1970 (12) TMI 10 - HC - Income Tax

Whether the Tribunal was right in holding that there was no partial partition as claimed by the assessee - whether the share of profit paid to Ghanshyam and the interest paid to Rameshwar Lal and Saraswati Devi by the firm M/s. Brij Mohan Lal Rameshwar Lal was rightly included in the income of the assessee, Hindu undivided family

Summary

Issues:
1. Validity of partial partition claimed by the assessee.
2. Inclusion of profit and interest in the income of the assessee Hindu undivided family.

Detailed Analysis:

Issue 1: Validity of partial partition claimed by the assessee
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the assessment year 1962-63 of a Hindu undivided family, Messrs. Brij Mohan Lal Rameshwar Lal. The dispute arose from the partial partition of a sum of Rs. 60,000 claimed by the family during assessment. Initially, the Income-tax Officer rejected the claim, stating there was no effective partial partition. However, the Appellate Assistant Commissioner allowed the family's appeal, recognizing the partial partition. Subsequently, the Appellate Tribunal overturned the Assistant Commissioner's decision, leading to the reference to the High Court.
The Tribunal's main reason for not recognizing the partial partition was the belief that a specific asset must be divided as a whole, which was deemed inaccurate by the High Court. The High Court emphasized that the nature of the asset determines if partial division is feasible. In this case, the High Court found that the specific sum of Rs. 60,000 could be divided from the total amount for partial partition, as it was a distinct portion of the family's assets. The court highlighted that partial partition is legally permissible under section 171 of the Act and, if valid, must be acknowledged by the authorities. Ultimately, the High Court ruled in favor of the assessee, stating that the attempted partial partition was effective and should be recognized.

Issue 2: Inclusion of profit and interest in the income of the assessee Hindu undivided family
The second issue revolved around the treatment of profit paid to Ghanshyam, a minor member, and interest paid to Rameshwar Lal and Saraswati Devi by the firm M/s. Brij Mohan Lal Rameshwar Lal. The Income-tax Officer had included these amounts in the family's income due to the initial rejection of the partial partition claim. However, with the High Court's determination that the partial partition was valid, the profit and interest could not be considered as income of the assessee family. Therefore, the High Court ruled in favor of the assessee on this issue as well.
In conclusion, the High Court answered both questions referred by the Tribunal in the negative, favoring the assessee. The Commissioner of Income-tax, U.P., was directed to pay the assessee Rs. 200 as costs of the reference, emphasizing the validity of the partial partition and the consequential impact on the family's income assessment.