Kerala High Court
Shantilal C. Shah vs Commissioner Of Income-Tax on 20 October, 1987
Equivalent citations: [1988]169ITR805(KER)
Author: M. Fathima Beevi
Bench: K.S. Paripoornan, M. Fathima Beevi
JUDGMENT M. Fathima Beevi, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has, under Section 256(1) of the Income-tax Act, 1961, referred the following question for our opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Hindu undivided family of Shantilal C. Shah got partitioned with effect from December 1, 1976, and that the income of the erstwhile family is to be assessed in the hands of the members of the family ?"
2. The assessment year in question is 1978-79. The assessee, Shantilal C. Shah, had been assessed as an individual. The Hindu undivided family of the assessee was a partner in the firm of M/s. Anandji. The Income-tax Officer included in the income of the assessee a sum of Rs. 3,830 as his share in the income of the Hindu undivided family from the firm, rejecting the contention of the assessee that the income from the firm was assessable only in the hands of the Hindu undivided family. The Appellate Assistant Commissioner held that in view of the Kerala Joint Hindu Family System (Abolition) Act, 1975, which came into force with effect from December 1, 1976, there was a deemed partition of the Hindu undivided family and, consequently, the share of the assessee in the income of the Hindu undivided family from the firm is liable to be included in his individual assessment. On further appeal, the Tribunal, following its earlier decisions and the decision of this court in the case of WTO v. K. Madhavan Nambiar [1988] 169 ITR 810 (infra), held that the Hindu undivided family should be deemed to have been partitioned with effect from December 1, 1976, and that the assessee's share in the income of the Hindu undivided family from the firm is includible in the income of the assessee.
3. The contention on behalf of the assessee is that because no partition has been recorded as required under Section 171 of the Income-tax Act in respect of the Hindu undivided family which had been hitherto assessed as Hindu undivided family, the share income is properly assessable only in the name of the Hindu undivided family and not in the hands of the members thereof. This contention is (made) without noticing the effect of the Kerala Joint Hindu Family System (Abolition) Act, 1975.
4. On and after December 1, 1976, no Hindu joint family existed in the State. The Act is one enacted to abolish the joint family system among the Hindus in the State of Kerala. All members of a Hindu undivided family governed by the Mitakshara law holding any coparcenary property on the day the Act came into force are thereafter deemed to hold it as tenants-in-common as if a partition had taken place among all the members of that Hindu undivided family as respects such property and as if each one of them is holding his or her share separately as full owner thereof. There is a total annihilation of the system in the State. The properties held by the Hindu undivided family thereafter have lost the character of joint family property and have become the individual property of the members. The individual right has also been determined, as joint tenancy has given way to tenancy-in-com-mon. Therefore, after December 1, 1976, the individual members of the family have a distinct share in the property and this change has been brought about by operation of law and not by act of parties.
5. Where a joint family has ceased to exist by operation of law, the question of recording a partition as envisaged under Section 171 of the Income-tax Act does not arise. That section applies only in cases where a Hindu family has been assessed as Hindu undivided family and a claim of partition is made subsequently. For the purpose of bringing to tax the income earned by the joint family before its disruption on partition, a fiction has been introduced in the section that until the partition is recorded by the Income-tax Officer after enquiries, the joint family shall be deemed to continue. The machinery thus provided under Section 171 is inapplicable in a case where no such partition has taken place, but the family has come to an end under law, the property had devolved on the members as provided under the statute and thereby the rights have been defined and settled. In such a case, if the income earned by the Hindu undivided family before such extinction has escaped assessment, the only course open to the assessing authority is to make a reassessment on the family under Section 147 as provided under Section 283(1) of the Act. That section providing for notice in bringing to tax the income of the joint family after a partition has been recorded under Section 171 should apply in such a case. This view is in accord with the decision in W. A. No. 159 of 1981.
6. Notice in respect of the Hindu undivided family has to be served on the person who was the last manager of the Hindu undivided family or if such a person is dead, then on all adults who were members of the Hindu undivided family immediately before the partition. The machinery is one which enables the authorities to assess the income earned by the Hindu undivided family even after its disruption by partition. The same machinery has to be applied for bringing to tax the income of the Hindu undivided family after its extinction by operation of law.
7. The Income-tax Officer is, therefore, empowered to make a reassessment in respect of the income earned by the Hindu undivided family up to December 1, 1976, by issuing notice to the quondam karta in the name of the joint family. The income accruing, therefore, can only be assessed in the hands of the members of the family in proportion to their share as the income of the individual members and not as that of the Hindu undivided family. In this view, the proportionate share of the income that accrued to the partner as on March 31, 1977, is properly assessable in the hands of the assessee in the individual status. The Income-tax Appellate Tribunal was, therefore, right in holding that the share income of Shantilal C. Shah is properly assessable in the individual status.
8. The question is accordingly answered in the affirmative, in favour of the Revenue and against the assessee.
9. A copy of the judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.