Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Sohan Singh Dhingra on 30 July, 1986
Equivalent citations: [1986]19ITD390(DELHI)
ORDER
Anand Prakash, Accountant Member
1. IT Appeal No. 11 raises the issue of validity of partial partition of the assets of the undivided family of Shri Sohan Singh Dhingra, and the date on which such partition, if any, took place. Income-tax Appeal No. 2919 questions the inclusion of the sum of Rs. 21,000 in the total income of the family on the basis of the finding of the ITO that the partial partition in question was not recognisable under the law.
2. The facts, on the basis of which the present controversy arises may be noted. Shri Sohan Singh Dhingra is the karta of the HUF consisting of himself, his wife Smt. Amrit Dhingra and his minor son, Master Harnam Singh Dhingra. The said family owned some immovable and movable properties. On 30-12-1978, a declaration was made in writing by the said Shri Sohan Singh Dhingra in the presence of two witnesses that he was making a partial partition of his HUF, insofar as he wanted to give Rs. 50,000 to his minor son, Master Harnam Singh Dhingra and another sum of Rs. 1 lakh jointly to himself and his wife. The relevant clauses of the said declaration read as below :
1. That I, Sohan Singh Dhingra along with my wife Mrs. Amrit Dhingra and a minor son Master Harnam Singh Dhingra, constitute a HUF.
2. That I am the karta of the said HUF.
3. That the said HUF owns both movable and immovable properties.
4. That the said HUF owns movable property in the shape of capital investments in various partnership concerns and personal books of the said HUF are being maintained.
5. That I of my own free will and volition and with the previous consent of my said wife Mrs. Amrit Dhingra and with the consent of other relatives and well wishers of the family took out a sum of Rs. 1,50,000 out of the capital investment in the personal books of the said HUF, namely, Shri Sohan Singh Dhingra (HUF) and divided it and partitioned it amongst the coparceners of the HUF as under :
6. That a sum of Rs. 50,000 (Rupees fifty thousand only) was allotted to my minor son Master Harnam Singh Dhingra and he is now at liberty to enjoy the fruits thereof in his own right and title.
7. That my wife showed her intention to continue to be joint with me and thus Rs. 1,00,000 was allotted to me and my wife jointly and this amount shall continue to be joint in the status of HUF constituted by me and my said wife Smt. Amrit Dhingra of which I shall be the karta.
8. That this partial partition relates to the sum of Rs. 1,50,000 taken out of the capital investment of the HUF in the name of Shri Sohan Singh Dhingra (HUF) in the personal books and the balance capital investment in the personal books and all other movable and immovable assets shall continue to be jointly owned by the said HUF constituted by me, my said wife Smt. Amrit Dhingra and my minor son Master Harnam Singh Dhingra and I shall continue to be the karta of the HUF, as here to before.
9. That this partition was carried out by passing the necessary entries in the books of Shri Sohan Singh Dhingra (HUF), Amritsar on 30-12-1978.
10. That each of the coparceners have been put in possession of the sums allotted to each of them as above and each is at liberty to enjoy the fruits thereof in his/her own right and title.
[Emphasis supplied] From the portions italicised above, the impression sought to be given is as if Rs. 1,50,000 were taken out of capital investment and each of the coparceners to whom the amounts in question were intended to be given were 'put in the possession of the sums allotted to each of them'. The physical taking out of the money from the assets of the assessee-HUF, and the physical handing over of the same to the members concerned, however, did not take place. What was done by the assessee was to make an entry on the debit side of the capital account of the HUF on 30-12-1978 showing that Rs. 50,000 were to be credited to Master Harnam Singh Dhingra and Rs. 1 lakh were to be credited to Shri Sohan Singh Amrit Dhingra. The relevant entries in the capital account were to the following effect :
Debit Credit
1-4-1978 By balance brought forward 2,14,016.39
of last year
29-7-1978 To insurance premium paid 508.00
To insurance premium 508,00
Debit Credit
30-12-1978 To amount transfer to
the following accounts
for which partial partition
has been effected :
50,000 Master Harnam
Singh Dhingra
1,00,000 Sohan Singh
Amrit Dhingra 1,50,000.00
--------------
1,51,016.00
To balance 63,000.39
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2,14,006.39 2,14,006.39
-------------- --------------
The aforesaid capital balance in the books of the HUF was in fact matched on the assets side by the various assets, investments, etc., held by the assessee and indicated the family's net worth as today. No specific asset was taken out and divided by the assessee as on 30-12-1978. What was done by him was, as the learned chartered accountant of the assessee put it, to create a claim of Rs. 1,50,000 against the HUF in favour of the divided coparceners. It was the net wealth of the HUF which, according to him was reduced by Rs. 1,50,000 as on 30-12-1978 on account of creation of two debts as above against the family.
