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TMI Blog2004 (9) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... anlal K. Shah expired on 4th Oct., 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 WT/IT 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 Court against other coparceners. The suit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Bachubhai M. Shah by Shri Hasmukh N. Malkan for specific performance of a contract of sale of the property under consideration. 7. On 15th April, 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 (P) 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 1922. A copy of the sale agreement has already been submitted. 10. The facts of the case are detailed out in the order of the AO as well as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs who did not want 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 Expln. (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 dt. 29th April, 1994 and the Mumbai High Court passed a consent decree on the same on 5th Jan., 2001. The decree of the High Court was sought later on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was sought from the Bombay High Court was a mere formality which was 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 24th Sept., 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 vs. Narayanan, AIR 1980 SC 1173, Patel Chikkathimme Gowda vs. 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 IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 165 : (1982) 138 ITR 711 (Guj), a partial partition in respect of one of the properties, being land of the HUF, was effected by a partition deed dt. 12th Sept., 1966. The land was earlier, under an agreement dt. 25th Sept., 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 vs. Vajulal Chunilal (1979) 10 CTR (Guj) 79 : (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 awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Bombay High Court by a decree passed by it. Reliance placed on Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (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 considerations 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 learned Authorised Representative of assessee has accordingly contended that under the arbitration award dt. 24th Sept., 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 asst. yr. 1997-98, the assessee-HUF did not exist. He has accordingly contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to p. 110 paper book and back of p. 110 paper book, being internal pp. 5 and 6 of the plaint, he has contended that as per cls. 3 and 4 of the plaint on above pages there were two properties in Gujarat specified on p. 110 paper book and its back. Referring to para 4 on p. 125 paper book, being internal p. 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 pp. 127 and 128 paper book, 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 p. 15 of learned CIT(A)'s order and contended that the learned 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 No. 33 and 16 respectively. He has also contended that the sale deed filed before learned 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of HUF and it is that amount which can be exempt, that is, the value of the interest of individual coparcener and not the entire sum of Rs. 9 crores. 15. Citing ITO vs. Smt. N.K. Sarada Thampatty (1990) 89 CTR (SC) 154 : (1991) 187 ITR 696 (SC) the learned Departmental Representative has contended that even if a civil Court's 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 learned Departmental Representative has referred to backside of p. 111 paper book, being internal p. 8 of the plaint, and contended that in cl. 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 cl. 3 on backside of p. 134 paper book, being internal p. 2 of consen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned Departmental Representative has contended that the amount, being in respect of respective shares of other members of HUF (other than Harish B. Shah), was paid not by Harish but by M/s Narad Builders directly to those other members. He has also contended that even the sale deed of this Bombay property has been signed by all the coparceners. He has contended that if at all partition had taken place vide award on 24th Sept., 1994, then there was no necessity for all coparceners/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 Builder 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 s. 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 s. 34 Bombay Stamp Act requires stamp of requisite/required amount to be affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of arbitration award, etc., is a tax avoidance scheme on the part of assessee, as has been considered by AO and CIT(A). He has contended that for that purpose, we have to see the substance and not the form. He has contended that in the instant case HUF property has been sold and sale proceeds have been divided before partition and the intention was to avoid tax. He has contended that valid partition can be there but when requirements of the provisions of s. 171 of the Act have not been complied with in this case, so there cannot be treated to have been a valid acceptable partition under s. 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. vs. Dy. CIT (2003) 81 TTJ (Mumbai)(SB) 37 : (2003) 87 ITD 537 (Mumbai)(SB), he has contended that the principle of McDowell & Co. Ltd. vs. CTO 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 learned CIT-Departmental Representative has contended that if an arbitration award is followed by decree of Court, then no stamp fee nor registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the property not admitting such division because of the property not being capable of such division, then partition of that property may be made in some other suitable manner. In other words, when property is capable of being physically divided into divisions as per shares of the coparceners then it must be actually so divided into physical parts according to the shares of the coparceners. Such a division would amount to division by metes and bounds. Assuming there are 4 coparceners of an HUF and all the 4 coparceners mutually agree that 2 of them would take physical portions of one particular property and other 2 will not take physical portions of that particular property, then it is not necessary to make 4 physical divisions of that particulars 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he coparcener living in the rural area may take the agricultural land and the coparcener living in the city may take the flat in the city. This will also be a partition by physical division that is division by metes and bounds. 25. He has contended that in the instant case the property was divided by an arbitration award dt. 24th Sept., 1994. As per the arbitration award the property at Khar was handed over to Harish B. Shah and Harish B. Shah has made cash payments to the other members of the family as per their shares in the property. All the members accept that the partition had taken place. All the members accept that they have received their shares in the 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 s. 171(2) was conducted, 9 years after the partition all of them have confirmed the partition. Moreover, the AO 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Representative's citation (1999) 155 CTR (SC) 265 : (1999) 236 ITR 325 (SC) is with regard to an outsider and has no application in the instant case as here the parties are coparceners inter se. He has contended that (1991) 190 ITR 131 (Del) is the relevant citation applicable in the matter. 