2005 (4) TMI 12 - HC - Income Tax

1. Whether Tribunal was legally correct to hold that on the death of Shri Prem Sundar a deemed partition had taken place which is recognised for all purposes and the property which was hitherto the Hindu undivided family property no longer remains the property of the Hindu undivided family? 2. Whether Tribunal was legally correct to hold that section 171(9) has no applicability to the present case? - we are unable to agree with the order of the Tribunal that there is a deemed partition and disruption of the Hindu undivided family as per Explanation 1 to section 6 of the Hindu Succession Act. Our view also finds support from the judgment of the Gujarat High Court in CIT v. Balubhai Nanubhai (HUF) - we answer the above questions referred to us in the negative, i.e., in favour of the Revenue and against the assessee

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was legally correct to hold that on the death of the Karta, a deemed partition had taken place, resulting in the property no longer remaining the property of the Hindu undivided family.
2. Whether the Income-tax Appellate Tribunal was legally correct to hold that section 171(9) of the Income-tax Act has no applicability to the present case.

Detailed Analysis:

Issue 1: Deemed Partition on Death of Karta
The Tribunal had held that upon the death of the Karta, a deemed partition occurred, and the property ceased to be that of the Hindu undivided family (HUF). The assessee relied on section 6 of the Hindu Succession Act and the Supreme Court judgment in Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum, arguing that the death of a coparcener leads to a notional partition.

Section 6 of the Hindu Succession Act states that the interest of a male Hindu in Mitakshara coparcenary property devolves by survivorship but is subject to a proviso that if the deceased left behind certain female relatives, the interest devolves by testamentary or intestate succession. Explanation 1 to section 6 deems the interest of a Hindu Mitakshara coparcener to be the share that would have been allotted to him if a partition had occurred immediately before his death.

The Supreme Court in Gurupad Khandappa Magdum interpreted this explanation to mean that a notional partition must be assumed to ascertain the share of the deceased. However, this does not imply an actual partition of the HUF property. The Supreme Court in State of Maharashtra v. Narayan Rao Sham Rao Deshmukh clarified that the notional partition is only for determining shares and does not disrupt the HUF status.

Therefore, the High Court concluded that there is no ipso facto partition of HUF properties immediately after the death of a coparcener. The fiction created by Explanation 1 to section 6 of the Hindu Succession Act is only for quantifying the share of the deceased and does not result in an actual partition. The Tribunal's view that a deemed partition had taken place was incorrect.

Issue 2: Applicability of Section 171(9) of the Income-tax Act
Section 171 of the Income-tax Act deals with the recognition of partition in an HUF. The Supreme Court in Kalloomal Tapeswari Prasad (HUF) v. CIT held that for a partition to be recognized under section 171, a physical division of the property is necessary. Merely severing the status under Hindu law is insufficient; the property must be divided physically.

In the present case, there was no evidence or plea of a physical partition of the HUF property after the death of the Karta. The assessee claimed that it was not necessary to claim a partition under section 171(9). The High Court noted that without physical division, there could be no recognized partition under section 171 of the Act. Hence, the Tribunal's conclusion that section 171(9) was inapplicable was incorrect.

Conclusion:
The High Court answered both questions in the negative, thereby ruling in favor of the Revenue and against the assessee. The Tribunal's order was not approved, and it was held that there was no deemed partition or disruption of the HUF upon the death of the Karta, and section 171(9) of the Income-tax Act was applicable.

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