9911796707
TMI Blog2004 (11) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... 17-4-1996 to M/s. Narad Builders Pvt. Ltd. 2.1 Mohanlal K. Shah expired on 4-10-1954, leaving behind him his two sons Bachubhai M. Shah, Dr. Ramesh M. Shah, widow Smt. Taraben and two married daughters Pushpa Chandrakant Parikh and Bindu Hansraj Ashar. The elder son of Mohanlal K. Shah, Bachubhai became karta of the said Mohanlal K. Shah HUF. Letter of administration regarding estate of Mohanlal K. Shah, including the above property of Khar, was granted by the Hon'ble Bombay High Court in favour of Bachubhai and Dr. Ramesh. The above property of Khar was shown as being the property of Mohanlal K. Shah HUF and W.T./I.T. returns were being filed accordingly. 2.2 Apart from Khar property, the HUF owned two other properties in village Sujitra, Taluka Petlad, Distt. Karia, Gujarat. 2.3 On the demise of Mohanlal K. Shah, the property devolved upon Bachubhai, Dr. Ramesh and Smt. Taraben in equal shares. Smt. Taraben, widow of Mohanlal K. Shah, expired in the year 1984. In or about 1985 an agreement for family partition among Bachubhai, Dr. Ramesh and R.M. Shah, HUF was entered into but the same was not acted upon. Subsequently, Dr. Ramesh filed a civil suit in the Bombay City Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck side of the property attached to the building for which there was a separate entry was occupied by 2 encroachers. 6. A suit was filed in 1985 against Shri Bachibhai M. Shah by Shri Hasmukh N. Malkan for specific performance of a contract of sale of the property under consideration. 7. On 15-4-1996, an agreement was entered into between Shri Hasmukh N. Malkan and Shri Harish B. Shah in respect of the property under consideration whereby Mr. Malkan agreed to withdraw the suit filed by him on payment of a total sum of Rs. 83 lakhs (including 30 lakhs agreed to be paid by Shri B.M. Shah and balance Rs. 53 lakhs being payable by Shri H.B. Shah). 8. On 17th April, 1996 Shri H.B. Shah executed an indenture as 'vendor', for sale of the property for a total consideration of Rs. 9 crores to the 'purchaser' Narad Builders Pvt. Ltd. all the members of the HUF being merely confirming party as they were having a charge over the property for the agreed amount in terms of the partition. 9. The 2 properties at Petlad, Gujarat were sold off in the 1992. A copy of the sale agreement has already been submitted. 10. The facts of the case are detailed out in the order of the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een encroached upon by two encroachers who did not wanted to leave the property amicably. (b) Moreover there were 12 coparceners and there was a single house property consisting of a two storied building and appurtenant land. (c) There was also a suit filed by Mr. Malkan for the specific performance of the sale contract entered into by Mr. Malkan and Mr. Bachubhai M. Shah. Under such facts and circumstances it was neither practical nor possible for the assessee to make physical division of the property. The genuineness of the claim can be verified by looking at the history of the matter into consideration, where several attempts were made to partition the property but due to circumstances mentioned above the coparceners were not able to carry ahead with the partition. Due to such circumstances the assessee had to resort to other means of partition as has been mentioned under Explanation (a)(ii) of the section. (iii) Following this line of approach due to the circumstances mentioned above the assessee HUF was partitioned between the coparceners by an Arbitration award dated 29-4-1984 and the Mumbai High Court passed a consent decree on the same on 5-1-2001. The decree of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as carried out to make the person buying the property feel comfortable. So we can say that the partition of Mohanlal K. Shah HUF finally took place on 24-9-1994. (v) Partition is a severance of joint status, and as such it is a matter of individual volition. All that is necessary, therefore, to constitute a partition is a definite and unequivocal indication of his intention by a member of a joint family to separate himself from the family and enjoy his share in severalty. What form such intimation, indication or representation of such interest should take would depend upon the circumstances of each case- Kalyani v. Narayanan AIR 1980 SC 1173; Patel Chikkathimme Gowda v. Agrl. ITO [1983] 140 ITR 434, 436 (Kar.). Keeping the above judgment in mind the form taken to intimate such an intention of partition by the members involved is the arbitration award. (vi) The partition of the HUF property under the Hindu Law had been duly carried out by the arbitration award, which was accepted by all the members concerned. The point of difference between the acceptance of partition under Hindu Law and the I.T. Act is the requirement created under the I.T. Act where there has to be an actual p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a partition deed dated 12-9-1966. The land was earlier, under an agreement dated 25-9-1963, agreed to be sold by the karta to a third party for a consideration of Rs. 2,67,540. In the partition deed, the