30. He has contended that the deed of sale is dt. 17th April, 1996, and in the said sale deed Harish B. Shah is vendor, M/s Narad Builders is purchaser and outgoing coparceners are confirming parties because charge in their favour was created by arbitrator in his award for receipt of partitioned sum. 31. Regarding the properties at Petlad, Gujarat, the learned Authorised Representative of assessee has contended that both the properties were sold and has made further submission as under: "In his order the AO accepts that there were 2 properties in Gujarat bearing survey Nos. 33 and 16 (actually correct survey numbers are 33 and 60). In the agreement of sale, a copy of which has already been submitted, it shows that the two properties bearing survey 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 survey Nos. 33-60 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the parties or by an arbitration award or by an order/decree of the Court or otherwise, the partition is complete. After the shares of individual members/coparceners having been so defined, the members/coparceners may physically divide the property by metes and bounds, or they may continue to live together enjoying the property in common as before but thenceforth the property ceases to be joint and the members/coparceners will be holding that property as tenants-in-common. Under this concept of partition under conventional Hindu Law, there can be a partition/severance in the case of a business as a going concern, just by defining or specifying of shares in the accounts without any physical division of the business. 34. Before 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 regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 37. In (1999) 157 CTR (SC) 476 : (1999) 239 ITR 514 (SC), it has been held as under: "If the properties belonging to an HUF are not partitioned at all by dividing it among the members, even though capable of division, then the members of the family cannot say that so far as those properties are concerned they stand dividend. The basic principle appearing from the section itself is that in order to claim partition in respect of any property, division of the property is a pre-requisite. The HUF cannot say that it stands divided in respect of the property and at the same time enjoys the property jointly." 38. In (1990) 89 CTR (SC) 154 : (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." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mutually agree as to in what manner they divide the property so as to allot separate shares to each one of the members. We take an illustration, suppose there is an HUF having four members Q, R, S, T and one property P1 which has four equal divisible portions or flats say A, B, C and D. The four members may, under partition, agree that each one of the members Q, R, S, T should get one portion/flat in the property P1 say A, B, C, D, respectively, then by this defining/specification alone the partition as per s. 171 of the Act will not be valid if they simply define/specify their shares that the members Q, R, S, T to get the portions/flats A, B, C and D of the property P1 as their respective shares of the property P1 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 P1. In the given illustration, for a valid partition under s. 171 of the Act, the property P1 has to be actually physically divided into four separate portions in the mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 171 of the Act when defined shares in the HUF property are allotted to various shares or members of HUF under partition scheme, so that effect is given to that scheme of partition. However, if under partition agreement/scheme the members mutually so agree that they allot a particular property to one member Q only and the other members R, S and T agree to take cash compensation only, then if that property is given to one member Q, then that will also be a valid partition acceptable/recognisable under s. 171 of IT Act inasmuch as its actual physical division 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 and T; the essence of the expression 'physical division by metes and bounds' in the context of a partition under s. 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-storeyed building and appurtenant land. Besides, the property was occupied by three tenants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property among all the coparceners in accordance with the arbitration award dt. 24th Sept., 1994. 45. As regards the learned CIT-Departmental Representative's contentions that after the giving of award by the sole arbitrator, there ought to have been executed a further separate partition deed to give effect to the directions of the award including the reasoning of their released right/title/interest in the said property by the other coparceners', we are of the opinion that under law there is no requirement of any further separate partition deed after passing of an arbitration award inasmuch as a partition or a family 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 coparceners for sale of this property by him (Harish B. Shah) as vendor to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to Tribunal, award was to be operative w.e.f. 23rd March, 1972, and the same was upheld. 51. In AIR 1988 SC 881 it has been held that a subsequent memorandum of partition embodying factum of partition was only a family arrangement and its registration was not necessary. It has also been held therein as under: "Partition lists which are mere records of a previously completed partition between the parties will be admitted in evidence even though they are unregistered, to prove the fact of 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 s. 17 r/w s. 49 of the Registration Act as no interest in property is created or decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken place. Similarly, the requirement of stamp duty on an award of arbitration, if at all required under s. 34 of Bombay Stamp Act, as has been the contention of the learned CIT-Departmental Representative, it will not render the award excludible from being considered as evidence of the factum of partition as distinct from evidence for asserting/claiming right/title/interest in the immovable property under the award. As such, the arbitration award dt. 24th Sept., 1994, can be looked into in the IT proceedings, for knowing the factum of partitions having taken place. 54. The arbitration award was rendered on 24th Sept., 1994, and it stands accepted by all the parties. It is revealed from cl. 18, the sale deed that a memorandum of understanding dt. 25th Feb., 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 from the vendor the said property on terms and conditions mentioned therein. Besides, even the Department accepting the same, issued NOC under s. 269UL(3) of the IT Act on 15th May, 1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sell off his undivided share in the said property. It is in this background that the matter was referred to the sole arbitrator, Sri S.K. Desai, a retired Judge of the Bombay High Court to arbitrate among the rival contenders and sort out an amicable solution to the long standing partition dispute. The arbitration award dt. 24th Sept., 1994, was accordingly rendered by the said sole arbitrator, being of the stature of a retired High Court Judge. The arbitrator 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 24th Sept., 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 s. 171 of the IT Act, 1961, on the principle as enunciated in McDowell & Co. Ltd. vs. CTO. As seen above, the antecedent circumstances amply explain the fact situation leading to the partition scheme that has matured through arbitration award. 57. In the circumstances, we find that a complete/total ..... X X X X Extracts X X X X X X X X Extracts X X X X
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