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TMI Blog2005 (1) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... emorandum of family arrangement was executed on 10-10-1990 amongst the persons being members of the HUF named hereunder : ( i )Shri B.R. Talwar, son of Shri Basantlal Talwar, resident of House No. 250, Sector 10, Panchkula; ( ii )Smt. Kailash Talwar, wife of Shri B.R. Talwar, resident of Panchkula; ( iii )Shri Sanjeev Talwar, son of Shri B.R. Talwar, resident of Panchkula; ( iv )Shri Vikram Talwar, son of Shri B.R. Talwar, resident of Panchkula; and ( v )Kumari Vandana Talwar, daughter of Shri B.R. Talwar, resident of Panchkula. 3. By virtue of the said agreement, executed on stamp paper of Rs. 3 but not registered with any authority, it was agreed that the house property would belong to first party and second party and joint Hindu Undivided Families of 3rd and 4th parties respectively as equal co-owners. No share in the said property was allotted to 5th party, namely Miss Vandana Talwar. It was however, agreed that each member would contribute towards her marriage expenses at the appropriate time. It was also decided by virtue of the agreement that Shri B.R. Talwar and his wife Smt. Kailash Talwar would control, supervise, maintain and collect the rental income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been partitioned amongst the members of the family by metes and bounds and that the rental income continues to belong to the HUF as per the provisions of Income-tax Act. Reference has been made to the Explanation to section 171 to the effect that there should be total physical division of the property and evidence to establish that the agreement was followed by actual physical division of the property. The Assessing Officer further held that the physical division of the income without a physical division of property shall not be deemed to be a partition within the meaning of section 171. The Assessing Officer also referred to the decision of the Supreme Court in the case of ITO v. Smt. N.K. Sarada Thampatty [1991] 187 ITR 696 in support of the view. The income from the house property was assessed in the status of HUF. Interest under sections 234A, 234B and 234C was also charged. 6. The assessee appealed to the Commissioner of Income-tax (Appeals) and the latter disposed of the appeals for the six years vide consolidated order dated 7-5-2004. The Commissioner of Income-tax (Appeals) has passed a detailed order rejecting the claim of partition of the HUF on variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals). 8. The learned counsel for the assessee contended that in this case, the revenue have proceeded on the wrong assumption that there was a partition of the HUF. Since there was a dispute amongst the members of the family including those who are not the coparceners of the family, the said dispute was settled by way of family arrangement. Therefore, the provisions of section 171 are not attracted in this case. The family arrangement has been acted upon insofar as the income has been distributed amongst the rightful owners as per the family arrangement. The returns of income in the name of individuals filed earlier were accepted by the Department. Therefore, it was not open to the revenue to issue notices under section 148 to the HUF on mere change of opinion. It was further contended that since the status of the ownership of the property was not an established status of HUF and since there were claims and counter claims, therefore, the family settlement of the property does not amount to partition of HUF. Reliance has been placed on the decision of the Supreme Court in the case of M.N. Aryamurti v. M.L. Subbaraya Setty AIR 1972 SC 1279-1285 in support of the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party relinquishes all its claims or titles in favour of such a person and acknowledge him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same. (6) Even if bona fide disputes, present or possible which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement." 10. It was contended that the above tests are satisfied in the present case. It was accordingly pleaded that the re-assessment made by the Assessing Officer in the case of HUF may be cancelled. It was further reiterated that even otherwise, notices issued under section 148 are invalid insofar as the same have been issued on mere change of opinion. 11. The learned counsel further contended that there has been double taxation in respect of the house property income. Firstly, in the hands of the individuals, and now in the hands of the HUF. It has accordingly been pleaded that the re-assessment framed by the Assessing Officer in the hands of the HUF may be cancelled. