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TMI Blog2011 (9) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... PANDA, JJ. K. Gopal, Satendra Pandey and Nadish Vyas for the Appellant. B. Jayakumar for the Respondent. ORDER N.V. Vasudevan, Judicial Member This is an appeal by the assessee against the order dated 25/4/2011 of CIT(A) XXX, Mumbai relating to assessment year 2006-07. Grounds of appeal raised by the assessee read as follows: "(1) The ld. Commissioner of Income Tax (Appeals) 30, Mumbai [hereinafter referred as "Ld. CIT(A)] erred in confirming the action of the Assessing Officer of treating the capital receipt on partition of HUF as gift and taxing the same as income from other sources without appreciating the facts and circumstances of the case. (2) The ld. CIT(A) failed to appreciate that complete partition of H. Venkateshwaran (HUF) had taken place vide deed of partition dated 1/4/2005 and vide order dated 14/10/2008 passed under section 171, the ld. A.O confirmed the complete partition on 31/3/2005. The appellant, therefore, prays that the ld. A.O is not at all justified in treating the amount of Rs. 19,19,996/- received on partition of H. Venkateshwaran (HUF) as gift and taxing the same under the head Income from Other Sources. (3) Without prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ari Venkat and daughter by name Swetha constituted the HUF namely H. Venkaeshwaran HUF. After the demise of H. Venkatshwaran the returns were being filed by HUF by the assessee acting as Manager of the HUF consisting of herself and her two children. The assessee pointed out that for A.Y 2005-06 return was filed by the HUF and accepted under section 143(1) of the Act. The HUF was being assessed to tax by the ITO Ward 1(4), Thirunelveli, Tamil Nadu. Alongwith the return filed for A.Y 2005-06 a computation of total income was filed. In such computation it was informed to the AO that there was a partition of the HUF as on 31/3/2005 under section 171 of the Act. Alongwith return of income the assessee also had filed a questionnaire under section 171 of the Act giving all the details of partition. The return of income alongwith questionnaire was filed on 27/3/2006. 3. As already stated the AO refused to accept the fact that there was a partition of the HUF because of the absence of an order under section 171 of the Act. He was of the view that on the death of the Kartha the HUF need not necessarily come to an end and that the HUF still continues. Thereafter the AO considered a sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This order was dated 14/10/2008. A copy of the partition deed had also been filed before the AO and on perusal of all the details the AO passed the following order. "The assessee filed a copy of the partition deed dated 1st April 2005 and the questionnaire under section 171 of the Act. H. Venkateshwaran (HUF) was partitioned by metes and bounds and I am satisfied about the partition having been effected as per the above partition deed and pass this order under section 171 of the Income Tax Act recording the partition." 5. The CIT(A) called for Remand Report from the AO on the additional evidence filed before him. The AO in his remand report has submitted as follows: "The order u/s.171(1) of the IT Act dated 14/10/2008 thereby partitioning the said HUF is not applicable in the case of the assessee for the A.Y 2006-07 since the HUF was not partitioned as per the provisions of the Act on the date the amount from the HUF was credited in the capital account of the assessee. The HUF was partitioned w.e.f. 14/10/2008 only. It is also worth mentioning that the assessee applied for partition only after enquiries were made during the assessment proceedings. Therefore, since the HUF was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so made by the AO is confirmed. The grounds of appeal are dismissed." 7. Aggrieved by the order of the CIT(A) the assessee has filed the present appeal before the Tribunal. 8. We have heard the rival submissions. The learned counsel for the Assessee drew our attention to the partition deed dated 1.4.2005 by which the HUF partitioned the assets of the HUF which consisted of investments in Bank Deposits, Government of India Bonds, Post Office Monthly Income Scheme etc., The Partition Deed recognises the fact that the family is no longer joint family and that the properties of the HUF have already been divided between the parties as on 31st March, 2005 by passing entries in the books of accounts. Our attention was drawn to the fact that as early as 27.3.2006 the Assessee along with the return of income of the HUF filed for AY 05-06 filed a computation of total income and had appended a note thereto which is as follows: "It is hereby informed under Sec. 171 of the Income Tax act, that the HUF was fully partitioned on 31st March, 2005 between the members. A copy of the personal account is enclosed." 9. Questionnaire u/s. 171 of the Act was also filed. The AO of the HUF viz., The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty was valid. On further appeal, the Appellate Tribunal upheld the assessee's contention that after the date of partition on October 31, 1957, there was no "person" as the Hindu undivided family in existence within the meaning of section 28 and allowed the appeal. On a reference to the High Court, it was contended for the revenue that for the purpose of assessment and penalty, it was the date of the order recognising the partition that was material and that, until that order was passed, the family should be deemed to continue as a Hindu undivided family; and that the word "assessment" in section 25A was a comprehensive expression capable of including penalty as well and, consequently, penalty proceedings also would fall within section 25A. The Full Bench of the Hon'ble A.P.High Court held agreeing with the Tribunal, that the Income-tax Officer could not levy penalty by his order dated November 4, 1957, on a Hindu undivided family which got disrupted on October 31, 1957. (i) For imposing penalty for concealment of income or improper distribution of profits of a Hindu undivided family, proceedings will have to be taken only under section 28 and section 25A does not provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if there has been such a partition, the date on which it has taken place. (4) Where a finding of total or partial partition has been recorded by the Assessing Officer under this section, and the partition took place during the previous year,-- (a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place; and (b) each member or group of members shall, in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed. (5) Where a finding of total or partial partition has been recorded by the Assessing Officer under this section, and the partition took place after the expiry of the previous year, the total income of the previous year of the joint family shall be assessed as if no partition had taken place; and the provisions of clause (b) of sub-section (4) shall, so far as may be, apply to the case. (9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of Decemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessee's share of the HUF assets were distributed to her by passing the necessary entries in her individual capital account. The money received on partition is a capital receipt not chargeable to tax. It cannot be brought to tax as capital gain in view of the specific provisions of Sec.47(i) of the Act. Thus the very basis of the assessment by the AO is non- existent. The argument of the revenue that the partition is valid from 14.10.2008, the date of the order u/s.171 of the Act, is again without any basis. As we have already seen the order dated 14.10.2008 recognises partition as on 31.3.2005. The decision of the Hon'ble A.P. High Court in the case of Tatavarthy Narayanamurthy (supra) rendered in the context of Sec. 25A of the 1922 Act is clearly applicable even in the context of Sec. 171 of the Act. The Hon'ble Full Bench of the A.P. High Court has held that when an order under section 25A(1) is passed recording a partition of a Hindu undivided family, that family ceases to be a Hindu undivided family and a "person" for the purposes of section 28 with effect from the date of actual partition as recorded by the said order. In such cases the date of such an order is not ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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