1983 (2) TMI 121 - AT - Income Tax

Summary

Issues Involved:
1. Whether a divided family could constitute a fresh joint family through a reunion.
2. Validity of a partial reunion with only some of the previously divided assets.
3. The impact of tax motives on the validity of the reunion.
4. The effect of recent amendments to the Income-tax Act on the reunion.

Detailed Analysis:

1. Constitution of a Fresh Joint Family Through Reunion:
The primary issue was whether a divided family could reunite to form a fresh joint family. The Tribunal referred to the Supreme Court's decision in Bhagwan Dayal v. Mst. Reoti Devi, which summarized the legal position as:
> "To establish [reunion], it is necessary to show... that the parties already divided, lived or traded together, but that they did so with the intention of thereby altering their status and of forming a joint estate with all its usual incidents."

The Tribunal concluded that a coparcenary, a creature of Hindu law, can indeed be recreated through a reunion agreement, as demonstrated by the written agreement in this case.

2. Validity of Partial Reunion:
The Tribunal addressed whether a partial reunion, involving only some of the previously divided assets, could be valid. The revenue contended that a reunion must restore the status quo before the partition by bringing back all the divided assets. The Tribunal disagreed, stating:
> "The essence of reunion is an agreement to reconstitute a joint Hindu family... without regard to the amount, if any, of the original joint family which is contributed by the reunited members."

The Tribunal cited the Supreme Court's approval of partial partitions and applied the same logic to partial reunions, emphasizing that the intention to reunite could be limited to specific properties.

3. Impact of Tax Motives on Validity:
The revenue argued that the reunion was motivated by tax reduction rather than genuine intent to reunite. The Tribunal dismissed this, referencing the Madras High Court's view in Aruna Group of Estates v. State of Madras:
> "Avoidance of tax is not tax evasion and it carries no ignominy with it... for anybody to so arrange his affairs as to reduce the brunt of taxation to a minimum."

The Tribunal concluded that the tax motive did not invalidate the reunion, as the coparceners' agreement to reunite was lawful and genuine.

4. Effect of Recent Amendments to the Income-tax Act:
The revenue contended that the reunion was effectively a partial partition, which is not permissible under the recent amendment to section 171(9) of the Act. The Tribunal rejected this argument, quoting Henriksen v. Grafton Hotel Ltd.:
> "...a taxpayer who has adopted the method which attracts tax is to be treated as though he had chosen the method which does not, or vice versa..."

The Tribunal held that the reunion agreement was valid and not prohibited by any provision of the Act, and thus, the revenue could not ignore it.

Conclusion:
The Tribunal upheld the validity of the reunion agreement, confirming that a divided family could reunite to form a fresh joint family, even if the reunion was partial and motivated by tax considerations. The orders of the AAC were confirmed, and the appeals were dismissed.