1982 (1) TMI 1 - SC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income from the properties in dispute which were accepted to have been partitioned under the Hindu law but with regard to which an order accepting the claim of partial partition was not made was liable to be included in the computation of the assessee s income - Held, yes

Summary

Issues Involved:

1. Whether the Tribunal was right in holding that the properties in dispute were capable of division in definite portions amongst the 10 coparceners as contemplated in Explanation (a)(i) to section 171 of the Income-tax Act, 1961.
2. Whether the Tribunal was justified in holding that the income from the properties in dispute, which were accepted to have been partitioned under Hindu law but with regard to which an order accepting the claim of partial partition was not made, was liable to be included in the computation of the assessee's income.

Issue-wise Detailed Analysis:

1. Capability of Division of Properties in Definite Portions:

The Tribunal and the High Court both held that the properties in dispute were capable of division into definite portions among the 10 coparceners. The High Court noted that although the 18 properties could not individually be divided into 10 shares without destroying their utility, they could be apportioned between the ten members, and the difference in the allocations could be equalized by payment of cash amounts by one to the other. This aligns with Explanation (a)(i) to section 171 of the Income-tax Act, which states that a mere severance of status is not sufficient for recording the finding of partition. The Tribunal and the High Court concluded that the properties admitted of physical division into the required number of shares and such division would not have adversely affected their utility. The High Court emphasized that in every partition under Hindu law, unless the parties agree to enjoy the properties as tenants-in-common, the need for division of the family properties by metes and bounds arises. Consequently, the Tribunal's decision that the properties could be physically divided was upheld.

2. Inclusion of Income from Partitioned Properties in Assessee's Income:

The High Court initially held that the income accruing from the eighteen immovable properties after December 11, 1963, was not liable to be included in the computation of the joint Hindu family's income. This conclusion was based on the understanding that section 171 of the Income-tax Act, 1961, which applies to total and partial partitions, nullifies the effect of section 10(2) under which a member was not liable to be taxed on the income received as a member of a Hindu undivided family. However, the Supreme Court reversed this decision, clarifying that unless a finding is recorded under section 171 that a partial partition has taken place, the income from the properties should be included in the total income of the family. The Court emphasized that the undivided family would continue to be assessed as such by virtue of sub-section (1) of section 171 until such a finding is recorded. The Supreme Court noted that the acceptance of the plea that income from properties not actually received by the family could not be taxed would lead to the nullification of the scheme of section 171 itself. Therefore, the income from the properties, which were the subject-matter of partial partition, should continue to be included in the total income of the family until a finding of partition is recorded under section 171.

Conclusion:

The Supreme Court upheld the Tribunal's decision that the properties in dispute were capable of division in definite portions among the 10 coparceners. However, it reversed the High Court's decision regarding the inclusion of income from the partitioned properties in the assessee's income, holding that such income should be included until a finding of partition is recorded under section 171 of the Income-tax Act, 1961. Consequently, the appeal by the assessee was dismissed, and the appeal by the revenue was allowed.