1984 (9) TMI 119 - AT - Income Tax

Summary

Issues:
1. Recognition of partial partition for tax purposes.
2. Assessment of income from partially partitioned assets.
3. Interpretation of Section 171(9) of the Income-tax Act, 1961.
4. Impact of total partition on previously partially partitioned assets.

Analysis:
1. The case involved a dispute regarding the recognition of partial partition for tax purposes within a Hindu Undivided Family (HUF) consisting of a karta and his sons. The Income Tax Officer (ITO) initially rejected the claim of partial partition with effect from 31-3-1979 due to the provisions of section 171(9) of the Income-tax Act, 1961. The ITO later accepted a total partition claim with effect from 31-3-1980. This led to a disagreement on whether the income from partially partitioned assets should be included in the assessment.

2. The Appellate Assistant Commissioner (AAC) ruled that the income from assets subject to partial partition merged with the total partition and should not be separately assessed. However, the revenue contended that income up to 31-3-1980, including from partially partitioned assets, should be assessed in the hands of the assessee-HUF for the assessment year 1980-81. The revenue relied on the Supreme Court decision in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 to support their argument.

3. The assessee argued that once a total partition was recognized and an order under section 171 was passed, the income from previously partially partitioned assets should be excluded from the assessment. They cited the decision of the Andhra Pradesh High Court in CIT v. Dara Seshavataram [1981] 129 ITR 339 to support their position.

4. The Tribunal analyzed the provisions of section 171(9) and the Supreme Court decision in Kalloomal Tapeswari Prasad case. It concluded that without an order under section 171 recognizing the partial partition, income from partially partitioned assets must be included in the total income of the HUF. As there was no order recognizing partial partition between 1-4-1979 and 31-3-1980, all income for that period had to be assessed in the hands of the assessee alone.

5. Ultimately, the Tribunal set aside the AAC's order and upheld the ITO's findings, allowing the appeal of the revenue. The judgment emphasized the importance of a formal order under section 171 to exclude income from partially partitioned assets and highlighted the significance of the timing of partition recognition for tax assessment purposes.