1983 (1) TMI 136 - AT - Income Tax

Issues Involved:
1. Claim of partial partition under Section 171 of the IT Act, 1961.
2. Validity of the claim during reassessment proceedings under Section 147.
3. Compliance with mandatory provisions of Section 171.
4. Division of income and assets within the HUF.
5. Legal precedents and their applicability to the case.

Detailed Analysis:

1. Claim of Partial Partition under Section 171 of the IT Act, 1961:
The primary issue revolves around the assessee's claim of partial partition under Section 171 of the IT Act, 1961. The assessee HUF, constituted by Jai Deo as 'Karta', claimed partial partition of certain amounts from profits, interest, and salary earned from two registered firms and other concerns for the assessment years 1972-73 to 1977-78. The Tribunal noted that the claim for partial partition was not made during the original assessment proceedings for the first five years but was later raised during reassessment proceedings and for the sixth year in the course of the original assessment.

2. Validity of the Claim During Reassessment Proceedings under Section 147:
The Tribunal scrutinized whether the claim of partial partition could be validly made during reassessment proceedings under Section 147. The AAC had directed the ITO to comply with the mandatory provisions of Section 171, and the Tribunal upheld that reassessment proceedings are valid for making such claims. The Tribunal referenced the Supreme Court decision in the case of V. Jaganmohan Rao & Ors., which established that once reassessment proceedings are initiated, the entire assessment is reopened, allowing the assessee to make claims such as partial partition.

3. Compliance with Mandatory Provisions of Section 171:
The Tribunal emphasized the mandatory nature of Section 171, which requires the ITO to make an enquiry and record a finding whenever a claim of partition is made by any member of the family. The Tribunal noted that the AAC had set aside the assessments for the years 1973-74 to 1977-78, directing the ITO to comply with Section 171. The AAC's order was accepted by the revenue, and the ITO was instructed to first examine the assessee's claim of partial partition before completing the assessments.

4. Division of Income and Assets within the HUF:
The Tribunal examined whether the division of income and assets within the HUF was valid. The ITO had rejected the claim of partial partition on several grounds, including the non-physical division of assets and the continued cohabitation of HUF members. However, the Tribunal found that the income earned by the HUF was first credited to the HUF accounts and offered for taxation before being partitioned, which constituted a valid partial partition. The Tribunal concluded that the partitioned income partakes the character of an asset.

5. Legal Precedents and Their Applicability:
The Tribunal analyzed various legal precedents cited by both parties. The revenue relied on cases like Kalloomal Tapeswari Prasad (HUF) vs. CIT and Smt. Kamla Vati vs. CIT to argue against the partial partition. However, the Tribunal found these cases inapplicable as they dealt with different factual contexts. The Tribunal also referenced the Supreme Court's decision in V. Jaganmohan Rao & Ors., which supported the assessee's position that reassessment proceedings reopen the entire assessment, allowing for claims of partial partition.

In conclusion, the Tribunal upheld the AAC's decision directing the ITO to comply with Section 171 and recognized the validity of the partial partition claim made by the assessee HUF. The revenue's appeals were dismissed, affirming the AAC's findings for all the assessment years under consideration.

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