9911796707
TMI Blog1984 (11) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... f 32 per cent share of the assessee-HUF in M/s Pipe Dealers along with a part of money standing in the account of the assessee-HUF in the said firm. (e) By a deed of partial partition dt. 3rd Oct., 1979, Shri Atulkumar Pujalal Shah took 5 per cent share out of 30 per cent share of the assessee-HUF in M/s Tube Dealers alongwith a part of money standing in the account of the assessee-HUF in the said firm. (f) By a deed of partial partition dt. 4th Oct., 1979, Shri Pujalal Lallubhai Shah took 4 per cent share out of 39 per cent share of the assessee-HUF in M/s Pipe Distributors along with apart of money standing in the account of the assessee-HUF in the said firm. (g) Consequent upon the aforesaid partial partitions. fresh deeds of partnership were executed in respect of the aforesaid three firms on 3rd Oct., 1979, 5th Oct., 1979 and 5th Oct., 1979 respectively, incorporating necessary changes. (h) The family consisting of four members filed returns declaring Rs. 29,150 being 27 per cent share from Ms Pipe Dealers, Rs. 31,250 being 25 per cent share from M/s Tube Dealers and Rs. 45,679 being 35 per cent share from M/s Pipe Distributors and the ITO framed assessments (on pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ou have not given a due consideration to the decision of Gujarat High Court delivered in the case of CIT vs. Shantikumar Jagabhai (1976) 105 ITR 795 (Gui) in as much as their Lordship has clearly held that there can be an existence of HUF more than one; (2) That in our case our HUF is consisting of 5 members and the income which you proposed to be included in our hands belongs to 4 quo-members of three different HUFs from three different partnership firms wherein from all the three one member got separated; (3) That the Karta of our present HUF is no longer continued as a partner in the capacity of Karta of present HUF in the partnership firms of whom you proposed to include the income in the hands of our HUF as a new deed of partnership has been excuted amongst the partners of the said respective partnership firm and therefore, at the time of closer of accounting year of the respective partnership firms. the Karta of our HUF have no share income in all the three firms on the date of closer of accounting year and therefore in the said income cannot be included in the present HUF consisting of 5 members; (4) that the amendment which has been made in s. 171 by inserting a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t HUF and my return of income filed should be accepted in toto." 7. Thereafter, the ITO referred the matter to the IAC who after hearing the assessee and tracing the legislative history regarding s. 171 of the Act, gave following directions to the ITO: "In view of the foregoing discussion the ITO's proposed action to include share income from the firm in the total income of the assessee-HUF is confirmed. The ITO is directed to complete the assessment in the case of the assessee accordingly." 8. On 20th July, 1983, the ITO finalised the assessment with the following remarks: "9. It is therefore, contended by the assessee that income received from M/s Pipe Dealers, Ahmedabad, M/s Tube Dealers, Bombay and M/s Pipe Distributors, Jaipur does not belong to the HUF of Pujalal L. Shah with the members as stated above. 10. Accordingly, HUF excluding separated members has filed separate returns showing partnership share income M/s Pipe Dealers, Ahmedabad, M/s Tube Dealers, Bombay and M/s Pipe Distibutors, Jaipur as belonging to the separate entity of the HUF, from which one member has been separated according to the partial partition deed executed as disclosed above. 11. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter considering the draft assessment order and the assessee's objection etc. issued directions under s. 144B(4) of the Act, and a copy of which is also enclosed with this order, a copy of which was forwarded to the assessee also. In view of the directions contained in the letter of the IAC referred to above, contention of the assessee that income from various partnership firms viz. M/s Pipe Dealers, Ahmedabad, M/s Tube Dealers, Bombay and M/s Pipe Distributors jaipur belongs to different group of HUF is rejected and income from these partnership firm is added in the total income of the assessee, as belonging to HUF." However, in computing the total income of the assessee, the ITO included Rs. 29,150 Rs. 31,250 and Rs. 45,679 being 27 per cent, 25 per cent and 35 per cent respectively share of profit from M/s Pipe Dealers, M/s Tube Dealers and M/s Pipe Distributors instead of 32 per cent, 30 per cent and 39 per cent respectively in the total income of the assessee-HUF. 9. In appeal before the CIT(A), the assessee once again urged that its stand regarding partial partitions of the shares in each of the said three firms should be accepted and that the addition of Rs. 29,150, Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely 32 per cent, 35 per cent and 39 per cent The result of nonrecognition of the factum of partial partition, in your case would be that the entire share income from the above mentioned 3 firms, as it stood prior to the execution of the partial partition deeds shall have to be assessed in your hands. BY not assessing the entire share income from the aforesaid firms in your hands the ITO has committed a mistake. I therefore, propose to enhance your income by adding 5 per cent of share of profit from M/s Pipe Dealers, Ahmedabad, 5per cent share of profit from M/s Tube Dealers, Bombay and 4 per cent share of profit from M/s Pipe Distributors, Jaipur Before I do so, I hereby give an opportunity of being heard to you. You are requested to please show cause why the proposed enhancement to your income for asst. yr. 1980-81 may not be made. 3. Your case is accordingly fixed for hearing on 17th Dec., 1983 at 11-00 a. m. in my office at First Floor, Aayakar Bhavan, Ashram Road, Ahmedabad-3830009. If no reply is received nor any oral or written representation is made then it will be presumed that you agree to the proposes enhancement of income." 11. Vide its letter dt. 7th Jan., 1984 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of appeal. 