9911796707
TMI Blog1984 (6) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... operties with effect from 31-10-1978 between M. Subramania, his two minor sons, M. Mahesh and M. Satish, and his wife, Smt. M.S. Ratna. Here, the investments by the family in the partnership firms, namely, M. Subramania Sanjeevamurthy and M. Nagappasetty Sons and Lakshminarayana Co. were partitioned. The deposits with Sri Shrinivas Enterprises, Shri Channabasappa Kotambari, Salar Jung Sugar Mills, M. Kristappa Sons and Jawahar D. Mehta were also partitioned. The partial partitions in the above two HUFs were recognised by the ITO with effect from 31-10-1978 as per his orders dated 24-12-1979. On the basis of the above partial partitions, the assessments of the individuals were completed. Thereafter, the Commissioner issued a notice under section 263 of the Income-tax Act, 1961 ('the Act') proposing to set aside the assessments, in response to which the assessee filed objections. After considering the objections of the assessee, the Commissioner passed orders under section 263 in each of these cases. He held that the validity of the partition is in doubt. There was no physical division in the capital invested in the firms as well as the deposits. Thus, there was no valid partit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er partition. The interest paid to the HUF on deposits has not been fully passed on to the members. The partition made is only a make-believe one and it is not valid. In view of that the order under section 171 is to be ignored. Thus, he supported the order of the Commissioner. 4. We have considered the rival submissions. We are unable to sustain the orders of the Commissioner passed under section 263 in all these cases. There was a partial partition with effect from 31-10-1978 as evidenced by the memorandum of partial partition executed on 15-11-1978. The ITO has, by his orders dated 24-12-1979, made under section 171, recognised the partial partition with effect from 31-10-1978. Once an order under section 171 is passed by the ITO recognising partition, until that order is set aside by the Commissioner, it is valid. That order has not been set aside by the Commissioner. As long as that order stands, the partition recognised is valid. In Joint Family of Udayan Chinubhai v. CIT [1967] 63 ITR 416 the Supreme Court held that once an order under section 25A of the Indian Income-tax Act, 1922 ('the 1922 Act') has been recorded, the family ceases to be assessed as HUF and thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partition. It shows that the partition has been given effect to. 6. In Charandas Haridas v. CIT [1960] 39 ITR 202 (SC) the income received from the managing agency was assessed as income of the HUF. There was a partial partition in the managing agency commission between the members of the family. The question arose whether there was an effective partition. The Supreme Court held that while it was joint, the department could treat the income as that of the family ; but after partition the department could not say that it was still the income of the HUF. The Supreme Court observed as under : " In our opinion, here there are three different branches of law to notice. There is the law of partnership, which takes no account of a Hindu undivided family. There is also the Hindu law, which permits a partition of the family and also a partial partition binding upon the family. There is then the income-tax law, under which a particular income may be treated as the income of the Hindu undivided family or as the income of the separated members enjoying separate shares by partition. The fact of a partition in the Hindu law may have no effect upon the position of the partner, insofar as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets of the HUF insofar as the capital in the partnership firm was concerned. The memorandum of partition expressly divided the capital standing in the name of the karta in the firms among the members of the joint family with the result that though the capital stood in the assessee's name in the firms' account books, that capital was severally owned by the erstwhile members of the joint family in definite shares with a further agreement that the assessee was to receive the profits for and on behalf of the contracting parties severally. On these facts, the Bombay High Court held that the share income of the assessee in the firm was subject to an overriding title in favour of the other members of the HUF in proportion to the shares allotted to them in partial partition and as such could not be taxed in the hands of the assessee. This decision was again followed by the same High Court in CIT v. Indramohan Sharma [1982] 138 ITR 696. 5. In CWT v. J.K.K. Angappa Chettiar [1979] 116 ITR 456, an identical issue was considered by the Madras High Court. The headnote reads as under : " As a result of a partition on March 31, 1961, between the assessee and his two minor sons, the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as the wealth of the minors. " It was held that the karta on and from the date of partition becomes liable to render an account of the profits and the liability to such account is as that of a trustee or agent. It was also held that when the partition took place the HUF ceased to exist insofar as the capital investments were concerned. Since there is no division in metes after the partition, the parties were holding the investments as tenants-in-common and, thus, they were entitled to the profits arising from such investments in accordance with their shares in investments. 9. Thus, it is clear from the above decisions that if there are entries in the capital accounts of the members of the family effecting partition in the books of the HUF, the partition is valid even if there are no entries in the firm's accounts transferring the capital in the names of the divided members. As already pointed out, in the instant case, there are entries in the names of the members in the books of the HUF transferring the amounts in their names evidencing partition in respect of the capital in the partnership as well as the deposits. Profits are credited to their accounts in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
