1983 (4) TMI 67 - AT - Wealth-tax

Summary

Issues Involved:

1. Severance of status and partition of the bigger HUF.
2. Validity of the partial partition without division by metes and bounds.
3. Inclusion of one-eighth share in the net wealth of the smaller HUF.
4. Applicability of Section 20 of the Wealth-tax Act, 1957 to partial partitions.

Issue-wise Detailed Analysis:

1. Severance of Status and Partition of the Bigger HUF:

The respondent-assessee, a smaller HUF, was initially part of a bigger HUF, Mysore Lachaiah Setty & Sons. An agreement dated 29-5-1955 initiated severance of status, wherein each branch received a one-eighth share to be held as tenants-in-common, though there was no division by metes and bounds. Subsequently, on 28-3-1964, Shri Janardhana Setty and his two sons agreed to divide their one-eighth share into three equal parts. A partition deed dated 6-1-1968 later divided the properties of the bigger HUF by metes and bounds, though Shri Janardhana Setty was not a signatory. An agreement dated 28-3-1968 reiterated the division of the one-eighth share among Shri Janardhana Setty and his two sons.

2. Validity of the Partial Partition Without Division by Metes and Bounds:

The Wealth-tax Officer (WTO) argued that the partition of the bigger HUF by metes and bounds occurred only on 6-1-1969, and hence, the agreement dated 28-3-1964 was based on a wrong presumption. The WTO held that the properties were not taken possession of and thus, the partition was ineffective. However, the Appellate Assistant Commissioner (AAC) found that the agreement dated 28-3-1964 was not a sham document and created a tenancy-in-common interest for the assessee and his two sons. The AAC concluded that the properties were divided by metes and bounds on 6-1-1968, and the one-eighth share was further divided among Shri Janardhana Setty and his two sons.

3. Inclusion of One-Eighth Share in the Net Wealth of the Smaller HUF:

The WTO included the one-eighth share in the net wealth of the smaller HUF, arguing that the properties were owned by the family. The AAC, however, directed the WTO to exclude the value of Rs. 9,28,300 from the assessments, as the properties were divided among Shri Janardhana Setty and his two sons by the agreements dated 28-3-1964 and 28-3-1968, and hence did not belong to the smaller HUF.

4. Applicability of Section 20 of the Wealth-tax Act, 1957 to Partial Partitions:

The AAC held that Section 20 of the Wealth-tax Act applies only to complete partitions and not to partial partitions. The Karnataka High Court's decision in M.L. Ramachandra Setty & Sons' case supported this view, stating that Section 20 does not apply to partial partitions and it is not necessary to divide the estate by metes and bounds. The Tribunal agreed with this interpretation, noting that the one-eighth share received by Shri Janardhana Setty was partitioned among him and his two sons, and thus did not belong to the smaller HUF.

Conclusion:

The Tribunal upheld the AAC's order, concluding that the one-eighth share from the bigger HUF was validly partitioned among Shri Janardhana Setty and his two sons, and thus, should not be included in the net wealth of the smaller HUF. The appeals filed by the revenue were dismissed.