members agreed to allot the whole land to the karta, who, in his turn, agreed to pay Rs. 2,22,950, being the 5/6th share of the sale proceeds to the other five members of the family. The amount so agreed to be paid was in fact paid. It was held that a valid partial partition was effected. It was also held that the transaction in question was not a 'sale' as contended by the revenue. (xi) In CIT v. Vajulal Chunilal (HUF) [1979] 120 ITR 21 (Guj.), it has been held that even otherwise, a partial partition in respect of an asset belonging to the family can validly be effected by giving over that asset to one of the coparceners who, in his turn, compensates the other members by paying cash equivalent to their respective shares in that regard. (xii) The CIT(A) has also attacked the assessee on the ground that the arbitration award was not actually acted upon by the coparceners by executing legal documents transferring and assigning their respective rights, interests and title i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC). (xiv) Regarding the properties in Petlad, Gujarat both the properties were partitioned in 1985 by the settlement reached between the members of the HUF. It was only in respect of the Bombay property that the consent decree was not acted upon. Both the properties in Petlad, Gujarat were later sold in 1992. Sale agreement regarding both the properties has already been filed. All the members accept that these properties were sold and none of them have made any claim towards it. The sale consideration received from the sale of these properties were so meager that no taxable income accrued from them and hence no return was filed. 9. The ld. AR of assessee has accordingly contended that under the arbitration award dated 24-9-1994, which was accepted by all. The eleven members/coparceners of HUF, there had been effected the partition of the then existing Mohanlal K. Shah HUF and so in the previous year relevant to assessment year 1997-98, the assessee HUF did not exist. He has accordingly contended that the assessment impugned herein, is bad in law, which, in turn, needs be annulled. 10. The ld. CIT-DR Shri K.L. Maheshwari has contended that the Assessing Officer has passed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified on page 110 PB and its back. Referring to para 4 on page 125 PB, being internal page 7 of Ex. B, there were two properties at Daswala Khadki and near Khodiyar Mata. He has contended that in the second schedule mentioned on pages 127 and 128 PB there is mention of two properties and that the area of land etc., and other details are all specified there. 13. He has referred to para 10 on page 15 of ld. CIT(A)'s order and contended that the ld. CIT(A) has mentioned that apart from Mumbai property, there is also a property situated at Khadki in village Sojitra and property situated near Khodiyar Mata in village Sojitra in Karia, Gujarat being survey Nos. 33 and 16 respectively. He has also contended that the sale deed filed before ld. CIT(A) related to only one property being at Survey No. 33 and not 33 and 16 both. He has accordingly contended that there is no evidence of sale of the second property at Petlad, Gujarat; nor is there any evidence of the same having been divided by the assessee HUF. He has contended that thus the entire property of HUF having not been disposed of by the settlement/award/decree, there is no complete partition; and so there being no complete partiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decree is passed for partition but if there is no actual division of the property by metes and bounds, then the HUF cannot be said to have been partitioned and the income from HUF properties remains the income of HUF, and not the income of individuals, as has been held in the cited decision. Arguing on the point as to whether physical partition was possible or not, the ld. DR has referred to back side of page 111 PB, being internal page 8 of the plaint, and contended that in clause 7 of the plaint it has been averred that the Bombay property is capable of division by metes and bounds and for that purpose they appointed Shri Hussaini T. Maimmowala, the architect to divide the said Bombay property among the parties by metes and bounds. He has also referred to clause 3 on back side of page 134 PB, being internal page 2 of consent decree dated 5-9-1985 of Bombay City Civil Court and contended that in clause 3 also the Bombay property has been mentioned as having been divided by metes and bounds amongst the parties to the suit, and that more particular description of the property, has been given in first and second schedules to the agreement of family partition dated 7-8-1985. He has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arceners/members of HUF to sign the sale deed when the property belongs to one member Harish only and not to all members of HUF. He has contended that the amount has been paid by M/s. Narad Builders to members of HUF in the application of sale proceed amount which belongs to HUF and not as a division of HUF property as claimed by assessee. 