2004 (11) TMI 276 - AT - Income Tax

Summary

Issues Involved:
1. Non-acceptance of partition of HUF under arbitration award dated 24-9-1994 by the Assessing Officer.
2. Requirement of physical division of HUF property for a valid partition under section 171 of the Income-tax Act.
3. Validity of the arbitration award as a partition deed.
4. Allegation of tax avoidance scheme by the assessee.

Detailed Analysis:

1. Non-acceptance of Partition of HUF
The primary issue was the non-acceptance of the partition of the HUF under the arbitration award dated 24-9-1994 by the Assessing Officer. The assessee contended that the partition was valid under section 171 of the Income-tax Act, 1961. The Assessing Officer and CIT(A) rejected this claim, stating that the HUF still existed and the Khar property was held by the HUF.

2. Requirement of Physical Division of HUF Property
The Assessing Officer argued that for a partition to be valid under section 171, there must be a physical division of the HUF property by metes and bounds. The Tribunal examined the legislative intent and judicial precedents, concluding that physical division by metes and bounds is essential for a valid partition under section 171. However, it was noted that if a property does not admit of physical division, such division as the property admits of would suffice.

3. Validity of the Arbitration Award as a Partition Deed
The Tribunal considered whether the arbitration award dated 24-9-1994 could be treated as a valid partition deed. The award directed that the Khar property be released to Harish B. Shah, with compensation to other coparceners. The Tribunal held that the award, accepted by all parties and given effect to by subsequent actions (such as the sale to M/s. Narad Builders Pvt. Ltd.), constituted a valid partition. The Tribunal also addressed the requirement of registration and stamp duty, concluding that the award could be admitted as evidence of the factum of partition in income-tax proceedings.

4. Allegation of Tax Avoidance Scheme
The Assessing Officer and CIT(A) alleged that the partition was a scheme to avoid tax. The Tribunal, however, found no justification for this allegation. It noted that efforts for partition had been ongoing since 1985 and involved legal processes, including an arbitration award by a retired High Court Judge. The Tribunal concluded that the partition was genuine and not a colorable device to evade tax.

Conclusion:
The Tribunal allowed the appeal, holding that a complete partition of the assessee-HUF had taken place as on 24-9-1994 or, at the latest, on 15-5-1995. The orders of the authorities below rejecting the assessee's application under section 171 were found to be unjustified and untenable. The Tribunal directed the Assessing Officer to accept the partition accordingly.