Case: Apoorva Shantilal Shah Vs. The C.I.T. Gujarat-I

The assessment year in question is the year 1975-76. During the assessment pertaining to the assessment year under consideration, Shri Apoorva, who is the father of the minor sons and husband of Smt. Karuna and the karta of the HUF, made an application to the ITO for recognising a partial partition, under s. 171 of the I.T. Act, 1961 (hereinafter referred to asthe Act claiming that two partial partitions had taken place amongst the members of the said family, one on December 24, 1973, in respect of 200 shares of Gujarat Steel Tubes Ltd. and the other on December 29, 1973, in respect of 1, 777 shares of the same companyOn enquiry the Income-tax Officer (hereinafter for the sake of brevity referred to as) found that the partial partitions had been embodied in memoranda of agreements of , partition. The ITO, however, refused to record that there had been a partial partition of the joint family properties, as be was of the view that the partial partitions in question could not be recognised inasmuch as the remaining shares, after making certain allocations in favour of the two minor sons were not allotted in their entirety to the remaining third coparcener, namely, Shri Apoorva separately or to Shri Apoorva and his wife, Karuna, jointly, describing them as members of the HUF. The ITO further held that the said partitions did not purport to have been made at the instance of the minor children, as this course would require the approval of the court but the same bad been purported to have been made at the instance of Shri Apoorva. The ITO hinted in the order that the distribution of the shares had not been made equally either amongst the three members, including the two minor sons, or amongst the four members of the HUF, as Apoorvas wife, Karuna, also became entitled to an equal share on partition between the father and the sonsAgainst the order of the ITO the assessee-HUF presented an appeal before the Appellate Assistant Commissioner (hereinafter referred to asfor the sake of brevity). The AAC allowed the appeal and held that there had been genuine partial partitions between the coparceners in respect of the said shares. The AAC held that it was not necessary to obtain the courts sanction even in a case where some of the parties to the partition were minors. As regards the point that the distribution of shareholdings had not been made on equal basis, the AAC, taking into consideration some earlier partitions, came to the conclusion that the distribution had been equally made. The AAC further observed that even if the distribution had not been made on equal basis that would not affect the validity of the partitions in question, as the minor sons, if they felt aggrieved in this regard, could on the attainment of majority seek to avoid the said partitionsAggrieved by the order of the AAC, the Revenue went up in appeal to the Income-tax Appellate Tribunal (referred to as theer for the sake of brevity) to challenge the AACs recognition of the said partitions. The Tribunal held for reasons recorded in the order that the partial partitions in the instant case were outside the framework of the Hindu law and as such they could not be recognised as valid for the purposes of s. 171 of the Act. In that view of the matter the Tribunal set aside the AACs order and restored the order of the ITOUnder s. 256(1) of the Act, the Tribunal referred the following questions to the High CourtWhether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Shri Apoorva Shantilal could not himself have given consent on behalf of his minor sons to the partitions proposed by him in his individual capacity as) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the partial partitions were outside the framework of Hindu law ?(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the partial partitions could not be recognised as valid for the purpose of section 171 ofthe Income-tax Act, 1961 ?(4) Whether, on, the facts and in the circumstances of the case, the Tribunal was right in holding that partial partitions made by a Hindu father in exercise of his patria potestas cannot be recorded as a valid partition under section 171 ofthe Income-tax Act, 1961 ?(5) Whether, on the facts and in the Circumstances of the case, the Tribunal was right in holding that the partial partition did not amount to a family arrangement in which the father acted as a natural guardian of the two minor son, after he had exercised his patria potestas ?(6) Whether the Income-tax Department is competent to challenge the exercise of patria potestas by a Hindu father in respect of coparcenary property, making a partial partition ?For reasons recorded in the judgment the High Court answered all the questions in the affirmative and against the assessee. The High Court in its judgment has held that the father under the Hindu law has no power or authority to effect any partial partition of the joint family properties between himself and his minor sons. The High Court has observed that apart from the decision of the Madhya Pradesh High Court in the case of CIT v. Seth Gopaldas (HUF) [1979] 116 ITR 577  , there was no decision of any court on the point. The High Court also considered other decisions and books and treatises on Hindu law. The High Court held that on consideration of the authorities, the following propositions Were established (at p. 164 of 1351. From the standpoint of ancient Hindu law, what was recognised was only a partition in respect of all the properties of the HUF, upon disruption of the status of the HUF regardless of whether the properties were actually divided by metes and bounds or whether these were thereafter (after disruption of joint status) held as