Cit vs Parmatma Saran (Huf)

ORDER The Income Tax Appellate Tribunal, Delhi has referred the following question of law under section 27(1) of the Wealth Tax Act, 1957, (hereinafter referred to as the Act), for opinion of this Court.

"Whether on the facts and in the circumstances of the case, the Tribunal was legally, correctin holding that the amended section 20A of the Wealth Tax Act, inserted by the Finance (No. 2) Act, 1980 would not be applicable to the assessment year 1979-80"?

2. Briefly stated facts giving rise to the present reference are as follows :

The respondent assessee is a HUF. According to it, it had effect partial partition of the HUF property on 25-1-1979 effective from 11-1979. At the time of filing of the return for the assessment year 1979-80, the respondent assessee excluded the properties partitioned in the said partial partition dated 25-1-1979. The Wealth-tax Officer, however, ignored the claim of the assessee on the ground that according to the provisions of section 171(9) of the Income Tax Act, 1961 the immovable property belonging to the HUF will be assessed as it was in the wealth-tax assessment of the assessee for the assessment year 1978-79. He also referred to the similar amendment made in the Wealth Tax Act, being section 20A of the Act. The Appellate Assistant Commissioner has rejected the appeal filed by the assessee. On further appeal, the Tribunal allowed the claim of the assessee and held that partial pailition effected on 25-1-1979 should be given recognition as the amendment made by section 20A of the Act was applied only for the assessment year 1980-81.

3. We have heard Shri A.N. Mahajan, learned counsel for the revenue. Nobody has put in appearance on behalf of the assessee. The learned counsel for the revenue submitted that on a plain reading of section 20A of the Act, which was inserted by Finance (No. 2) Act, 1980 with effect from 1-4-1980 a partial partition which has taken place after 31-12-1978 has not been recognized and the Hindu undivided family would continue to be assessed under the Act as no such partial partition had taken place. According to him, as partial partition in the present case had taken place on 25-1-1979 with effect from 1st January, 1979, the same has to be ignored altogether. He further submitted that explanation to section 20A of the Act adopted th same meaning to the partial partition as has been given in clause (b) of the Explanation to section 171 of the Income Tax Act for the purposes of this section also and, therefore, any partial partition effected after 31-12-1978 cannot be taken into consideration. He relied upon the Constitution Bench decision of the Hon'ble Supreme Court in the case of Union of India v. M.V Valliappan (1999) 23 8 ITR 1027 (SC):

4. Section 20A of the Act which was inserted by Finance (No. 2) Act of 2000 with effect from 1-4-1980 reads as follows :

"20A. Assessrnent after partial Partition of a Hindu undivided family.Where a partial partition has taken place after the 31-12-1978, among the members of a Hindu undivided family hitherto assessed as undivided,-

(a) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place.

(b) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition;

(c) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition, and the provisions of this Act shall apply accordingly.

ExplanationFor the purposes of this section, 'partial partition' shall have the meaning assigned to it in clause (b) of the Explanation to section 171 of the Income Tax Act."

5. Sub-section (9) was also inserted in section 171 of the Income Tax Act by the same Finance Act. It reads as follows :

"(9) Notwithstanding anything contained in the foregoing provisions of this section, where apartial partition has taken place afterthe 31-12-1978, among the members of a Hindu undivided family hitherto assessed as undivided,

(a) no claim that such partial partition has taken place shall inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition had taken place and any finding recorded under sub-section (3) to that effect whether before or after the 18th day of June, 1980, being the date of introductionof the Finance (No. 2) Bill, 1980 shall be null and void.

(b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place;

(c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition;

(d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or if at such partial partition and the provisions of this Act shall apply accordingly.

ExplanationIn this section, ExplanationIn this section,

(a) 'partition' means-

(i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition; or

(ii) where the property does not admit of a physical division, then such division as the property admits of, but a mere severance of status shall not be deemed to be a partition;

(b) 'Partial partition' means a partition which is partial as regards the persons constituting the Hindu undivided family, or the properties belonging to the Hindu undivided family, or both

