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TMI Blog1998 (3) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... individual property to the Hindu undivided family property is held to be genuine and valid in law still whether the assessee is not liable to be assessed in respect of the income attributable to his interest in the converted property as per section 64(2)(b) of the Income-tax Act, 1961 ?" T. C. Nos. 394 to 398 and 399 of 1983 : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that income from a portion of Door No. 301, T. H. Road, Madras, allotted to the assessee's (Bose) sister, Ku. Chandra, could not be considered as his income and income from another portion of the same property allotted to the assessee himself under the partial partition dated July 27, 1970, could not be considered as his individual income ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income arising out of a portion of Door No. 301, T. H. Road, Madras, really belonged to Smt. Bagyalakshmi Ammal (mother of Sivaprakasam) and, therefore, the same cannot be treated as the income of the assessee ?" T. C. Nos. 1075 to 1078 of 1984 : "Whether, on the facts and in the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the partial partition from July 27, 1970, could not be considered as his individual income?" T. C. Nos. 2064 and 2065 of 1984 : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that income from a portion of Door No. 301, T.H. Road, Madras, allotted to the assessee's sister, Kum. Chandra, could not be considered as his income and income from another portion of the same property allotted to the assessee himself under the partial partition from November 2 7, 19 70, could not be considered as his individual income ?" The resume containing the names of the assessees, assessment years involved and points involved are summarised as under : T. C. No. 31 of 1982 : Late Sri A. T. Balakrishnan (individual)--assessment year 1971-72-property income Rs. 42,814. T. C. Nos. 394 to 398 of 1983 : B. Bose (individual)--assessment years 1971-72 to 1973-74-income from a portion of Door No. 301, T. H. Road, Madras, allotted to the assessee's sister Kumari Chandra, in the partial partition dated July 27, 1970-income from another portion of the same property allotted to the assessee-whether to be included in the assessment of the individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was one P. M. A. Thangappa Nadar who was a merchant carrying on his business at Chennai, He had some extensive properties at Chennai and there were some disputes regarding the ownership of the properties. The said Thangappa Nadar claimed that the properties were his self-acquired properties, and on June 20, 1955, a deed of compromise-settlement was executed in which, the properties were allotted to the sister and two sons and the deceased. Inter alia, it was described that the late Thangappa Nadar had acquired all the properties and he was the absolute owner of the properties. The genealogy of the family of Thangappa Nadar reads as under : Late P. M. A. Thangappa Nadar (died on 22-10-1960) A. T. Balakrishnan(son) Late A. T. Audimuthu (son) Baghyalakshmi (his wife) Jayalakshmi (his wife---issueless) B. Bose (son) Sivaprakash (son) Two daughters Mala Bose (wife) (i) Jothi Madan Mohan (son of Bose) (ii) Chandra Thangappa Nadar died on October 22, 1960, intestate. On his death, the properties retained by Thangappa Nadar after the execution of the deed of compromise settlement, passed to his sons who treated the same as the Hindu undivided family properties. Certain prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 88, IIIrd Line Beach. (C) Bose, son of A. T. Balakrishnan, got the following properties (i) 301, T. H. Road from Jayalakshmi, (ii) Part interest in the remainder in the properties at West Car Street, 7, Singara Garden, IIIrd Lane and full interest in 1/89 2/89 and 88, IIIrd Line Beach and in the building on leasehold land. (iii) Part of 301, T. H. Road, on partial partition. (D) Sivaprakash, another son of A. T. Balakrishnan, got the following properties, which were first blended with the character of joint family properties : (i) 302, T. H. Road, and 303, T. H. Road of A. T. Balakrishnan, (ii) 301, T. H. Road of Bose and Sivaprakash." On July 25, 1970, an instrument of declaration was executed by A. T. Balakrishnan declaring that the property situate in No. 303, T. H. Road, was his absolute property vested with him by a deed of partition dated July 23, 1959, between himself and his brother, Audimuthu, and he threw the said properties into the family hotchpot consisting of his sons, Bose and Sivaprakash, his wife, Bagyalakshmi and his unmarried daughter, Kumari B. Chandra. Similarly, his son Sivaprakash, executed a separate deed of declaration whereunder certain p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies belonging to him which were thrown into the family and divided subsequently and the properties ceased to belong to him and therefore no part of the income is includible in his assessment. The Income-tax Officer as well as the Wealth-tax Officer included the income from the properties and assets originally belonged to Balakrishnan, Bose and Sivaprakash in their respective hands. It is not necessary to set out the assessment results with reference to each of the members, but it is sufficient to notice the facts found in Balakrishnan's case for the assessment year 1971-72 which is the subject-matter of tax case reference in T. C. No. 31 of 1982. It is not disputed that the decision to be given in the above case would govern the other matters also. A. T. Balakrishnan (hereinafter to be referred to as "the assessee") has filed the return for the assessment year 1971-72 