18. He has contended that assuming that the arbitration award is treated as partition deed, then also as per section 17 of Registration Act it is compulsorily registrable as it involves immovable property and without registration it cannot be considered as admissible evidence. He has contended that section 34 Bombay Stamp Act requires stamp of requisite/required amount to be affixed. He has contended that as the award is not on required stamp paper, so it cannot be considered as a partition deed. He has accordingly contended that the arbitration award is, therefore, only a family settlement or a family arrangement and nothing else. He has cited CGT v. D. Nagrirathinam [2004] 266 ITR 342 (Mad.). He has contended that it should be followed by execution of any written agreement or document and there should be evidence that it has been followed/giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there cannot be treated to have been a valid acceptable partition under section 171 of the Act. He has contended that the onus is on assessee to prove that a valid partition has taken place. Citing Mid East Portfolio Management Ltd. v. Dy. CIT [2003] 87 ITD 537 (Mum.) (SB), he has contended that the principle of McDowell Co. Ltd. v. CIT [1985] 154 ITR 148 (SC) is applicable in the case. He has contended that the property has been sold for Rs. 9 crores whereas they are paying tax only on Rs. 2.25 crores. 21. The ld. CIT-DR has contended that if an arbitration award is followed by decree of court, then no stamp fee, nor registration is required. Citing CIT v. Ghanshyam Das Laxmi Narain [1974] 95 ITR 438 (Pat.) he has contended that the date of registration of the partition deed will be the date of partition. He has also cited ITO v. Naresh Batra, HUF [1996] 58 ITD 23 (Chd.). He has contended that the partition provided in section 171 of the Act is to be construed strictly and it is not the same thing as partition under Hindu Law. In his support, he has cited CIT v. Keshavlal Lallubhai Patel [1965] 55 ITR 637 (SC) and CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC). He has contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical portions of that particular property, then it is not necessary to make 4 physical divisions of that particular property. It will be a valid partition under law if only 2 physical divisions of that property are made and each of the 2 members is given physical division of that property and the remaining 2 members are given either some other property or some other compensation or cash component equivalent to their shares in the said property. These 4 members may agree to make a partition in such a manner that 1 member alone may take that particular property and remaining 3 members may take some other property or compensation in money or in some other form as per their shares in that particular property of the HUF. This will also be a physical division of the property by metes and bounds." 24. The assessee's Ld. Advocate Mr. Shashi Tulsiyan has contended that the I.T. Act nowhere required that for a physical division of the HUF property, the property has to be broken up into pieces, that is into as many parts as are the members/coparceners of the HUF so as to give one part to each of them as per his share even when some of them do not want any part of this property and want some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property and none of them have made any claims contrary to it. No dispute regarding partition either before the Department or any court of law. In fact when enquiry under section 171(2) was conducted, 9 years after the partition of all of them have confirmed the partition. Moreover the Assessing Officer has not raised even a whisper to challenge the partition. 26. He has contended that the date on which award is passed by the arbitrator accepting the partition, is the date on which partition took place. He has contended that there is no provision in the I.T. Act, which makes the registration of arbitration award compulsory for its acceptance. He has contended that what is necessary is that effect should be given to the award of partition so that there is execution of the directions defining the shares of the members of the HUF in the award. He has cited CIT v. H.K. Sehgal [1991] 190 ITR 131 (Delhi) in his support. 27. Regarding his contention that the fact that the partition of HUF has actually been acted upon, as per the arbitration award, he has contended that the same can be seen from the evidence on record being- (i) Agreement for sale (ii) No Objection Certificate und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has contended that both the properties were sold, and has made further submission as under: "In his order the Assessing Officer accepts that there were 2 properties in Gujarat bearing Survey Nos. 33 and 16 (actually correct S. Nos. are 33 and 60). In the agreement of sale, a copy of which has already been submitted, it shows that the two properties bearing S. Nos. 33 and 60 were sold off. So far as the order of CIT(A) is concerned the CIT(A) has mentioned that property bearing, S. Nos. 33-60 is sold and the property bearing S No. 16 was not sold. The assessee fails to understand from where did CIT(A) got the S. No. 16 when there were only 2 properties bearing S. Nos. 33 and 60. So the contention