tenants-in-common2. Partial partition in the sense of division in respect of a part of the assets whilst continuing the status of HUF in respect of the Test of the assets was not known to the ancient Hindu law and was not recognised by the ancient Hindu Law3. Partial partition in the sense of division of some of the properties whilst continuing the status of HUF in respect of other items of property originally belonging to the HUF came to be recognised only later on by evolution of custom and by judge-made law4. Such a partial partition was so recognised only if it was made by the consent of all the coparceners. In other words, partial partition in respect of only some items of property whilst continuing the status of HUF in respect of the rest of the items of property could be effected only with the consent of all the coparceners. When there was a disruption of the status of the HUF only one or only some of the coparceners could not insist on a division of some items of the property without effecting division in respect of all the items of properties except by consent of all the coparceners5. In respect of a joint family consisting of a father and his sons, the traditional Hindu law recognised the right of a father in his capacity as patria protestas to exercise his extraordinary power to disrupt the status of an HUF and to divide his sons inter se without their consent subject to the rider that all assets of the HUF were subjected to partition6. The aforesaid extraordinary power is subject to the qualification that he gives to his sons an equal share and the division is not unfair (vide Guptes Hindu Law, 2nd Edn., pageThe power of the father to sever the sons inter se is a survival of the patria potestas and may be exercised by him without the consent of his sons ... Again, in all cases, his power must be exercised by him bona fide and in accordance with law; the division must not be unfair and the allotments must be equal. He must give his sons equal shares with himself7. There is nothing in (1) either ancient Hindu law, or (2) customary or judge-made law which authorises the father in exercise of his extra , ordinary power to effect a partial partition of HUF consisting of himself and his minor sons dividing some items of properties whilst continuing the joint status in respect of the rest of the properties.The High Court observed (at p. 165)The validity of the aforesaid propositions is incapable of being disputed and has not been disputed. What has been contended on behalf of the assessee is that whilst there is no express provision in so many words, either in the ancient Hindu texts or judge-made law, that the power of a Hindu father to effect a partition of an HUF consisting of himself and his sons including minor sons in exercise of his power as patria potestas extends even to partition in respect of only some items of property, it is required to be inferred by implication. In other words, it is argued that though there is no express reference to the power to effect a partial partition in the sense of division of some items of property while continuing the status of an HUF in respect of the rest and though such power is not recognised in terms, it follows as a necessary corollary.e Gujarat High Court noted that this contention has been negatived by the Madhya Pradesh High Court in the case of Gopaldas [1979] 116 ITR 577  , and the Gujarat High Court for reasons recorded in the judgment (p. 165 of 135 ITR) rejected this contention. The High Court further held that the transaction in question was in any event invalid in the facts and in the circumstances of this caseAggrieved by the judgment of the High Court, the assessee with special leave granted by this court has preferred this appeal

Court's reasoning:
We may point out that the AAC has found that at the time of division of the shares, the shares had been distributed equally taking into consideration the shares which had earlier been distributed amongst the parties. In our opinion, a partial partition of any joint family property by the father between himself and his sons does not become invalid on the ground that there has been no equal distribution amongst the co-sharers. It is expected that the father who seeks to bring about a partial partition of joint family properties will Act bona fide in the interest of the joint family and its members, bearing in mind, in particular, the interests of the minor sons. If, however, 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. Till such partial partition has been held to be invalid by any competent court, the partial partition must be held to be valid. It is not open to the I.T. authorities to consider a partial partition to be invalid on the ground that shares have not been equally divided and to refuse to recognise the same. It is undoubtedly open to the ITO before recognising the partition to come to a conclusion on proper enquiry whether the partition is genuine or not. If the ITO on enquiry comes to a finding that the partition is sham or fictitious, he will be perfectly within his right to refuse to recognise the same. In the instant case, there is no finding that the partial partition is sham or fictitious or that the partial partition is not a genuine one and has not been acted upon. 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 I.T. Act and the assessment must be necessarily made on the basis that there is partial partition of the said sharesIn the result, the appeal succeeds. The judgment and order of the High Court are hereby set aside. The partial partition is held to be valid and the ITO is directed to recognise the same and to proceed to make the assessment on the basis that there has been a partial partition of the said shares between the parties.