1987 (9) TMI 70 - AT - Income Tax

Summary

Issues:
- Appeal against order of AAC of Income-tax, G-Range, Bombay regarding partial partition and inclusion of income in total income of assessee HUF.

Analysis:
1. The appeal pertains to a Hindu Undivided Family (HUF) for the assessment year 1981-82, involving a partial partition by memorandum dated 19th Oct., 1979 between the assessee HUF and a member, transferring assets to another HUF. The Income Tax Officer (ITO) invoked sub-section (9) of section 171 of the IT Act, 1961, stating that any partial partition post 31st Dec., 1978 shall not be recognized, and the HUF shall be assessed as if no partition occurred. Consequently, the ITO included the income of Rs. 10,940 from the transferred assets in the total income of the assessee HUF, a decision upheld by the AAC.

2. The assessee's counsel relied on the judgment of the Hon'ble High Court of Kerala in a similar case, arguing that the provisions of section 171 create a legal fiction for assessment purposes and do not permit income that ceased to belong to the HUF to be included in its total income. The counsel contended that the income arising from the transferred assets should not be included in the assessee HUF's total income.

3. The departmental representative referred to the Supreme Court's ruling in Kalloomal Tapeswari Prasad (HUF) vs. CIT, emphasizing that unless a finding is made accepting the partition claim under section 171, the HUF will be assessed as before, regardless of an actual partition. Additionally, a High Court ruling from Kerala impliedly overruled by the Supreme Court decision was highlighted, supporting the stance that the HUF must be assessed as such if no valid partition claim is accepted.

4. The Tribunal, after considering the arguments, noted that the High Court ruling cited by the assessee's counsel had been overruled by the Supreme Court decision, establishing the precedence that an HUF will continue to be assessed as such if no valid partition claim is accepted, even if a partition occurred. Sub-section (9) of section 171 specifically disallows recognition of partial partitions post 31st Dec., 1978, directing that the HUF be assessed as if no partition took place. Consequently, the Income Tax Authorities were deemed justified in including the income from the transferred assets in the total income of the assessee HUF.

5. In conclusion, the Tribunal dismissed the appeal filed by the assessee HUF, upholding the decision of the Income Tax Authorities to include the income from the transferred assets in the total income of the assessee HUF based on the provisions of section 171 and relevant judicial precedents.