2005 (3) TMI 105 - HC - Income Tax

Applicability of Section 171 which deals with the assessment after partition of a Hindu undivided family partition in present case was partial which was not even recorded section 171 applies to all partition, total and partial - unless a finding is recorded u/s 171, the income from the properties shall be included in the total income of the family - therefore income of property after date of partition, is assessable in hands of family

Summary

Issues:
1. Interpretation of sub-section (9) of section 171 of the Income-tax Act.
2. Justification of the Tribunal's decision regarding the application of section 171 to the case.

Issue 1: Interpretation of sub-section (9) of section 171 of the Income-tax Act

The case involved questions of law referred by the Income-tax Appellate Tribunal, New Delhi, regarding the application of sub-section (9) of section 171 of the Income-tax Act. The controversy centered around the meaning of the words "hitherto assessed as undivided." The Tribunal interpreted the section to require the actual assessment order to be passed before the date of partial partition for sub-section (9) to be attracted. However, the High Court disagreed with this interpretation. The Court analyzed the scheme of section 171, emphasizing that it is a machinery provision to assess and realize tax, not a charging section. Referring to a Supreme Court judgment, the Court highlighted that section 171 applies to all partitions, total and partial, and income from properties is included in the total income of the family until a partition is recognized. The Court concluded that the word "assessed" should not be given a literal meaning of completed assessment but should be interpreted in line with the legislative intent to prevent the creation of multiple Hindu undivided families through partial partitions. Therefore, the Court held that the Tribunal's interpretation did not align with the scheme of section 171.

Issue 2: Justification of the Tribunal's decision regarding the application of section 171 to the case

The case involved a partial partition claimed by a Hindu undivided family for the assessment years 1981-82 and 1982-83. The Income-tax Officer initially rejected the partition claim, citing section 171(9) of the Act, as the partition was made after December 31, 1978. However, the Tribunal allowed the partial partition claim, stating that the conditions of section 171(9) were not fulfilled, and the Income-tax Officer could not refuse the claim based on the timing of the partition. The Tribunal held that the word "assessed" in section 171(9) should be interpreted to mean passing of the assessment order before the date of partial partition. The High Court, after considering the facts and legal provisions, disagreed with the Tribunal's decision. The Court reiterated the purpose of section 171 to maintain the status of a Hindu undivided family until a recognized partition is recorded. It emphasized that the assessments made for the preceding years in the status of the Hindu undivided family should be considered for the continuity of the family status, regardless of the timing of completion of assessments. Therefore, the Court ruled in favor of the Department and against the assessee, affirming the application of section 171 to the case and rejecting the Tribunal's decision.

This detailed analysis of the judgment from the Allahabad High Court provides insights into the interpretation of the Income-tax Act and the application of section 171 in the context of a partial partition claimed by a Hindu undivided family.