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TMI Blog1976 (10) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... r from out of the properties belonging absolutely to him and to his two sons without being made liable to pay gift-tax. He ignored the declarations and the deed of partial partition and assessed the income from the entire properties in the hands of the assessee. He thus determined the income from property at Rs. 42,814 as against the income offered by the assessee under this head of Rs. 14,916. The Income-tax Officer also disallowed the claim of payment of interest of Rs. 8,046 following the reasons for such disallowance in the prior year. 2. The assessee went up in appeal before the Appellate Assistant Commissioner and contended before him that he had thrown his separated properties into the hotchpot of the Hindu undivided family, and that the same were divided among the members of the family by way of partial partition, that the income of such properties that had been thrown by him into the hotchpot of the family ceased to belong to him and that the income therefrom should not be included in his assessment. The Appellate Assistant Commr. observed that the assessee was a member of a Hindu undivided family, in which there was a partial partition on 1st Nov, 1966, which was recogn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under the Hindu Law and that the same could not be ignored. He pointed out that the assessee is entitled in law to throw his self acquired property into the hotchpot of the family and that such throwing of his properties described in Schedule `A was evidenced by the instrument of declaration dated 25th July, 1970. He submitted that on the same date his sons Shri B. Bose and Shri B. Sivaprakasan also threw some of their self-acquired properties described in Schedules `B and 'C to the instruments of declaration of the same date viz., 25th July, 1970 into the hotchpot of the family. He added that two days later, that is on 27th day of July, 1970 a partial partition was effected among the members of the family consisting of the assessee, his two sons, his wife and his minor unmarried daughter in respect of the above properties thrown by the assessee and his sons into the hotchpot of the family as well as the properties that fell to their share in the earlier partition. He submitted that the above properties, which were thus thrown into the hotchpot and partially partitioned ceased to belong to him as an individual and, therefore, the income therefrom should not be included in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the explanations offered by the assessee. He further pointed out that the interest in this case was paid on borrowed capital and the same was necessitated by business exigencies of the earlier years at which time the business was carried on and, therefore, the interest should have been allowed. 4. On behalf of the Revenue Shri G.R. Reghavan, the learned departmental representative, laid stress on the orders of the lower authorities. He pointed out that the assessee could not be said to have abandoned his individual interest in the properties in question merely because of the declaration made by him on 25th July, 1970. He further submitted that there was no evidence to show that a partial partition was effected in the family on 27th July, 1970. He pointed out that the non-obtaining of an order under s. 171 in respect of the above partial partition is fatal to the assessee s contention that the properties in question were divided as claimed by the assessee among the various members of the family. He further contended that under s. 171 (1) the Hindu undivided family would be deemed to continue for purpose of Income-tax Act in the absence of a finding of partition under s. 171 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence thereof an instrument of declaration duly executed by the assessee on 25th July, 1970 was produced before the income-tax authorities. It appears further that the other two coparceners, viz. M/s. B. Bose and B. Sivaprakasam, had on the same date thrown some of their separate properties into the hotchpot of the above family in respect of which instruments of declarations executed by them were also filed. The assessee had further claimed that by a registered deed of partial partition executed two days thereafter, that is on 27th day of July, 1970 between the assessee, his two sons, his wife and his unmarried daughter as aforesaid, the properties described in schedules `A , `B and 'C to that deed, which were the separate properties of the assessee and his two sons and which were thrown into the hotchpot of the family, were divided by way of partial partition among the members of the family, viz. M/s. Sivaprakasam, Bose, Mrs. Bagyalakshmi and Kum. B. Chandra. In this partial partition the assessee did not take any share. The assessee s claim is that the income from the properties belonging to him that were thus thrown into the family and were divided subsequently as aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Gift-tax, Madras vs. P. Rangaswami Naidu,(11). 8.Controller of Estate Duty vs. Arunachalam Chettiar,(12). 9. Commissioner of Gift-tax, Mysore vs. Marutrarao Nayakoji Kadam,(13). 10. Smt. Laxmibai Narayana Rao Nerlckar vs. Commissioner of Gift-tax,(14) 11. T.R. Ekambaram and Another vs. Controller of Estate Duty, Andhra Pradesh,(15) 12. M.P.K. Kandasami Chettiar vs. Commissioner of Agricultural Income-tax, Madras (16). 13. A Ranganathan vs. Controller of Estate Duty, Madras (17). The instrument of declaration executed by the assessee on 25th July, 1970 reads as under :- "INSTRUMENT OF DECLARATION: 25th July 1970. I, A.T. Balakrishnan, Hindu, aged about 45 years, son of P.M.A. Thangappa Nadar, residing at No. 303, Thiruvottiyur High Road, Madras-81, and not at No. 7 Shanmugam Pillai Lane West Car Street Virudhunagar, do hereby solemnly declare and sincerely affirm by this Instrument of Declaration as follows: The property, vacant land and super-structure comprised as a portion of the property bearing door No. 303, Thiruvottiyur High Road, Madras-81 marked in Green colour in the blue print attached herewith to the extent of 13 grounds and 1200 sq. ft. Comprised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s laid down in the above decisions, we have no hesitation in holding that the assessee by the above declaration had ceased to be the owner of the properties mentioned in it. We, therefore, find this point in favour of the assessee. 