6. From the conjoint reading of section 20A of the Act and section 171(9) of the Income Tax Act, it is absolutely clear that the partial partition which has taken place after 31-12-1978 has not been recognized in the Income Tax Act or under the Wealth Tax Act and the Hindu undivided family would be continued to be assessed a such, notwithstanding the claim of partial partition effected by them. It may be mentioned here that prior to the Income Tax Act, 1961, Indian Income Tax Act, 1922 did not recognize partial partition. Even under 1961 Act all partial partitions have not been recognised. Only such partial partitions, which were in accordance with the explanation to section 171, had been recognized. After considering various decisions, the Apex Court in the case of Kallooinal Tapeswari Prasad (HUF) v. CIT (1982) 133 ITR 690 (SC), has held that the substance of decisions in Kalwa Devadatiam v. Union of India (1963) 49 ITR 165 (SC) in Addl. ITO v. A. Thimmayya (1965) 55 ITR 666 (SC) and in Joint Family of Udayan Chinubhai v. CIT (1967) 63 ITR 416 (SC) was that under section 25A of the 1922 Act a Hindu undivided family which had been assessed to tax could be treated as undivided and subjected to tax under the Act in that status unless and until an order was made under section 25A(1); if in the course of the assessment proceedings it is claimed by any of the members of the Hindu undivided family which had been assessed to tax under the Act in that status unless and until and order was made under section 25A(1); if in the course of the assessment proceedings it is claimed by any of the members of the Hindu undivided family that there has been total partition of the family property resulting in physical division thereof as it was capable of, the assessing authority should hold an inquiry and decide whether there had been such a partition or not; if he held that such a partition had taken place, he should proceed to make an assessment of the total income of the family as if no partition had taken place and the proceed to apportion the liability as stated in section 25A amongst the individual members of the family. If no clairn was made or if the claim where it was made was disallowed after inquiry, the Hindu undivided family would continue to be liable to be assessed as such, This was the legal position under the 1922 Act. The court further held as under :

"Hindu law does not require that the property must in every case be partitioned by metes and bounds or physically into different portions to complete a partition. Disruption of status can be brought about by any of the modes referred to above and it is open to the parties to enjoy their share of property as tenants-in-common in any manner known to law according to their desire. But the income-tax law introduces certain conditions of itsown to give effect to the partition under section 171 of the Act." (p. 703) The court also held :

"If a transaction does not satisfy the above additional conditions it cannot be treated as a partition under the Act even though under H indu law there has been a partition total or partial. The consequence will be that the undivided family will be continued to be assessed as such by reason of sub-section (1) of section 171" (p. 704)

7. The decision of the Apex Court in the case of Kalloomal Tapeswari Prasad (HUF) (supra) was relied upon in the case of ITO v. (Smt) N. K. Sarada Thampatty (1991) 187 ITR 696 (SC) and the Apex Court has observed "that in considering the factum of partition for the purpose of assessment, it is not permissible to ignore the special meaning assigned to "partition" under the Explanation to section 171 even if the partition is to be effected by a decree of the court. The legislature has assigned a special meaning to the word 'partition" under the Explanation which is different from the general principles of Hindu law and it contains the deeming provision under which partition of the property of the Hindu undivided family could be accepted."

8. In the case of M. V. Valliappan (supra) the Apex Court has held that:

"... Prior to the Income Tax Act, 1961, there was no question of recognizing partial partition. Even with regard to total partition, it was required to satisfy all the conditions prescribed in section 25A and an order was required to be passed for that purpose under section 25A(I). If the claim of partition was disallowed after inquiry, the Hindu undivided f amily was liable to be assessed as such. After the new Act, partial partition was not recognised unless it satisfied the conditions laid down in the Explanation. " (p. 1037)

9. The validity of the provisions of section 171(9) of the Income Tax Act as also section 20A of the Wealth Tax Act has been upheld by the Constitution Bench of the Apex Court in the case of M.V Valliappan (supra). The Apex Court has, however, held that :

".. . It is clear that for the purposes of income tax, the concept of partial partition of the Hindu undivided family was recognised, but is done away with by the amendment which specifically provides that where a partial partition has takenplace after 31-12-1978, no claim of such partial partition having taken place shall be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition has taken place. If any such finding is recorded under subsection (3) whether before or after 18-6-1980, being the date of introduction of the Finance (No. 2) Bill, 1980, the same shall be null and void. The effect of the aforesaid sub-section is that for the purposes of income-tax partial partitions taking place on or after 1-1-1979, are not to be recognised. If a partial partition has taken place after the cut-off date no enquiry as contemplated under sub-section (2) by the Income Tax Officer shall be held. Even if the enquiry is completed and the finding is given, it would be treated as n ull and void. In this view of the matter, the contention raised in some of the petitions by learned counsel for the respondents that partial partition took place on 13-4-1979, and that in the assessment year it was recognised and benefit was given to the assessee, has no significance in view of the crystal clear language used in the sub-section that partial partition taking place after the cut-off date is not to be inquired into and if inquired the findings would benzilland void. Such a family is to be assessed under the Act as if no partial partition has taken place." (p. 1033)

10. Thus, in as much as section 20A(I) of the Act specifically provides that partial partition taken place after 31-12-1978 is to be ignored, the effect of the provisions would be that any partial partition taking place after 31-12-1978 are to be ignored altogether. Even if section 20A is introduced with effect from 1-4-1980, it would not make any difference as language of section 20A is very clear and unambiguous and has to be given full effect. The interpretation placed by the Tribunal on the memorandum, while introducing the Bill in the Parliament on the aforesaid section is misplaced.

11. In view of the foregoing discussions, we answer the question of law referred to us in the negative, i.e., in favourof the revenue and against the assessee. However, the parties shall bear their own costs.