on November 4, 1971. He admitted an income of Rs. 41,652. Then, he filed a revised return on March 27, 1972, admitting an income of Rs. 11,505. The assessee filed the revised return to consider the income from lease of the mill under the head "Business" as against the head "Other sources" admitted in the original re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer was justified in ignoring the claim for merger of properties and the partial partition. The assessee carried the matter in appeal to the Appellate Tribunal. Before the Appellate Tribunal it was contended on behalf of the assessee that the assessee was entitled to throw his self-acquired properties into the hotchpot of the family and on the same date when the assessee executed the deed of declaration, his sons, Bose and Sivaprakash, threw some of the properties described in B and C Schedules to the instrument of declaration into the hotchpot of the joint family and on July 27, 1970, a partial partition was effected between the members of the family consisting of the assessee, his sons, his wife and his minor daughter in respect of the properties thrown by the assessee and his sons into the hotchpot of the family. It was, therefore, contended, on his behalf that by throwing into the hotchpot the properties and by the subsequent partial partition, the properties ceased to belong to him and the income from the properties should not be included in his individual assessment. It was also submitted on behalf of the assessee that non-filing of application under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artition which shall be deemed to arise to the spouse or the minor son from the assets transferred would arise indirectly to the assessee and directed the Income tax Officer to include such income in the hands of the assessee and modify the assessment. The order passed by the Appellate Tribunal in Balakrishnan's case was followed by the Appellate Tribunal in other cases and the questions of law set out earlier in various tax cases have been referred to us by the Appellate Tribunal. Mr. J. Jayaraman, learned senior counsel for the Department, submitted that the declaration as well as partial partition cannot be said to be genuine. He submitted that there was no physical distribution of properties and the Tribunal committed an error in law in holding that there was no need to pass an order under section 171 of the Income-tax Act. He submitted that there was no need to redistribute the properties which were already allotted to Bose and Sivaprakash and, therefore, there was no need to throw the properties by the assessee, Bose and Sivaprakash to the joint family for the benefit of the joint family members. He submitted that the joint family filed the return on November 4, 1971, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there was no claim by the joint family that there was a partial partition and some of the properties were allotted to the sons clearly show that the partial partition and the deed of declaration were only sham and nominal documents and the Tribunal was not right in holding that the deeds were genuine documents. He also referred to the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 and submitted. that unless the partial partition was recognised by an order under section 171 of the Income-tax Act, the income from the properties has to be included in the total income of the Hindu undivided family by virtue of section 171 of the Income-tax Act. Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the assessee had filed the return on November 4, 1971, and he had not shown the entire income in the return on November 4, 1971. He submitted that the assessee has a right to throw his individual properties to the joint family hotchpot as a member of the joint family. He submitted that the assessee had thrown his properties to the joint family hotchpot and his intention is manifest from the deed of declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s thereof. The family hotchpot hereafter this date includes the said property along with its joint Hindu family properties now already in enjoyment by the family. I have made the present declaration out of free will and full consent with the intention to impress on my separate and individual property to the extent described in Schedule A, the character of the Hindu joint family property. I solemnly further declare that hereafter this date the said immovable property more fully described in the schedule hereunder and delined in the blue print in green colour belong to the Hindu joint family and I hold the property as karta of the family and I have abandoned all my individual rights whatsoever. Schedule A : Vacant land and superstructure being a portion of the property bearing Door No. 303, Tiruvottiyur High Road, Madras 81, marked in green colour in the plan attached herewith, comprised of R. S. No. 4056 in extent of 13 grounds and 1,200 feet bounded on the North by R. S. No. 4056/ 1, on the West by the Thiruvottiyur High Road, in the South by the property of the blender bearing No. 4056/2 and on the East by common passage 25 feet wide with right to ingress and egress with no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f declaration. The Income-tax Officer has not gone into the question whether the subsequent conduct of the parties in any way contradicted their stand as to the execution of the deed of declaration as well as the deed of partial partition. The Income-tax Officer has not examined the surrounding circumstances, subsequent dealings of the properties, conduct of the parties, how the properties were used and other relevant factors to consider whether the deed of declaration was genuine or not and in the absence of any