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2011 (9) TMI 242 - AT - Income TaxPartition of HUF - Recognition of partition - AO taxed the amount received on partition of HUF as gift and taxed the same as income from other sources - AO refused to accept the fact that there was a partition of the HUF because of the absence of an order under section 171 of the Act. He was of the view that on the death of the Kartha the HUF need not necessarily come to an end and that the HUF still continues. - Held that - the money received by the Assessee in her capacity as coparcener as and towards her share of the properties of the HUF, on partition of HUF, cannot be said to be sum of money or property received without consideration. The right, title and interest of the coparcener in the assets of the HUF will itself be a consideration. - the sum received by the Assessee as and towards her share as coparcener of the HUF, from the HUF, on partition of the HUF cannot be brought to tax as income and the addition made by the AO in this regard is directed to be deleted. - Decided in favor of assessee.
Issues Involved:
1. Treatment of capital receipt on partition of HUF as a gift and its taxation under "Income from Other Sources." 2. Validity and timing of partition of HUF under section 171 of the Income Tax Act. 3. Applicability of section 56(2) regarding the taxation of gifts. 4. Imposition of interest under sections 234B and 234C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Treatment of Capital Receipt on Partition of HUF as a Gift: The assessee contested that the amount received on partition of HUF should not be treated as a gift and taxed under "Income from Other Sources." The Assessing Officer (AO) argued that in the absence of an order under section 171 of the Income Tax Act confirming the partition, the amount received was without consideration and thus taxable as a gift under section 56(2)(v). The AO added Rs. 19,99,996/- to the assessee's income, considering it a gift from the HUF. 2. Validity and Timing of Partition of HUF under Section 171: The AO refused to accept the partition of the HUF due to the absence of an order under section 171 at the time of assessment. The CIT(A) upheld this view, stating that the partition application was submitted only after the issue was raised during assessment proceedings, and thus, the partition was not valid as of the end of the financial year 2005-06. However, the Tribunal found that the partition deed dated 1/4/2005 and the order under section 171 dated 14/10/2008 confirmed the partition effective from 31/3/2005. The Tribunal referenced the decision in CIT v. Tatavarthy Narayanamurthy, which held that the date of actual partition, not the date of the order, is material for recognizing the partition. 3. Applicability of Section 56(2) Regarding Taxation of Gifts: The Tribunal concluded that the sum received by the assessee on partition of the HUF is a capital receipt and not taxable as income. It cannot be considered as capital gain due to the provisions of section 47(i) of the Act, which exempts transfers by way of distribution on partition of a HUF. The Tribunal also noted that the receipt by a co-parcener on partition is not a sum received without consideration, thus not attracting section 56(2)(v). 4. Imposition of Interest under Sections 234B and 234C: The assessee denied liability to pay interest under sections 234B and 234C. The Tribunal did not specifically address this issue in detail, as the primary contention regarding the addition of the partition amount to income was resolved in favor of the assessee. Conclusion: The Tribunal allowed the appeal, directing that the sum received by the assessee on partition of the HUF cannot be taxed as income. The Tribunal emphasized that the partition was valid from 31/3/2005, and the receipt was a capital receipt not chargeable to tax. The appeal by the assessee was thus allowed, and the addition made by the AO was deleted.
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