Swarup Narain, Shyam Narain and Bimal Narain, who were the five sons of Chandoolal and Gopalji and Ramji, the two sons of Sitaram. The assessee (Hindu undivided family) was deriving income from various sources such as income from property, income from money-lending business, income from speculation business and cloth business, etc. There was a partial partition in the family in the year 1951 when a sum of Rs. 5, 00, 000 out of its total capital of Rs. 12, 85, 423 was divided amongst the coparceners at the rate of Rs. 41, 666-10-8 amongst the members of Chandoolals branch and at the rate of Rs. 83, 333-5-4 amongst the members of Sitarams branch. Kripa Devi did not receive any share at that partition. The said partial partition was accepted and acted upon by the I.T. Dept., whereafter the cloth business was treated as the business of a firm consisting of most of the coparceners as partners. Again, on December 11, 1963, which fell within the previous year relevant to the assessment year in question, i.e., 1964-65, according to the assessee, there was another partial partition orally as a result of which its eighteen immovable properties were divided amongst the ten members of the family and they held those properties as tenants-in-common from that date. It was claimed by the assessee in the course of the assessment proceedings that the members of the family had commenced to maintain separate accounts with regard to the income from the said eighteen properties and to divide the net profits amongst themselves according to their respective shares at the end of each year. The eighteen immovable properties were situated in different places and their valuation was asNo. Municipal number of Valuethe property1. 75/2 1, 78, 8752. 76/162 27, 0003. 76/169 45, 0004. 47/110 13, 5005. 47/26 20, 7006. 48/203 16/2007. 55/124 90, 0008. 55/36 41, 4009. 55/3710. 70/87 1, 57, 50011. 71/150 8, 10012. 71/89 3, 60013. 71/112 19, 80014. 63/61 7, 42515. 51/68 17, 10016. 51/73 14, 40017. 86/37 20, 52018 . 1/301A 45, 0007, 26,required by the ITO to explain as to why the properties were not divided in definite portions as required by s. 171 of the Act, the assessee stated that physical division of the properties in question amongst the ten members was impossible and the only possible way to partition those properties was to define their respective shares and to enjoy the income from them separately. In support of the above claim the assessee relied upon a copy of an award dated April 15, 1964, made by one S. B. Tandon which was made into a decree in Suit No. 60 of 1964 on the file of the Court of the First Civil judge, Kanpur, dated September 21, 1964. In that award the arbitrator had stated that the properties did not admit of physical division. The ITO did not agree with the assessees contention that it was not possible to divide the properties in question in definite portions. Accordingly, he rejected the claim of partial partition in respect of the eighteen immovable properties and proceeded to assess the income derived therefrom in the hands of the assessee. Against the order of the ITO the assessee filed an appeal before the AAC. During the pendency of that appeal the assessee appointed another arbitrator by name Lakshman Swaroop, retired chief engineer, to examine the possibility of a physical division of each of the eighteen properties into ten portions and, if that was not possible, to suggest any other mode or modes to divide them into ten parts in accordance with the share allotted to each of the parties to the partition. By his award dated February 3, 1965, Lakshman Swaroop stated that the aforesaid properties were " not capable of physical division into ten shares by metes and bounds and that the only practical division is that of allocation of proportionate shares in all the 18 properties in question ". It may be mentioned here that out of the ten shares, six shares were 1/12th each and four shares were 1/8th each. Chandoolal and his five sons had been allotted 1/ 12th each and Sitaram, his wife and his two sons had been allotted 1/8th each. Lakshman Swaroop was also examined as a witness before the AAC by the assessee and cross-examined by the ITO. The AAC, on consideration of the material before him, including the decree of the court referred to above and the evidence of Lakshman Swaroop ; held that the case of the assessee that it was not possible to divide the properties physically into ten shares referred to above was not tenable and dismissed the appeal. The assessee, thereafter, took up the matter before the Tribunal in appeal. The tribunal also was of the view that the contention of the assessee that if the properties had been divided into ten shares, they would have either been destroyed or would have lost their value, was not correct. Accordingly, the claim of the assessee under s. 171 of the Act that there was a partial partition was rejected. Thereupon, on an application of the assessee made under s. 256(1) of the Act, the two questions set out above were referred by the Tribunal to the High Court for itshearing the parties, the High Court recorded its answer to the first question in the affirmative and in favour of the department and in reaching that conclusion, it observedhave seen the evidence of the arbitrator as well as the Chief Engineer, and it is apparent therefrom that even though the 18 properties could not individually be divided into 10 shares without destroying their utility, yet after assessing the value of the properties, they could be apportioned between the ten members and the difference in the allocations could be equalised by payment of cash amounts by one to the other. In our opinion, it cannot, in such a situation, be said that these 18 properties were incapable of physical division in 10 shares, and so, in view of clause (a)(i) of the Explanation, mere severance of status was not sufficient for recording the finding of partition.High Court answered the second question in favour of the assessee holding that the income accruing from the eighteen immovable properties after December 11, 1963, was, however, not, liable to be included in the computation of the joint Hindu familys income. In recording this answer, the High Court observed171 of the 1961 Act, in essence, is a re-enactment of section 25A with the difference that it applied not only to cases of total partition but also to cases of partial partition. There are some incidental changes as well, e.g., section 171 applies