1987 (1) TMI 181 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether there could be a partition of a Hindu Undivided Family (HUF) comprising of a husband as a Karta and his wife as a member.
2. The validity of family arrangements in effecting partition of HUF.
3. The assessment of wealth and income post the claimed partition.

Issue-wise Detailed Analysis:

1. Partition of HUF Comprising Husband as Karta and Wife as Member:
The primary issue in this appeal was whether a partition could be effected in an HUF consisting of a husband as the Karta and his wife as the only member. The Department's stance, supported by the Madras High Court decision in V.V.S. Natrajan vs. CIT, was that partition is not possible where the family consists only of females and a sole surviving male coparcener. The assessee's argument was based on the prerogative of the Karta to partition the HUF through a family arrangement, citing the Tribunal's earlier decision in the case of B.K. Sethi, HUF. However, the Tribunal noted that the Full Bench of the Madhya Pradesh High Court in Ramratan vs. CED held that no partition could be effected between a Karta and his wife, reinforcing the Department's position.

2. Validity of Family Arrangements in Effecting Partition:
The assessee relied on the family arrangement dated 1st January 1978, claiming it effected a partition of the HUF. The Tribunal scrutinized the case of B.K. Sethi HUF, where a family arrangement was considered permissible. However, the Tribunal distinguished this case, noting that there was no application under Section 171 for the HUF, and the claim was not for partition. The Tribunal also considered the Punjab & Haryana High Court decision in CIT vs. Narain Dass Wadhwa, which allowed partial partition through family arrangements. Nevertheless, the Tribunal gave precedence to the Madhya Pradesh High Court's Full Bench decision in Ramratan vs. CED, which concluded that there could be no partition by any method between the Karta and his wife.

3. Assessment of Wealth and Income Post Claimed Partition:
The assessee claimed that the family arrangement reduced his wealth and income by transferring a share to his wife. The Tribunal, following the Madhya Pradesh High Court's ruling, directed the Wealth Tax Officer (WTO) to examine the partition of the bigger HUF to determine the quantum of the share that should have been allowed to the wife at the time of the original partition. The WTO was instructed to treat only that amount as belonging to the wife. The Tribunal concluded that the family arrangement of 1st November 1978 had no effect on reducing the quantum of wealth or income in the hands of the HUF.

Conclusion:
Respecting the Madhya Pradesh High Court's decision, the Tribunal held that:
(a) The WTO must determine the quantum of the share that should have been allowed to the wife from the bigger HUF and treat that amount as belonging to her.
(b) No partition could be effected by family arrangement or otherwise in an HUF with a sole surviving coparcener, rendering the family arrangement of 1st November 1978 ineffective in reducing the HUF's wealth or income.

The Tribunal directed the WTO to determine the excludible quantum from the assessee's wealth, resulting in the assessee's appeals being partly allowed on this basis.