2017 (3) TMI 1525 - HC - Income Tax

Assessment u/s 171 - partial partition or complete partition - immovable property of the HUF had been gifted to certain members - AO treated the same as partition of a Hindu undivided family - AO passed orders of substantive assessment against the individual members and orders of protective assessment against the appellant HUF - Held that - In view of the undisputed fact regarding non-consideration of Section 171 of the Act, we are of the considered opinion that the Income Tax Appellate Tribunal is required to reexamine the matter keeping in mind and in the light of the provision of Section 171 of the Income Tax Act and thereafter, arrive at a finding as to its import and impact in the facts of the present case, as in the absence of any such finding in the impugned order, it is impossible for this Court to exercise its power of judicial review for examining the validity of the contention raised by the parties, moreso, as this Court is precluded from looking into the finding of fact recorded by the Assessing Authority or the other authorities in the present case. Matter remitted back to the Income Tax Appellate Tribunal to reexamine the same in the light of the provisions of Section 17 and the other provisions of law, consider the import and impact of the same and record a finding in that regard in the facts and circumstances prevailing in the present case.

Summary

Issues:
1. Interpretation of Section 171 of the Income Tax Act.
2. Assessment of income from house property and shops in the hands of individuals instead of Hindu Undivided Family (HUF).

Issue 1: Interpretation of Section 171 of the Income Tax Act
The appellant argued that the Income Tax Appellate Tribunal failed to consider the provisions of Section 171 of the Income Tax Act, which had previously recorded partial partition orders in favor of the appellant. The appellant contended that despite no fresh order under Section 171, the authority should have continued to treat them as an HUF for assessment purposes. The Tribunal's decision to treat the appellant as individuals and impose taxes was challenged based on the existence of previous orders under Section 171, indicating partial partition in capital investment but not in immovable property. The appellant emphasized the mandatory nature of Section 171, requiring the authority to assess the appellant as an HUF in the absence of a fresh order.

Issue 2: Assessment of income from house property and shops
The appellant was initially assessed as an HUF for income derived from house properties and other sources. However, in subsequent years, without any fresh order under Section 171 and no partition claim by the appellant, the Assessing Authority deemed the appellant not an HUF and assessed individual members separately. The Commissioner, Income Tax initially ruled in favor of the appellant, but the Income Tax Appellate Tribunal overturned this decision. The appellant argued that the Tribunal overlooked the previous Section 171 orders and failed to consider the legal mandate to treat them as an HUF unless a new order was issued. The Tribunal's decision to assess individual members instead of the appellant as an HUF was contested based on the failure to apply Section 171 and the absence of a fresh partition order.

The High Court allowed the appeals, setting aside the Income Tax Appellate Tribunal's order and remitting the matter back for reexamination. The Court emphasized the Tribunal's failure to consider the impact of Section 171 and previous orders on the appellant's status as an HUF. The Court highlighted the necessity for the Tribunal to reevaluate the case in light of Section 171 and other relevant provisions, enabling a reasoned decision based on a comprehensive review of all aspects. The Court clarified that it had not expressed any opinion on the case's merits, granting the Tribunal the freedom to make an independent decision after reexamining all facets and facts.