3. Subsequently on 2-4-1979, the investment of the assessee in UK Paint Industries, Amritsar was divided between Shri Harnam Singh Dhingra, Shri Sohan Singh Dhingra and Smt. Amrit Dhingra as above. The relevant entries in the books of UK Paint Industries, passed to give effect to the above distribution were to the following effect :
--------------------------------------------------------------------------------
Date Particulars Credit Date Particulars Debit
--------------------------------------------------------------------------------
Rs. Rs.
1979 Last year account 26,82106 1979 To amount transfer
to account of master
Harnam Singh Dhingra
account No.
2 P.P. 50,000.00
By amount transfer To amount transfer
from New Delhi to account of Shri
factory account 1,23,175.94 Sohan Singh Dhingra
(Amrit Singh) H. 4 f.
a/c No. II. 1,00,000.00
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4. On the basis of the aforesaid facts, the ITO gave the finding that the partition in question took place on 2-4-1979. The observations of the ITO on this point were as below :
Since the entries for division of capital of Rs. 1,50,000 have been made on 2-4-1979 in the capital account of the assessee-HUF appearing in the books of UK Paint Industries, I consider it would be appropriate and reasonable to conclude that partial partition was effective only from 2-4-1979 and not from 30-12-1978, as alleged. It seems that the entries in the personal books of account of the assessee-HUF have been made just to claim the benefit of partial partition alleged to be made on 30-12-1978. In the personal books of account of the assessee-HUF all the entries in regard to the transactions of the HUF have not been made. Only some of the entries and that too transfer entries have only been made. It is thus clear that the personal books of account alleged to have been made by the assessee-HUF have not been kept from day to day or in the ordinary course of business of the HUF.
In the event, the ITO held that the partial partition made on 2-4-1979 would have no effect with regard to the assessment of income of the assessee-HUF in view of the provisions of Clause (b) of Sub-section (1) of Section 171 of the Income-tax Act, 1961 ('the Act'), which in effect provided that a partial partition claim if effected after 31-12-1978 should be ignored for the purpose of assessment to income-tax of the income of the family.
5. The assessee challenged the correctness of the above finding of the ITO before the learned AAC, who accepted the assessee's plea that the books of account of the HUF had been maintained by the assessee in the normal course of his business and, that, therefore, the entries made therein on 30-12-1978 constituted a valid partial partition of the assets of the family to the extent of Rs. 1,50,000. The department challenges the correctness of the above finding of the learned AAC through this appeal.
6. After examining the books of account of the family, which have been maintained by the assessee, and in the absence of any particular instance to show that the same had not been maintained by the family in the normal course of its business, we have no hesitation in confirming the finding of the learned AAC that the said books had been maintained in the normal course of its business and that the entries in the capital account of the family were in fact made on 30-12-1978, showing allocation of Rs. 50,000 to the minor son and of Rs. 1 lakh to the karta and his wife jointly. This position is evidenced by the deed of partition also duly witnessed by independent witnesses.
7. The question, however, remains as to whether by passing the aforesaid entries it can be said that partial partition of the family assets has taken place. Section 171 deals with the question of partition of a HUF. According to the Explanation to the said 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.
