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TMI Blog2002 (12) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... e are not disallowable under section 40(b) - - - - - Dated:- 31-12-2002 - Judge(s) : N. V. BALASUBRAMANIAN., K. RAVIRAJA PANDIAN. JUDGMENT The Judgment of the court was delivered by N.V. BALASUBRAMANIAN J.-All these appeals are filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") by the Revenue and the assessment years involved are 1988-89, 1989-90 and 1990-91 and the issues that arise in all tax case appeals are the same and hence, all the tax case appeals are disposed of by this common judgment. The respondent is a firm (hereinafter referred to as "the assessee") consisting of five partners, namely, B.S. Anandan, B.S. Arunagiri, B.S. Narayanan, B.S. Velayutham and B.S. Guruswamy, all sharing profit or loss at 20 per cent. each in the partnership firm. All the partners were members of the erstwhile Hindu undivided family of B.S. Sundaravadivel Mudaliar. The Hindu undivided family deposited the family funds in the assessee-firm a sum of Rs. 1,80,000 as a deposit. There was a partial partition in the family in March, 1979, in respect of the deposit of Rs. 1,80,000 and the same was divided among the members and each coparcener was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellate Tribunal, the Revenue has filed appeals and the appeals have been admitted. In so far as T.C. No. 463 of 1999 is concerned, the following substantial question of law has been framed: "Whether the Appellate Tribunal is right in law in holding that the interest payment of Rs. 1,38,940 made by the assessee to its partners is not hit by section 40(b) of the Income-tax Act, 1961?" It is relevant to mention here except the amount of interest which varies in each appeal, the question framed is common in all the appeals. These appeals came up for hearing and the matter was adjourned to ascertain from counsel for the Revenue whether any reference was filed by the Revenue against the earlier order of the Appellate Tribunal and in spite of several opportunities granted to counsel for the Revenue, she submitted that she is not able to get necessary information from the Income-tax Department. We are amazed to find that the Commissioner of Income-tax, Trichy, is not co-operating with counsel for the Revenue in furnishing the necessary information when the court has directed the Commissioner of Income-tax, Trichy, to furnish the necessary information. Be that as it may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the Revenue clearly show that out of five partners, only two partners were bachelors during the relevant period and with reference to other three persons, it is admitted that they were married and therefore when a property was allotted to the joint family at the time of partition, it must be held that the property was held by them as members of the Hindu undivided family. We have carefully considered the submissions of Mrs. Pushya Sitharaman, learned senior standing counsel for the Revenue, and Mr. V.D. Gopal, learned counsel for the assessee. We are of the view, a reading of section 171(9) of the Act clearly shows that a partial partition effected in a Hindu undivided family after December 31, 1978, is held to be null and void and clause (b) of sub-section (9) of section 171 provides that the joint family shall continue to be assessed under the Act as if no partial partition has taken place. Clauses (c) and (d) also provide that each member or group of members of the family immediately before the partial partition shall be jointly and severally liable for any tax or any other sum payable under the Act by the family and the several liability of the members with referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt family. The Supreme Court in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 has held that as long as a finding is not recorded under section 171 of the Act holding that a partial partition had taken place, the Hindu undivided family should be deemed for the purpose of the Act to be the owner of the property, which is the subject matter of the partition and also the recipient of the income from such property. The above decision of the Supreme Court makes it clear that for the purpose of the Income-tax Act, the Hindu undivided family shall continue to be owner of the property and also the recipient of the income from the said property. Therefore, the property which was the subject matter of the partial partition effected after January 1, 1979, shall be deemed to belong to the joint family and the effect of section 171(9) of the Act is that no property shall be deemed to have been separated from the family. The effect of the deeming provision has been considered by the Supreme Court in Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum [1981] 129 ITR 440 wherein the Supreme Court noticed the earlier decision in CIT v. S. Teja Singh [1959] 35 ITR 408. In Gurupad Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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