1978 (4) TMI 120 - AT - Income Tax

Summary

Issues Involved:
1. Whether the AAC erred in directing the ITO to accept the assessee's claim of partial partition under Section 171 of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Contention of Error by AAC:
The primary issue in this appeal is whether the AAC erred in directing the ITO to accept the assessee's claim of partial partition in terms of Section 171 of the IT Act, 1961.

2. Background of the Assessee:
The assessee is a Hindu Undivided Family (HUF) consisting of Shri G.S. Mathur, his wife Smt. Kamal Mathur, his major son Shri Rajiv Mathur, and his minor children Ajay Mathur and Aradhana Mathur. The family held several movable and immovable properties in Delhi. On 1st October 1974, Shri Mathur made a partial partition of three specific properties, which were subsequently divided among the family members.

3. ITO's Rejection of Partial Partition:
The ITO rejected the assessee's claim for partial partition on several grounds, including the continued common mess, lack of physical division of properties, and delayed intimation to relevant authorities. The ITO held that the properties admitted of a physical division, which was necessary under the explanation to Section 171 of the Act.

4. AAC's Acceptance of Partial Partition:
The AAC accepted the assessee's submissions, stating that the continuance of common mess was irrelevant in a partial partition. The AAC also noted that physical division of properties, especially those let out, was impractical. The AAC directed the ITO to accept the partial partition under Section 171 of the Act.

5. Department's Appeal Against AAC's Findings:
The Department contended that the properties in question were immovable and admitted of a physical division, which was not carried out. The Department argued that the division was nominal and only on paper, not meeting the requirements of the IT Act.

6. Assessee's Defense:
Shri G.S. Mathur, representing the assessee, argued that the flats had been let out long before the partition and that physical division was impractical and would inconvenience the tenants. He emphasized that the partition was shown in the plan, registered deed, and communicated to relevant authorities, with rent being received by separated cheques.

7. Tribunal's Analysis:
The Tribunal considered the submissions and found that the properties did not admit of a physical division due to their commercial nature and existing tenancies. The Tribunal noted that the assessee took all possible steps for division, and the physical division of the Hauz Khas property was carried out. The Tribunal held that the partition was effected within the meaning of the explanation to Section 171 of the Act.

8. Conclusion:
The Tribunal agreed with the AAC's finding that a partial partition had been effected in the assessee family in terms of Section 171 of the Act. The Department's appeal was dismissed.

9. Observations on Case Law:
The Tribunal noted that the cited case laws were not directly on point but supported the assessee's stand that physical division is not always required if impractical. The commentary by Sampath Iyengar was also cited to support this view.

Judgment Summary:
The Tribunal upheld the AAC's direction to the ITO to accept the assessee's claim of partial partition under Section 171 of the IT Act, 1961. The Tribunal found that the properties in question did not admit of a physical division due to their commercial nature and existing tenancies, and that the partition was carried out as per the requirements of the Act. The Department's appeal was dismissed.