1984 (11) TMI 79 - AT - Income Tax

Summary

Issues Involved:
1. Validity and recognition of partial partition under Hindu Law and Income Tax Act.
2. Inclusion of income from partnership firms in the total income of the HUF.
3. Jurisdiction and power of the Commissioner (A) to enhance the assessment.

Issue-wise Detailed Analysis:

1. Validity and Recognition of Partial Partition:
The assessee-HUF claimed that due to partial partitions, it no longer remained a partner in three firms, and therefore, the share of profit from these firms should not be included in its total income. The ITO rejected this claim, citing that under Hindu Law, there cannot exist more than one HUF and that partial partitions effected after 31st Dec 1978 are not recognized for income-tax purposes as per sub-section 9 added to section 171 of the IT Act, 1961. The ITO stated, "the family will continue to be taxed as 'HUF' as if no partial partition has taken place." The CIT(A) upheld this view, emphasizing that the law does not recognize partial partitions post-1978, and thus, the HUF continues to be treated as joint for tax purposes.

2. Inclusion of Income from Partnership Firms:
The ITO included the income from the three partnership firms in the total income of the assessee-HUF, albeit at reduced shares of 27%, 25%, and 35% instead of the original 32%, 30%, and 39%. The CIT(A) noticed this discrepancy and proposed to enhance the assessment to include the full shares of 32%, 30%, and 39%. The assessee-HUF objected, arguing that the income belonged to the smaller HUFs formed post-partition. However, the CIT(A) held that due to the non-recognition of partial partitions under section 171(9), the entire share income from the firms should be assessed in the hands of the original HUF. The Tribunal agreed, stating, "the entire share of profit of 32%, 30%, and 39% respectively in the aforesaid three firms has to be considered in the hands of the assessee-HUF."

3. Jurisdiction and Power of the Commissioner (A) to Enhance the Assessment:
The assessee-HUF contended that the CIT(A) exceeded his jurisdiction by enhancing the assessment and including the entire share of profit from the firms. The Tribunal examined whether the CIT(A) had the power to enhance the assessment. It was noted that the ITO had already considered the source of income from the firms, and the CIT(A) merely corrected the arithmetical mistake by including the full shares. The Tribunal cited the Supreme Court decisions in Shapoorji Pallonji Mistry and Rai Bahadur Hardutroy Motilal Chamaria, concluding that the CIT(A)'s action did not involve discovering a new source of income but correcting an error in the assessment. The Tribunal stated, "the Commissioner (A) had a jurisdiction to enhance the assessment in the manner he did."

Conclusion:
The appeal was dismissed, upholding the CIT(A)'s decision to include the entire share of profit from the partnership firms in the total income of the assessee-HUF and recognizing the non-validity of partial partitions for tax purposes post-1978.