of the department that the properties in Gujarat were not sold was wrong as can be seen if one looks at the agreement of sale of the concerned property. Further, even back side of page No. 127 of the paper book (which was even referred by the ld. DR) states about only two properties being S. Nos. 33 and 60 at Petlad, Gujarat. The sale deed also shows sale of two properties, i.e., S. Nos. 33 and 60. The CIT(A) admits sale of S. Nos. 33-60 Assessing Officer also has mentioned about two prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we proceed to consider the partition falling in category No. (ii) mentioned above, we may note that a partition under Hindu Law can be with respect to one or more members of HUF only, leaving the remaining members joint, or it can be with respect to one or more properties of HUF only, leaving the remaining properties of the HUF as joint, or the partition can as well be partly or wholly with respect to both members as well as property. 35. As regards the partition falling in category No. (ii) mentioned above, a partition, in order to be recognizable or acceptable under I.T. Law, or to be more specific, under section 171 of Income-tax Act, 1961, has to be a complete partition with respect to members as well as properties of HUF in view of Explanations (a) and (b) to section 171. In other words, a valid partition, recognizable/acceptable under section 171 of the Act, has to be a severance in respect of all the members/coparceners of HUF as also in respect of all the properties of HUF. If some of the members remain joint or some of the properties remain joint, then such a partition will be only a "partial partition" as provided in Explanation (b) and will not be accepted or recogniz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty jointly." 38. In ITO v. Smt. N.K. Sarada Thampathy [1991] 187 ITR 696 (SC) it has been held that the X must prove that partition of HUF was effected by Court decree or agreement and was followed by actual physical division of the property in accordance therewith. The Hon'ble Apex Court held as under:- "Since the Civil Court decree was a preliminary decree and no final decree had been passed and no actual partition had been effected and no physical partition by metes and bounds had taken place in pursuance of the decree of partition, the status of an HUF continued for purposes of assessment." 39. In CGT v. D. Nagrirathinam [2004] 266 ITR 342 (Mad.) it has been held that a family arrangement/settlement may be oral in which case no registration is necessary. It has also been held that if the terms of family arrangement have been reduced to writing, then the document containing terms and recitals of a family arrangement is to be distinguished of a document being a mere memorandum prepared after the family arrangement had already been made for the purpose of record; such a memorandum is not compulsorily registrable. 40. In Mid East Portfolio Management Ltd v. Dy. CIT [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers Q, R, S, T to get the portions/flats A, B, C D of the property P-1 as their respective shares of the property P-1 but still all the four portions/flats A, B, C, D remaining joint as they have been so far without the portions/flats A, B, C, D being actually physically divided/separated and thenceforth each of the members taking one portion of the combined total rental income earned from the whole compact property P-1. In the given illustration, for a valid partition under section 171 of the Act, the property P-1 has to be actually physically divided into four separate portions in the manner that one specific portion of the property (separated) goes to the share of each member as per the respective defined/specified share allotted to him, say one specific portion P-1A goes to the share of Q, the second portion of property, P-1B goes to the share of R, the third portion of the property P-1C goes to the share of S and the fourth portion P-1D goes to the share of the fourth member R. But the members Q, R, S, T may also mutually so agree that Q takes half portions of the property comprising of P-1A and P-1B, R takes P-1C, S takes one portion P-1D and T takes no portion of this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivision comprises in the whole of it being given to one member Q and no portion of it being given to any of the other members R, S T; the essence of the expression 'physical division by metes and bounds' in the context of a partition under section 171 of the Act being that after partition the property should, in no manner, remain in jointness. 