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed the returns in his individual capacity. It had been processed under section 143(1)( a ). No regular assessment was made in the case of Shri B.R. Talwar in his individual capacity. The other members have also filed the returns and in most of the assessment years, their income was not liable to tax. Therefore, the claim of the double taxation is not well-founded. In the subsequent years, there is some tax effect with the enhancement of the rental income but then the Assessing Officer has simply accepted the returns filed by the assessee under section 143(1)( a ) as the law does not give him any option for making scrutiny in such cases unless selected for deep scrutiny. Reliance was placed on the decision of the Supreme Court in the case of Smt. N.K. Sarada Thampatty ( supra ) in support of the contention that under section 171, the Assessing Officer will accept the partition of the joint family property only if there is proof of physical division of the property. Since in this case, there was no physical division of the property and no registered instrument was executed, the Assessing Officer was justified in not recognizing the partition. It was accordingly, pleaded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act, 1961. Under the Hindu Law. HUF is entitled to effect a partition which may be total or partial. Where the HUF undergoes a total partition, the entire joint family property is divided among all coparceners of the family and the family ceases to exist as an undivided family. A partial partition, on the other hand may be partial as regards the persons consisting a joint family or as regards the property belonging to the joint family or both. In a partial partition as regards the persons consisting the family, one or more coparceners separate from others and the remaining coparceners may continue to be joint. In a partial partition as regards the property, a joint family may make a division of interest in respect of part and stay jointly while retaining their status as joint family. While under the Hindu Law the joint family is entitled to make a arrangement in respect of joint property while retaining their status as joint family, in respect of income-tax matters, the relevant provisions are contained in section 171. Section 171 applied equally in the case of total and partial partition. The Legislature however, felt that HUF status was being used as a medium for reducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree to partition of the joint family by private settlement, agreement, arbitration or through a court s decree. Members of the family may agree to share the income from the property according to their respective shares. In all such eventualities the joint status may be disrupted but such disruption of family status is not recognized by the Legislature for the purposes of income-tax. (Emphasis supplied). Section 171 of the Act and the Explanation to it prescribe a special meaning of partition. It is different from general principle of Hindu Law. It contains a provision under which partition of the property of the HUF is accepted only if there has been actual physical division of the property, in the absence of any such proof, the HUF shall be deemed to continue for the purpose of assessment of tax. Any agreement between the members of the joint family effecting the partition or a decree of the court for partition cannot terminate the status of a Hindu Undivided Family unless it is shown that the joint family property was physically divided in accordance with the agreement and decree of the court. 17. In this case, the assessee is placing reliance on the written family arrang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the welfare of the family and marriage of party of the fifth part with the consent of remaining parties in the absence of which she will only be deemed to be a trustee of these funds." 18. By a subsequent agreement which is undated, it is stated that the residential house property No. 105 would be deemed to be owned by Shri B.R. Talwar, his wife, two sons and a daughter in equal shares. By virtue of this agreement, it was provided that the interest of Shri B.R. Talwar and his wife would go to the surviver in case of death of any of them and that they would be free to dispose of the property as may be considered fit. The property is a residential building and as per the finding of the Commissioner of Income-tax (Appeals), is not capable of physical division amongst the members of the family. So however, there is no evidence on record to establish that the memorandum of understanding has been actually acted upon. The property has been let out to tenents. It would have been relevant to consider as to whether the tenents had been informed about the partition of the joint family property. So however, no evidence, what-soever, has been produced before the Assessing Officer or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Departmental Representative that in most of the years, the individual members of the family have filed the returns when their income did not exceed the maximum non-taxable limit and that the returns had been filed merely for creating an evidence. Processing of such returns are in consequential. There was no assessment in the case of HUF and no expression of opinion by the Assessing Officer about the claim of partition of the HUF property. Therefore, the case law relied upon by the assessee before the Commissioner of Income-tax (Appeals) as well as before me about the reopening of the assessment on mere change of opinion is inapplicable to the facts of this case. As held by their Lordships of the Delhi High Court in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (FB) that when a regular assessment is made, it is admitted that the Assessing Officer has expressed an opinion. However, in this case, firstly no assessment was made in the case of HUF under section 143(3) in fact no returns were filed in the status of HUF and, therefore, even the processing of the returns under section 143(1)( a ) did not exist in the case of the HUF. The returns filed in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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