Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Mayabhai Laxmichand (Huf) on 21 August, 1986
Equivalent citations: [1986]19ITD245(AHD)
ORDER
U.T. Shah, Judicial Member
1. The grounds taken up by the revenue in this appeal, read as under :
1. The learned A AC has erred in law and on facts in deleting the share income from Mayabhai Associates and Vimal Corporation from the total income of the assessee.
2. The learned AAC ought to have upheld the addition made by the ITO in total income of the assessee.
3. It is, therefore, prayed to set aside the order of the AAC and that of the ITO be restored.
2. The assessee is a HUF. The assessment year is 1980-81 and the relevant previous year is the calendar year 1979.
3. As the facts of the case are being unfolded one could see how ridiculous and untenable stand is taken by the assessee for a device adopted by it to reduce its tax burden at the cost of the national exchequer. The facts in brief are :
(a) The assessee consists of the following members :
(1) Shri Mayabhai Laxmichand, father and karta, (2) Shri Vipin Mayabhai, (3) Shri Pravin Mayabhai, (4) Shri Girish Mayabhai.
(b) The assessee, through its karta is a partner in the firms of Mayabhai Associates and Vimal Corporation, having 15 per cent share in each of the firms.
(c) By two separate identical declarations both dated 28-3-1979 executed by Vipin Mayabhai and Pravin Mayabhai, the former relinquished his right, title, claim or interest in the assessee's share in the firm of Mayabhai Associates as well as the amounts standing in the capital accounts of the assessee. Similarly, the latter relinquished his right, title, claim or interest in the assessee's share in the firm of Vimal Corporation as well as the amounts standing in the capital account of the assessee.
4. On the aforesaid facts, the assessee took up a stand before the ITO that when two coparceners executed the declarations on 28-3-1979, two new HUFs, called by them as Mayabhai Laxmichand HUF No. 2 and Mayabhai Laxmich and HUF No. 3, came into being. HUF No. 2 consisted of three coparceners, viz., Shri Mayabhai Laxmichand, Shri Pravin Mayabhai and Shri Girish Mayabhai, while HUF No. 3 also consisted of three coparceners, viz., Shri Mayabhai Laxmichand, Shri Vipin Mayabhai and Shri Girish Mayabhai, which are separate and distinct HUFs than the assessee. Therefore, the share of income from the aforesaid two firms cannot be assessed in the hands of the assessee but should be assessed in the hands of the said two HUFs. During the course of the assessment proceedings, the assessee had addressed three letters dated 6-4-1979, 22-8-1981 and 6-12-1982-which are reproduced in the order of the ITO-supporting its claim. The assessee has also relied on the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Dam Seshavataram [1981] 129 ITR 339.
5. The ITO, however, rejected the assessee's stand in the following manner :
I have carefully considered the assessee's above contentions. It is noticed that by making two separate declarations relinquishing share of Shri Vipin Mayabhai and Shri Pravin Mayabhai, the assessee has diverted its income to other two HUFs having the same ancestor as karta. That means Shri Mayabhai Laxmichand working as karta in three HUFs. The Hindu law does not contemplate the existence of two kartas. The very idea of there being two kartas of a joint Hindu family does not appear, prima facie, consistent with the concept of karta.
Moreover it is seen that by making declarations, the assessee has made a partial partition of its property. In view of the provisions of Sub-section (9) of Section 171 any partial partition of a HUF taken place after 31-12-1978 is null and void and of no legal effect. Here in the assessee's case such declarations are made on 28th March, 1979, i.e., after 31st December, 1978 and hence such a partial partition has no legal effect. The HUF shall continue to be assessed as if no such partition has taken place, i.e., the property or source of income shall be deemed to continue to belong to the said HUF.
In the circumstances, the assessee's claim that relinquished properties together with the income should not belong to the HUF of Shri Mayabhai Laxmichand is rejected and the income therefrom is assessed in the hands of the assessee-HUF of Shri Mayabhai Laxmichand.
[Emphasis supplied] The ITO also held that in view of the amendment made in Section 171(9) of the Income-tax Act, 1961 ('the Act') with effect from 1-4-1980, the decision in the case of Dara Seshavataram (supra) was not applicable in the instant case. He, therefore, included the assessee's share of profit of Rs. 27,174 in the firm of Mayabhai Associates and of Rs. 23,728 in the firm of Vimal Corporation, in the total income of the assessee. In this way, the ITO computed the total income of the assessee at Rs. 61,782 as against Rs. 10,340 declared by the assessee in its return of income filed on 30-6-1980.
