1984 (7) TMI 151 - AT - Income Tax

Summary

Issues Involved:
1. Validity of partial partition recognition.
2. Applicability of Section 171(9) of the Income-tax Act, 1961.
3. Inclusion of income from partially partitioned assets.
4. Justification of rectification under Section 154 of the Act.

Detailed Analysis:

1. Validity of Partial Partition Recognition:
The case involves three departmental appeals arising from a common order of the AAC concerning assessments for the years 1980-81, 1981-82, and 1982-83. The assessee's family underwent a partial partition on 24-3-1979, which was recognized by the ITO on 30-11-1979. However, a subsequent rectification order on 14-2-1983 sought to nullify this recognition, citing an amendment to Section 171 by the Finance (No. 2) Act, 1980, which the ITO interpreted as derecognizing all partial partitions after 31-12-1978. The Tribunal, in its common order, concluded that the original order dated 30-11-1979 was correct and justified both on facts and law, and the rectification was wrong as the amendment did not apply to the assessment year 1979-80. Therefore, the original order was restored, and the partial partition should have been given effect even for later years.

2. Applicability of Section 171(9) of the Income-tax Act, 1961:
Section 171(9) reads: "Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided," the section specifies that any finding of such partial partition shall be null and void, and the family shall continue to be assessed as if no partial partition had taken place. The Tribunal held that the order recognizing the partial partition on 30-11-1979 must be treated as 'null and void' for the assessment year 1980-81 and thereafter, as the amendment took effect from 1-4-1980.

3. Inclusion of Income from Partially Partitioned Assets:
The Tribunal examined whether the ITO could include the income from assets that had left the family due to a valid partial partition under Hindu law. Section 171(9)(b) stipulates that the family shall continue to be liable to be assessed as if no partial partition had taken place. The authorities viewed this sub-section as a complete code, allowing the inclusion of income from such assets. The Tribunal noted that the law under the Indian Income-tax Act, 1922, only concerned total partitions, and partial partitions could be effective without formal recognition. However, under the 1961 Act, recognition of partial partition was required. The Tribunal referred to the Supreme Court decision in Kalloomal Tapeswari Prasad (HUF) v. CIT, which indicated that non-recognition of partial partition necessitates the inclusion of income from partitioned assets.

4. Justification of Rectification under Section 154 of the Act:
The Tribunal addressed whether the issue was debatable and thus not suitable for rectification under Section 154. It concluded that the language of the statute was clear and self-contained, requiring the aggregation of income from partially partitioned assets. The Tribunal emphasized that even if the issue were debatable, the clear wording of Section 171(9) and the Supreme Court's decision in Kalloomal Tapeswari Prasad (HUF)'s case provided sufficient grounds for rectification. The ITO's oversight of Section 171(9) was deemed a mistake of law, justifying rectification under Section 154.

Conclusion:
The Tribunal allowed the departmental appeals and restored the ITO's orders under Section 154, affirming that the partial partition was null and void for the relevant assessment years, and the income from partitioned assets should be aggregated and assessed accordingly.