also for purposes of levying and collecting penalty, fine or interest and in addition requires the Income-tax Officer to record a finding as to the date on which total or partial partition took place. The fact that section 171 applies to a partial partition (meaning a partition which is partial as regards the persons or as regards the properties of the family or both) as well shows that a finding of partial partition can be recorded and on such a finding being recorded under subsection (4) the total income of the joint family in respect of the period u to the date of partition is to be assessed as if no partition had taken place and each member of the family was to be liable, notwithstanding anything contained in clause (2) of section 10, jointly and severally for the tax on the income so assessed. Thus, section 171 like section 25A, seeks to nullify the effect of section 10(2) under which a member was not liable to be taxed on the income received as a member of Hindu undivided family. The section does not entitle the inclusion of income from an asset which has ceased to belong to the joint family, in the assessment of the joint Hindu familyIn the present case, on the findings, the position is that the joint Hindu family stood disrupted in relation to the 18 immovable properties as a result of the oral partition dated 11th December, 1963. Thereafter the income of these properties belonged to the individual members and not to the joint family. It could not be included in the assessment of theby the answer to the first question, the assessee has filed Civil Appeal No. 1373 of 1974 and aggrieved by the answer to the second question, the revenue has filed Civil-Appeal No. 1768 ofis necessary to refer to the history of the relevant pro visions in order to decide the questions raised before us.

Reasoning:
It is material to bear in mind the scheme of the Income-tax Act, in the first instance. Under sections 2 and 3, the different units stated therein are liable to be taxed as such. One of them is a joint Hindu family. In order to avoid double taxation, section 14 lays down that when the individual member is being assessed, his income as a member of a joint family should not be assessed again. Then comes the stage, what happens when a family, which has once been so assessed, comes to a partition. To meet that contingency, section 25A has been enacted. In the section, as it existed before the amendment of 1939, in terms the Incometax Officer required proof, (i) that a separation of the members of the joint family had taken place, and (ii) that the joint family property had been partitioned amongst the various members or groups of members in definite portions. On being satisfied on those points, he had to record an order to that effect. The effect of such a recording was that the joint family income would be assessed and recovered in terms of sub-section (2). In the absence of such order, under sub-section (3) the joint family continue to be assessed asis thus clear that Hindu law does not require that the property must in every case be partitioned by metes and bounds or physically into different portions to complete a partition. Disruption of status can be brought about by any of the modes referred to above and it is open to the parties to enjoy their share of property as tenants-in-common in any manner known to law according to their desire. But the income-tax law introduces certain conditions of its own to give effect to the partition under s. 171 of theanswer to the first question referred to the High Court by the Tribunal depends upon the true construction of sub-cl. (i) of cl. (a) of the Explanation to s. 171 of the Act. The subject-matter of partial partition, as mentioned earlier, consisted of eighteen items of immovable property. The value of each of them is given in the earlier part of this judgment. Under the partial partition in question, six persons were allotted 1/12th share each in these eighteen properties and four persons were allotted 1/8th share each. The total value of the eighteen properties was Rs. 7, 26, 120. Six of the members were, therefore, entitled to properties of the value of Rs. 60, 510 each and four of them were entitled to properties of the value of Rs. 90, 765 each. Before the Tribunal two submissions were made on behalf of the assessee in support of the plea that the arrangement entered into amongst the parties providing for a division of the income of the properties in question without resorting to physical division of the properties was a partition as defined by the Explanation to s. 171 of the Act. The first submission was that the word " property " occurring in cl. (a)(i) of the Explanation to s. 171 referred to an individual item of the property which is divided and not to all the properties which are divided at the partition-total or partial and hence as it had been accepted by the department that each of the eighteen items of property could not be divided conveniently into ten portions without destroying its utility, it had to be held that the properties did not admit of physical division. The second submission which was urged in the alternative was that even if it was possible to distribute the said properties equitably amongst the sharers by asking them to make necessary monetary adjustment to equalise the shares as the Explanation to s. 171 did not contemplate any such monetary adjustment, the assessee could not be denied under s. 171 recognition of the partial partition which had taken place as per Hindu law. In support of this plea the assessee depended upon the opinion of the arbitrator, Tandon, on the basis of whose award the decree had been passed and also the evidence of Lakshman Swaroop tendered before the AAC. Taking into consideration all the material before them and having regard to the shares allotted to each of the members, the market value, situation, size and the age of each of the items of the property in question, the tax payable in respect of each of them and also the fact whether an item of property is in the occupation of a tenant or not, the Tribunal came to the conclusion that it was possible to divide the properties in question physically into different lots so that each member could take his rightful share in them. The High Court also has expressed the samethe facts and in the circumstances of the case, we approve of the above view of the High Court. We feel that the properties involved in this case admitted of physical division