4. We have refrained from stating here the arguments advanced before you orally at the time of the hearing of the appeal by your goodself, so please note." 12. In his order under appeal, the CIT(A) overruled the assessee-HUF's contentions and directed the ITO to include 32per cent, 30per cent and 39per cent share of profit respectively from the said firms in the total income of the assessee-HUF, in the following manner: "18. I have given a careful thought to the submission made in the appellant's reply dt. 7th Jan., 1984. It may be mentioned that the supreme Court decision in the case of Prembhai Parekh was rendered under s. 16 of the IT Act, 1922 which is in a pari materia with s. 64 of the IT Act, 1961. In the said decision, the Supreme Court had to interpret the provisions of s. 16 of the old Act, and to decide whether any income of a minor child arose directly or indirectly from the assets transferred by the assessee to those minors. In that case the assessee had transferred to each of his minor sons a sum of Rs. 75,000. The amount contributed by those minors as their share in the firm came from those amounts. The supreme Court held that the connection b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Shri Atulkumar P. Shah, In the same manner the original share of 39 per cent in M/s Pipe Distributors was reduced to 35 per cent in the hands of the HUF and 4 per cent went ot Shri Pujalal Lallubhai Shah. When the law says that partial partitions have not to be recognised after 31st Dec., 1978, then the natural consequence would be that the partial partitions effected after that date shall have to be ignored for the purpose of income-tax assessment. Whether the old member representing the HUF in the aforementioned partnership firms continues to represent the appellant HUF or not after reconstitution of the firms as a result of partial partitions to my mind would not be relevant for the purposes of s. 171(9). 20. It is also not correct to say that the Income-tax Officer has not processed the source of income which is the subject matter of enhancement in this case. The ITO has already assessee 27 per cent share income from M/s Pipe Dealers, 25 per cent share income from M/s Pipe Dealers 35 per cent share income from M/s Pipe Distributors, What was proposed to be done, as a result of enhancement notice, was to direct the ITO to assess 32 per cent share income from M/s Pipe Deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers came in to being which. according to him, was entirely different from the "bigger-HUF" i. e. the original HUF consisting of five members. It was this HUF consisting of four members which became partner in each of the three said firms. Therefore, even the share of profits of 27 per cent, 25 per cent and 35 per cent respectively, considered by the ITO in the hands of the assessee-HUF was unwarranted. He further went on to argue that since the share of profit received by each of the separated members was assessed in their individual/smaller-HUF hands, the same cannot be touched by the CIT(A). In order words. he wanted to impress upon the Tribunal that since the shares of profit in each of the said three firms could not be and was not processed by the ITO, the CIT(A) clearly had no power to enhance the assessment in the manner he did. In this connection, he invited the attention of the Tribunal to the deeds of partial partition as well as the deeds of partnership executed after the partial partitions and submitted that the assessee-HUF is entirely a different entity than the HUFs consisting of four members which came into being as a result of the partial partitions which he pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal to the relevant portions of the order of the ITO (reproduced above) and highlighted the fact that in view of the provision of s. 171(9) of the Act, he had rejected the claim of partial partitions. Consequently, the ITO should have considered the assessee-HUF's share of profit of 32 per cent, 30 per cent and 39 per cent respectively from the said three firms. But inadvertantly, he considered 27 per cent, 25 per cent and 35 per cent respectively which the Commissioner (A) was competent to set right by enhancing the assessment in the manner he did. He further submitted that the decisions in the case of shapoorji Pallanji and Rai Bahadur hardutrai Chamaria would not be of much held to the assessee-HUF as the facts and circumstance obtaining in the present case are clearly distinguishable from the facts and circumstance obtaining in the those cases. In those cases, the ITO had never considered or processed a particular source of income which the AAC attempted to consider for the first time in the appellate proceedings. On the contrary, in the present case the ITO had very much considered/processed the source of income viz. the assessee-HUF's share of profit from the said three firms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deeds of partial partition the assessee HUF ceased to exist in the eyes of law. Now, when we turn to the deeds of partial partition which are more or less similarly drafted, we find that one of the members of the assessee-HUF had "asked for his separate share in the profit and capital invested" in the firm (s). Further, we find from the recital that "the remaining parties have agreed to carve out the share of firm and to land it cover to him and have also further agreed to continue between themselves as the joint Hindu family of them for qya the said property to be so partitioned". (in place of mark XXX the name of the separating member is mentioned). Now, in the deeds of partnership executed after the partial partitions the HUF consisting of four members is mentioned with a view to clarify that the separated member had no right, title and interest in the share of the HUF in he firm. Reading of these documents together and as a whole, it is not possible to accept the submissions made on behalf of the assessee-HUF that it ceased to have any share of profit in the aforesaid three firms. It is no doubt true that the HUF consisting of four members had filed returns of income declarin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (A) had enhanced the assessment by discovering a new source of income not mentioned in the return of the assessee or considered by the ITO in the order appealed against. We have carefully gone through the aforesaid decision of the Hon'ble Supreme Court in the cases of Shapoorju Pallonji Mistry and Raj Bahadur Hardutroy Mtilal Chamaria. We entirely agree with the submissions made on behalf of the Revenue that the facts and circumstances obtaining in the instant case are clearly distinguishable form the facts and circumstances considered by the Hon'ble Supreme Court in those two cases. On the contrary, we are of the view cases. On the contrary, we are of the view that the discussion and the ratio laid down in the said two cases support the action of the Commissioner (A). With a view to appreciate this conclusion, we reproduce below the headstones of the said two cases: "Shapoorji Pallonji Mistry: In an appeal filed by the assessee the AAC has no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the ITO in the order appealed against. Rai Bhadur Hardutory Motilal Chamaria: The AA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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