1981 (9) TMI 193 - AT - Income Tax

Summary

Issues Involved:
1. Validity of partial partition under Section 171 of the IT Act, 1961.
2. Addition of interest income to the assessee-HUF's income.

Detailed Analysis:

1. Validity of Partial Partition under Section 171 of the IT Act, 1961:
The primary issue was whether the Karta (head) of the Hindu Undivided Family (HUF) could effect a partial partition without the consent of all coparceners, particularly minor children. The Income Tax Officer (ITO) had rejected the partial partition claim on the grounds that the Karta could not give consent on behalf of minor children, relying on the Madhya Pradesh High Court decision in Seth Gopaldas (HUF) 1978 CTR (MP) 246; (1979) 116 ITR 577 (MP).

The Tribunal reviewed the Madhya Pradesh High Court's decision, which stated that a Karta could effect a total partition without consent but required the consent of all coparceners for a partial partition. However, the Tribunal noted that this decision did not completely prohibit partial partitions by a Karta. The Tribunal further referenced the Calcutta High Court decision in Hoshiarilal Kalyani & Others (1981) 21 CTR (Cal) 267; (1981) 128 ITR 515 (Cal), which clarified that a Karta could effect a partial partition on behalf of minor children as part of his patria potestas (paternal authority), provided it was not detrimental to their interests.

The Tribunal concluded that the Karta in this case acted in the interest of the minor children, who received Rs. 1,00,000 each, while the Karta himself received only Rs. 5,000. Therefore, the partial partition was valid, and the Karta could act on behalf of the minors.

2. Addition of Interest Income to the Assessee-HUF's Income:
Since the partial partition was not accepted by the ITO, the interest income of Rs. 36,600 earned on the partitioned amount of Rs. 3,05,000 was added to the income of the assessee-HUF. The Tribunal, having validated the partial partition, held that this addition was incorrect.

The Tribunal cited the Punjab High Court decision in Naraindass Wadhwa (1980) 14 CTR (P&H) 99; (1980) 123 ITR 281 (P&H), which supported the view that a Karta could effect a partial partition by showing a definite and unequivocal intention. The Tribunal found enough evidence of such intention through affidavits filed by the family members.

Conclusion:
The Tribunal allowed both appeals, holding that the partial partition was valid and deleting the addition of Rs. 36,600 to the income of the assessee-HUF. The Tribunal emphasized that the Karta could act on behalf of minor children in effecting a partial partition, provided it was in their interest.