such enquiry by the Income-tax Officer to the effect that the assessee was subsequently dealing with the properties of his own, it is not permissible for the Income-tax Officer to hold that the deed of declaration was not genuine. No doubt, as held by the Supreme Court in Kalwa Devadattam v. Union of India [1963] 49 ITR 165 (SC), mere execution of the declaration is not decisive on the question whether it was intended to be effective. But, there must be a clear evidence to show that the properties were under the enjoyment of the assessee even after the deed of declaration or he had any interest or exercised control over the properties even after the deed of declaration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat-the Appellate Tribunal has committed no error in holding that the partial partition effected between the members of the family as per registered deed of partial partition was a valid one. The next question that arises is whether there should be an order recognising the partial partition under section 171 of the Income-tax Act. The Tribunal held that since the properties had gone out of the joint family and even without an order recognising the partial partition, the income from the properties cannot be assessed in the hands of the joint family. The above view of the Tribunal is clearly erroneous in law in view of the decision of the Supreme Court in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690, wherein the Supreme Court held that unless an order recognising the total or partial partition under section 171 of the Act was made the income from the Property had to be included in the total income of the joint family by virtue of section 171 of the Income-tax Act. The reasoning given by the Supreme Court is that so long as the finding is not recorded under section 171 of the Income-tax Act, holding that when the partial partition took place, the Hindu undivided family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partition, as the case may be, is found as a fact and recorded along with the particulars in respect of the date of partition, the Hindu undivided family would continue as if there had been no change in the situation for the purpose of the Income-tax Act. The above proposition of law stated by the apex court was again followed by the Supreme Court in the case of Addl. CIT v. Maharani Raj Laxmi Devi [1997] 224 ITR 582 and the Supreme Court held that notwithstanding the effect of section 6 of the Hindu Succession Act, as far as the Income-tax Act is concerned, the matter has to be governed by section 171 of the Act and the property devolved on the legal heir cannot be excluded for the purpose of income-tax for the assessment of the income of the Hindu undivided family. The above decisions of the Supreme Court make it clear that the order recording a partition whether partial or total and date on which the partition took place is imperative and is a sine qua non for leaving the income from the assessment of the Hindu undivided family and in the instant case, the Assessing Officer had not passed an order under section 171 of the Income-tax Act recognising the partial partition, but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 20A of the Wealth-tax Act have no application. Even if we direct the matter to the Appellate Tribunal directing the Tribunal to remit the matter to the Income-tax Officer to consider the application filed on February 28, 1974, that would not help the Revenue in so far as the reference under the Wealth-tax Act is concerned. The Tribunal also recorded a finding that the partial partition entered into on July 27, 1970, was a valid and genuine one. It is also seen from the other orders of the Appellate Tribunal that the properties were allotted in accordance with the shares specified in the deed of partial partition. The Tribunal referred to Schedules A to G and held that the properties were allotted to the parties covered under the partial partition separately under the above partition agreement. Further, the joint family is also not before us. Therefore, we find that though there was no order recognising the partial partition and in view of the fact that we are concerned with the assessment year 1971-72 onwards, no useful purpose would be served by remitting the matter to the Appellate Tribunal to direct the Income-tax Officer to consider the question whether the partition can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wife and his daughter, Chandra. It is also not clear whether the daughter was a minor during the relevant accounting years and the Tribunal apparently proceeded on the basis that since the income of the wife was directed to be included under section 64(2)(c) of the Income-tax Act and there being no minor sons, there was no need to give any further direction. The Tribunal, no doubt, should have considered the provisions of section 64(2)(b) of the Income-tax Act and recorded a clear finding. Though there was no finding by the Appellate Tribunal regarding the application of section 64(2)(b) of the Act, still we are of the view, the absence of such a finding would not help the Revenue to include the income from the entire properties in the individual assessment of the assessee. We, therefore, hold that the Appellate Tribunal was right in holding that the income from the properties could not be included in the hands of the assessee and only the income of Bagyalakshmi, the wife of the assessee was liable to be included in the hands of the assessee in his individual capacity. Accordingly, we answer the questions of law referred to us as under : T. C. No. 31 of 1982 : First question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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