6. Being aggrieved by the order of the ITO, the assessee went up in appeal before the AAC and reiterated the submissions which were made before the ITO. At the stage of AAC, the assessee also relied on two decisions of the Hon'ble Gujarat High Court in the cases of CED v. Babubhai T. Panchal [1982] 133 ITR 455 and CIT v. Shantikumar Jagabhai [1976] 105 ITR 795. The AAC's attention was also drawn to the fact that HUF Nos. 2 and 3 were assessed in respect of 15 per cent share in the firms of Mayabhai Associates and Vimal Corporation respectively by the ITO in the assessments framed under Section 143(3) of the Act on 5-3-1983 and 4-2-1983 respectively, which were framed prior to the assessment framed in the hands of the assessee on 23-3-1983. It was, therefore, urged that the said income cannot be taxed twice once in the hands of the said HUF Nos. 2 and 3 and again in the hands of the assessee. The AAC, in his order under appeal, accepted the assessee's submissions with the following remarks :
5. In view of the above facts and circumstances I consider it fair and reasonable to delete the share income from Mayabhai Associates and Vimal Corporation in the hands of the appellant for the assessment year 1980-81.
7. Being aggrieved by the order of the AAC, the revenue has come up in appeal before the Tribunal. The learned representative for the department strongly relied on the order of the ITO and vehemently argued that the AAV was not justified in accepting the submissions made on behalf of the assessee. Inviting our attention to the decision in the case of Shantikumar Jagabhai (supra), he highlighted the fact that the point involved in that case was entirely different, inasmuch as the facts and circumstances obtaining in that case are clearly distinguishable from the facts and circumstances obtaining in the instant case. In this connection, he pointed out to us the following question referred to the Hon'ble High Court in that case :
Whether, on the facts and in the circumstances of the case by release deed dated 11-9-1961 a valid partial partition between the mother and the minor son was effected ?
As regards the decision in the case of Dara Seshavataram (supra), the learned representative for the department once again highlighted the fact that the facts and circumstances obtaining in that case were clearly distinguishable from the facts and circumstances obtaining in the instant case. In that case, one of the coparceners had relinquished his right in the joint family properties by taking a medical store which earlier belonged to the joint family. The Hon'ble High Court was called upon to answer the following question :
Whether, on the facts and in the circumstances of the case, the income from Laxmi Medical Stores can be included in the hands of the assessee-HUF ?
The Hon'ble High Court gave its decision in favour of the assessee on the ground that no order of the ITO is contemplated under Section 171(1), in respect of a partial partition. According to the Hon'ble High Court, such an order is required when total partition is taken place in a family. Similarly, he submitted that since the facts and circumstances obtaining in the case of Babubhai T. Panchal (supra) are clearly distinguishable from the facts and circumstances obtaining in the instant case, the assessee cannot get any support from the said decision. In this connection, he also highlighted the fact that in the said case, the Hon'ble High Court was called upon to give their opinion in respect of Section 2(15) Explanation 2, and Sections 5, 9, 27 of the Estate Duty Act, 1953.
7.1 Inviting our attention to the declaration, more particularly, the following :
3. That I had on 28th day of March, 1979, relinquished all my rights, title, claim or interest from the said property of the HUF, viz., the partnership share and the credit balance of the capital account in the partnership firm of Mayabhai Associates in favour of the remaining members of the said HUF of Shri Mayabhai Laxmichand who have decided to continue to own, possess and hold the said property, viz., 15 p. share in the profit and loss of the said partnership firm of Mayabhai Associates and credit balance of Rs. 52,000 of the capital account in the said partnership firm as the HUF known as the HUF No. 2 of Shri Mayabhai Laxmichand.
4. That from the said date, i.e., 28th day of March, 1979, I myself or my legal heirs, successors, executors or assignees have no right, title, claim or interest in the said property of the HUF of Shri Mayabhai Laxmichand and that the said property from that date belongs to the HUF of Shri Mayabhai Laxmichand comprising of Shri Mayabhai Laxmichand, Shri Pravin Mayabhai and Shri Girish Mayabhai now known as the HUF No. 2 of Shri Mayabhai Laxmichand and that I have no right, title, claim or interest in the said HUF No. 2 of Shri Mayabhai Laxmichand comprising of Shri Mayabhai Laxmichand, Shri Pravin Mayabhai and Shri Girish Mayabhai as the members and coparceners.
