1987 (9) TMI 69 - AT - Income Tax

Summary

Issues:
- Validity of partial partition claimed by the assessee-Hindu undivided family after 31-12-1978.
- Inclusion of income from assets transferred in partial partition to reduced-HUF in total income of assessee-HUF.
- Interpretation of section 171 of the Income-tax Act, 1961 regarding assessment of Hindu undivided families.

Analysis:

The case involved an appeal by the assessee-Hindu undivided family against the order of the Appellate Assistant Commissioner of Income-tax, G-Range, Bombay regarding a partial partition claimed by the assessee-HUF after 31-12-1978. The partial partition was executed by memorandum dated 19-10-1979, transferring assets to a reduced-HUF. The Income-tax Officer relied on sub-section (9) of section 171, which stated that any partial partition after 31-12-1978 would not be accepted, and the HUF would continue to be assessed as if no partition had occurred. The Income-tax Officer included the income from the transferred assets in the total income of the assessee-HUF, a decision upheld by the Appellate Assistant Commissioner.

The assessee's counsel argued that the provisions of section 171 were not intended to include income that no longer belonged to the HUF in its total income. Citing a judgment of the Hon'ble High Court of Kerala, the counsel contended that the legal fiction created by section 171 was not meant to cover such scenarios. The counsel vehemently asserted that the income from the transferred assets should not be included in the total income of the assessee-HUF.

On the other hand, the departmental representative referred to a Supreme Court ruling and a High Court ruling that emphasized the necessity of a formal finding under section 171 to accept a partition claim. The representative argued that unless such a finding was made, the HUF would continue to be assessed as before, regardless of any actual partition. The representative highlighted that the High Court of Kerala's judgment had been overruled by the Supreme Court in a subsequent case.

The Tribunal analyzed the arguments presented and concluded that the High Court of Kerala's judgment was no longer valid law due to being overruled by the Supreme Court. Referring to the Supreme Court's decision, the Tribunal emphasized that in the absence of a formal claim and acceptance of partition, the HUF would be assessed as before, even if a partition had occurred. Considering the provisions of section 171 and the timeline of the partial partition claimed by the assessee-HUF, the Tribunal upheld the decision of the income-tax authorities to include the income from the transferred assets in the total income of the assessee-HUF. Consequently, the appeal by the assessee-HUF was dismissed.