into the required number of shares and such division would not have adversely affected their utility. It is common knowledge that in every partition under Hindu law unless the parties agree to enjoy the properties as tenants-in-common, the need for division of the family properties by metes and bounds arises and in that process a physical division of several items of property which admit of such physical division does take place. It is not necessary to divide each item into the number of shares to be allotted at a partition. If a large number of items of property are there, they are usually apportioned on an equitable basis having regard to all relevant factors and if necessary by asking the parties to make payments of money to equalise the shares. Such apportionment is also a kind of physical division of the properties contemplated in the Explanation to s. 171. Any other view will be one divorced from the realities of life. The case before us is not a case where it was impossible to make such a division. Nor is it shown that the members were not capable of making payment of any amount for equalisation of shares. We are of the view that there is no material in the case showing that the assessee ever seriously attempted to make a physical division of the property as required by law. All that was attempted was to rely upon the arbitrators award and Lakshman Swaroops evidence which were rightly held to be insufficient by the Tribunal to uphold the claim of the assessee. The assessee cannot derive any assistance from the decision of this court in Charandas Haridas v.CIT [1960] 39 ITR 202.   There the item of asset which had to be partitioned was the right in certain managing agency agreements. The court upheld the arrangement of division of commission amongst the members among whom the said right was divided as a partition satisfying the test laid down by the income-tax law as it was of the view that any physical division of that right meant the dissolution of the managing agency firms and their reconstitution which was not altogether in the hands of the karta of the family. The court also was satisfied that the family took the fullest measure possible for dividing the joint interest into separate interests. In the present case we are satisfied that no such attempt to divide the properties was made. This case clearly falls under sub-cl. (i) of cl. (a) of the Explanation to s. 171 of the Act but does not satisfy the requirement of that sub-clause as no physical division of the properties was made even though they could be conveniently so divided. Sub-clause (ii) thereof does not apply to this case at all. We, therefore, agree with the answer given by the High Court to the first question in the affirmative. The appeal of the assessee is, therefore, liable to beheld that the assessee was not entitled to claim that a partial partition had taken place under s. 171, the High Court fell into an error in holding that the income of the properties which were the subject-matter of partial partition could not be included in the total income of the assessee by relying upon the decisions which had been rendered on the basis of s. 25A of the 1922 Act which had been construed as not being applicable to partial partitions. We have already held that s. 171 of the Act applies to all partitions-total and partial and that unless a finding is recorded under s. 171 that a partial partition has taken place the income from the properties should be included in the total income of the family by virtue of sub-s. (1) of s. 171 of the Act. To put it in other words, what would have been the position of an HUF, which had claimed in assessment proceedings under the 1922 Act that a total partition had taken place and had failed to secure a finding to that effect in its favour under s: 25A thereof, would be the position of an HUF, which has failed to substantiate its plea of partial partition as regards property under s. 171 of the Act. The property which is the subject-matter of partial partition would continue to be treated as belonging to the family and its income would continue to be included in its total income until such a finding is recorded. That is the true effect of s. 171(1). It was, however, urged on the analogy of the income from family property alienated by a karta in favour of a stranger that the income which was not actually received by the family could not be taxed and in support of this plea reliance was placed on a decision of the Madras High Court in A. Kannan Chetty v. CIT [1963] 50 ITR 601  , 612. In that decision, it is observedFor instance, if the karta of a family effects an alienation or even makes a gift, in so far as the taxing department is concerned, it is the income of the members of the Hindu undivided family that can be assessed, and if by reason of an alienation, whether it is binding upon the members of the joint family or not, an item of property ceases to be in the hands of the joint family, it would not be open to the department to say that they would ignore such an alienation, notwithstanding that the possession of the properties and its income may pass into the hands of a stranger. It may be different in cases where the joint family deals with one or more items of property or converts it into a different estate retaining both possession and income in its own hands. That may properly be a case where the department may ignore such ais significant that in the passage extracted above, the Madras High Court has distinguished the case of an alienation in favour of a stranger from the case where the joint family deals with one or more items of property or converts it into a different estate retaining both possession and income in its own hands. We do not consider that such a plea is available to the assessee because the acceptance of such a plea would lead to the nullification of the scheme of s. 171 of the Act itself. As long as finding is not recorded under s. 171 holding that a partial partition had taken place, the HUF should be deemed for the purposes of the Act to be the owner of the property which is the subject-matter of partition and also the recipient of the income from such property. The assessment should be made as such and the tax assessed can be recovered as provided in the Act. In the circumstances, the decision of the High Court on the second question has to be reversed. We, accordingly, record our answer to the second question in the affirmative and in favour of the department