42. Coincidentally we may also notice that it is revealed from record that there were twelve coparceners whereas the said property at Khar, Mumbai was a single house property consisting of a two storied building and appurtenant land. Besides, the property was occupied by three tenants since 1930s and it had also been encroached upon by two encroachers. In the situation physical divisibility of the property by metes and bounds among all the coparceners as per their shares cannot be said to be an easy or convenient task. 43. In the instant case, we find that Mohan Lal K. Shah as also the other members of HUF had been trying time and again ever since 1985 for effecting partition of the assessee-HUF and despite an agreement for partition having been entered into among the members on 7-8-1985, partition in respect of this property, that is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily arrangement can be effected by oral agreement as well irrespective of the value of immovable property involved; and what is further required under law is that the same should be implemented/executed or given effect to. Besides, in the instant case, the said award has been accepted by all the coparceners and has been complied with inasmuch as the said property of Khar, Mumbai having been given to the share of Harish B. Shah, he entered into an agreement (MOU) with M/s. Narad Builders and other coparcener for sale of this property by him (Harish B. Shah) as vendor to M/s. Narad Builders as purchaser on 25-3-1995 and the competent authority accepting this issued NOC under section 269UL(3) on 15-5-1995 and in furtherance/compliance thereof the property was sold by him on 17-4-1996 as vendor to M/s. Narad Builders Pvt. Ltd., the buyer and the sale deed has been signed by Harish B. Shah as vendor and by other coparceners as confirming parties. 46. In Delhi Auto General Finance (P.) Ltd. v. TRO [1999] 236 ITR 325 (SC) the arbitrator had created charge by award and the award was made rule of Court on 24-11-1970. Recovery proceedings under section 220 of Income-tax Act, 1961 were c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f partition. The true principle that emerges can be stated thus; if the arrangement of compromise is one under which a person having an absolute title to the property transfers his title in some of the items thereof to the others, the formalities prescribed by law have to be complied with, since the transferees derive their respective title through the transferor. If, on the other hand, the parties set up competing titles and the differences are resolved by the compromise, there is no question of one deriving title from the other, and therefore, the arrangement does not fall within the mischief of section 17 read with section 49 of the Registration Act as no interest in property is created or declared by the document for the first time. Further it is also well settled that the document though unregistered can however be looked into for the limited purpose of establishing a severance in status, though that severance would ultimately affect the nature of the possession held by the members of the separated family as co-tenants." 52. Assuming that the arbitration award requires registration in view of the provisions of section 17(1)(b) of Registration Act, 1908 though in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 24-9-1994 can be looked into, in the I.T. proceedings, for knowing the factum of partitions having taken place. 54. The arbitration award was rendered on 24-9-1994 and it stands accepted by all the parties. It is revealed from clause 18 the sale deed that a Memorandum of Understanding dated 25-2-1995 between the vendor (Harish B. Shah), the confirming parties (that is coparceners other than Harish B. Shah) and the purchasers (M/s. Narad Builders) was executed whereby the vendor agreed to sell to the purchasers who agreed to purchase of the vendor the said property on terms and conditions mentioned therein. Besides, even the department accepting the same, issued NOC under section 269UL(3) of the I.T. Act on 15-5-1-995 for sale of this property by Harish B. Shah, as vendor. As such, considering all the facts and circumstances of the case as also the legal position and respectfully following the ratio decidendi of CIT v. H.K. Sehgal [1991] 190 ITR 131 (Delhi) we hold that the partition of the property at Khar, Mumbai took place on 24-9-1994, the date of award, or in any case on 15-5-1995 when the department accepted the above-mentioned MOU dated 25-2-1995, and in turn Harish B. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adopted the market value of the property at Rs. 9 crores, as per the valuation made by the architecture (Mr. Hari Moorgani) and gave his award on 24-9-1994 with directions as contained therein. In these circumstances, we find no justification for holding that the scheme of partition, as devised through arbitration award, is a colourable device to evade tax so as to render the resultant partition as not acceptable under section 171 of the Income-tax Act, 1961 on the principle as enunciated in McDowell Co. Ltd. v. CIT [1985] 154 ITR 148 (SC). As seen above the antecedent scheme that has matured through arbitration award. 57. In the circumstances, we find that a complete/total partition of assessee-HUF has taken place as on 24-9-1994 or in any case on 15-5-1995 which appropriately needs be accepted under section 171 of Income-tax Act, 1961 for there being no justifiable basis for not accepting the same; and, in turn, we find the orders of authorities below, in rejecting the application of assessee-HUF under section 171 of the I.T. Act dated 19-4-2002 filed on 23-4-2002 to be not justified and not tenable. We hold and direct the Assessing Officer accordingly. 58. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