From the definition of partition given above, it is clear that, for the purposes of the Act, mere severance of status with regard to certain assets or excess of assets over liabilities is not enough to constitute a valid partition of the family. It is also clear that what has to be partitioned amongst the members of the family is the property or asset in question and not the shares in the value of the said asset amongst the various members. If physical division of the asset or property is not possible only then another mode of division as the property may admit or has to be resorted to. Thus, if a family has an interest in a firm as a partner, the physical division of the said share in the partnership amongst the various members of the family may not be possible, and, in such a situation, the division of the said share can be done by making book entries, showing division of the said share amongst the various persons in a given manner. But the partition has to be of a given asset or property and not of the net worth (or a part of it) and before it can be said that there has been partition of the family, it is necessary for the family to spell out the property or properties in question in respect of which the claim of partial partition has been made. If the family has not defined the properties which have to be partitioned in a partial partition of the family and it is merely part of the value of the assets of the family in excess of the liabilities of the family, which would be the net wealth of the family that is being sought to be partitioned amongst the family members, it may be a valid partition under the Hindu law, involving severance of status of the members in question, but, for the purposes of the Act, the said partition would not be a valid partition, for the definition of partition, as given in the Explanation to Section 171, specifically requires that the properties, which have to be partially partitioned, must be specified and the said properties should be physically partitioned amongst the members in question, and only, if there be some property, which is not capable of physical division, the said property should be divided by some other mode which the property may admit of. In the present case, unfortunately, as on 30-12-1978, the family did not indicate the property which was to be divided amongst the members of the family. It merely indicated that out of the capital of the family, which meant the excess of the total value of the assets of the family over the total liabilities of the family as on that date, i.e., 30-12-1978, Rs. 1 lakh would be given to the karta and his wife jointly and Rs. 50,000 would be given to his minor son. This is the creation of two debts against the net wealth cannot be regarded as partition of any of the properties of the family. The partition in the sense in which the said term has been defined under the Explanation to Section 171 was ultimately done by the family on 2-4-1979, when one of the properties of the family, namely, the family's interest in the partnership firm UK Paint Industries, was partitioned to the extent of Rs. 1,50,000 amongst the members of the family as indicated above. Inasmuch as the said property could not have been physically divided, the above mode of division was the only mode possible and so, the ITO was justified in holding that the partial partition of the interest of the family in the aforementioned firm was done on 2-4-1979 and that by the declaration in the entries dated 31-12-1978, no partition in terms of Section 171 took place, though under the Hindu law, there might have been a valid partition thereby amongst the members of the family. It is the settled principle of law now that one has to bear in mind the different notions of partition of the HUF, one under the Hindu law and the other under the income-tax law and that it would not be correct to hold that a partition had taken place in a family in terms of Section 171 merely because such partition under the Hindu law had taken place. For the purpose of the Act, one must see further as to whether the partition in question in the sense in which the said term has been defined under the Explanation to Section 171 has taken place or not. If any authority for this proposition is needed, we may refer to the decision of the Hon'ble Supreme Court in the case of Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 which lucidly brings out the above position in law. In view of this, we reverse the order of the AAC and restore that of the ITO.
8. The departmental appeal, accordingly, succeeds.
9. The result of the above finding on the quantum assessment would be that the income derived by the family from the alleged assets partitioned, namely, Rs. 1,50,000, would continue to belong to the HUF and the income derived therefrom would be assessable in the hands of the assessee. The finding of the AAC to the contrary is erroneous and is hereby reversed. What is the exact income derived from the utilisation of the partitioned amounts should, however, be ascertained by the ITO with reference to the books of account of the parties wherein the said money has been deposited by the coparceners in question. The ITO, instead of finding out the real income earned with the help of the partitioned assets, has estimated the income from them, while completing the assessment for the assessment year 1981-82. It is not proper. We, therefore, set aside the order for the assessment year 1981-82, and restore the matter back to the ITO with the direction that he would redetermine the income of the assessee after ascertaining the income which might have been earned on the divided assets. The assessee would lead the relevant evidence before the ITO in his own interest. The learned counsel for the assessee in fact promised that much before us and we do hope that the assessee would keep up this premise. With these directions, we set aside the orders of the ITO for the assessment year 1981-82 and restore the same to him for fresh assessment in accordance with law.
10. For statistical purposes, we will treat this appeal also as allowed.