The learned representative for the department submitted that on the proper reading of the said declaration, it is quite clear that Vipin Mayabhai had relinquished his right, title, claim or interest in the firm of Mayabhai Associates. In other words, he would not be entitled to get any income from the said firm. In other words, the assets of the assessee in the said firm remained with the assessee but only one coparcener had relinquished his right, title, claim or interest therein. This would not, according to the learned representative for the department, create a separate HUF as is claimed by the assessee. Similar is the position in respect of Pravin Mayabhai vis-a-vis Vimal Corporation. He further submitted that the fact that the assessments have been framed under Section 143(3) in the cases of alleged HUF Nos. 2 and 3 would not debar the revenue to tax the income in the right hands. He, therefore, urged that the order of the AAC should be set aside and that of the ITO should be reversed.
7.2 The learned counsel for the assessee, on the other hand, strongly supported the order of the AAC. In this connection, he placed strong reliance on an unreported decision of the Hon'ble Gujarat High Court in the case of Kanaiyalal Motilal & Sons [IT Reference No. 108 of 1974 dated 9-2-1976], the head-notes of which read as under :
Income-tax Act, 1961, Section 171-Partition of joint family-Retirement of some coparceners from some properties-The parents had released their interest from certain joint family properties and the department recognised the HUF of four brothers in respect of those properties. Subsequently the parents also released their rights in respect of other joint family properties-The assessee contended that these properties were also assessable in the hands of the same HUF of four brothers while the department contended that the main HUF of the parents was liable to be assessed in respect of these properties though the father had released his interest from the said properties.
Held The assessee's contention was correct as the department had recognised the separate existence of the four brothers and the properties from which the father released his interest thereafter belonged to the same joint family of four brothers and was, therefore, assessable in their hands.
According to the learned counsel for the assessee in view of the aforesaid decision, there can be multiple HUFs as is claimed in the present case.
8. The learned representative for the department, in his reply, submitted that since in the aforesaid unreported decision a partial partition had been recognized under Section 171, by the A AC against the order of the ITO rejecting the same, there were in fact, two HUFs, one consisting of the father, mother and four sons and the other consisting of four sons. However, in the instant case, as recognition of partial partition has been debarred in respect of any such partial partition which took place after 31-12-1978, see Section 171(9), the assessee could not have approached the ITO to pass an order under Section 171, recognising the partial partition on the declaration made by the two outgoing coparceners in respect of the assessee's share in the aforesaid two firms. He, therefore, submitted that even the aforesaid unreported decision would not be of any help to the assessee.
9. We have carefully considered the rival submissions of the parties and we find considerable force in the submissions made on behalf of the revenue. On the proper reading of the declaration made by the two coparceners (reproduced above), it is quite clear that they have made the declaration to the effect that they would not have any right, title, claim or interest in the property of the assessee in the aforesaid two firms. In other words, the assessee continues to own the said two properties. This fact by itself would not create two new alleged HUF Nos. 2 and 3 as claimed by the assessee. In fact, it is very curious to note that the coparcener who has relinquished his right, title, claim or interest states that a new HUF has come into being consisting of the coparceners other than himself. We have very serious doubt whether a coparcener can do so under any law of the land. Again, it is trite law that any document executed by a party would not bind the revenue-CED v. Mrudula Nareshchandra [1986] 160 ITR 342 (SC). Further, we entirely agree with the submissions made on behalf of the revenue that the facts and circumstances obtaining in various reported/unreported decisions cited above are clearly distinguishable from the facts and circumstances obtaining in the instant case. As the learned representative for the department has pointed out such distinction, we need not repeat the same in our conclusion. Again, we entirely agree with the submissions made on behalf of the revenue that the fact that the alleged HUF Nos. 2 and 3 have been assessed by the ITO under Section 143(3), in respect of their respective shares from the aforesaid firms, would not debar the ITO assessing the assessee to bring to tax the income which really belongs to the assessee. It may be true that there may be some hardship to the assessee in this regard. However, the assessee, if so advised, may be at liberty to approach the concerned authority with a view to cancel the assessments framed in the hands of the alleged HUF Nos. 2 and 3.
10. In view of our aforesaid discussion, we have no hesitation in setting aside the order of the AAC and restoring that of the ITO.
11. Before we part with this order, we would like to observe that both the learned representative for the department as well as the learned counsel for the assessee had supported their stand very forcefully. In fact, the learned representative for the department has very ably pointed out the distinguishing features obtaining in the case of the assessee as compared to both the reported/unreported decisions of the Hon'ble High Courts mentioned above.
12. In the result, the appeal is allowed.