7. Point No. 2: The individual property of the assessee has been converted into joint family property by means of the declaration dated 25th July, 1970 referred to in the above paragraph. The provisions of s. 54(2) of the Income-tax Act, 1961, therefore comes into play. At this stage it would be necessary to read the above provisions. " 64 Income of individual to include income of spouse, minor child etc.- (2) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of Dec, 1969, been converted by the individual into property belonging to the family through the Act of impressing such separate property with the character of the property belonging to the family or throwing it into the common stock of the family (such property being hereinafter referred to as the converted property), then, notwithstanding anything contained in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d claimed that a partial partition of the properties thrown by him into the hotchpot of the family as per declaration made by him on 25th July, 1970 as well as of the properties thrown by his two sons by similar declaration made on the reliance was placed on the registered deed of partition, which was registered as document No. 4630/70 dated 27th July, 1970. This partial partition was effected between the assessee his two sons Shri Bose and Sivaprakasam, his wife Smt. Bagyalakshmi Ammal and his unmarried daughter Kum. B. Chandra. We find that in the said partition the assessee s wife and the unmarried daughter were allotted life interest and the two sons of the assessee were allotted a share each. The assessee has not been allotted any share. The learned counsel for the assessee Shri Nagarajan submitted that in the partial partition effected in the joint family in 1966 no share was given to the assessee s wife and the unmarried daughter and that as a result of the family arrangement life interest was given to them in this partition. He further submitted that the fact that the assessee did not take any share in the second partial partition would not detract from the genuineness of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that further the joint family possessed of substantial properties, namely two theatres, which remained undivided. We, therefore, hold that the partial partition that was effected between the members of the family as per the registered deed of partial partition aforesaid is genuine. 8. The next question that arises is whether the non-obtaining of an order accepting the partial partition under s. 171 would militate against the present claim of the assessee. s. 171 sub-s. (1) reads as follows : " 171. Assessment after partition of the a Hindu undivided family. (1) A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family." A plain reading of the above provision shows that a Hindu undivided family assessed as undivided shall be deemed for the purpose of this Act to continue to be a Hindu undivided family unless a finding of partition is recorded by the Income-tax Officer. There is no dispute in this case that the Hindu undivided family of the assessee continued to exist. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property or source of income "except where and in so far as a finding" of partial partition is given under this section, would be to put an undue strain on the words which are in the sub-section and to introduce other words which are not there." Based on the above commentary Shri V.V. Nagarajan, the learned Counsel for the assessee, had urged before us that the non-obtaining of an order recognising the second partial partition in this case would not attract the provisions of s. 171(1). In our opinion for the purpose of the present appeal it is not necessary for us to go into this question. Sub-s. (6) of s. 171 read as follows : " 171. Assessment after partition of a Hindu undivided family. (6) Notwithstanding anything contained in this section, if the Income-tax Officer finds after completion of the assessment of a Hindu undivided family, that the family had has already effected a partition, whether total or partial, the Income-tax Officer shall proceed to recover the tax from every person who was a member of the family before the partition, and ever such person shall be jointly and severally liable for the tax on the income so assessed." The above sub-s. 171(6) provides f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or inclusion of incomes arising to the individual from out of the properties thrown into the hotchpot referred to as converted property where the throwing was done after 31st Dec, 1969. Such Hindu undivided families, into which the individuals have thrown their properties might or might not have been assessed to income-tax. In other words even though a Hindu undivided family has not been assessed to income-tax and an individual throws his property into the hotchpot of that family and effects a division total or partial, provisions of s.64 (2) would apply to the income arising therefrom. It is, therefore, clear that for the purpose of finding out whether a partition total or partial has taken place in respect of the converted property for the purpose of applying s. 64 (2) it is not necessary that the partition should have been recognised under s. 171 because s. 171 applies only to Hindu families which are assessed to income-tax as undivided. In this view of the a matter, the non-obtaining of an order under s. 171 in respect of the second partial partition in question would not enable the department to ignore the above partition and treat the property partitioned as belonging to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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