Income Tax Appellate Tribunal - Cochin
P.K. Subramanian (Huf) vs Income-Tax Officer on 12 January, 1996
Equivalent citations: [1998]64ITD204(COCH)
ORDER
1. This is an appeal by the assessee against the order of the Dy. CIT (Appeals), Calicut, dated 27-8-1993 on several grounds pertaining to the only one issue of not making the assessment in the Status of HUF and making the assessment in the status of individual capacity.
2. I have heard the learned counsel Sri V. Ramachandran. The arguments of the learned departmental representative Sri T. John George are also heard. They have been taken into consideration.
3. The short point involved in this appeal is whether the assessment should be made in the Status of HUF or in the Status of an Individual. The assessee filed the return of income in the status of HUF. The Assessing Officer in accordance with the provisions of the Kerala Joint Hindu Family System (Abolition) Act, 1975, which came into operation with effect from 1-12-1976, held that no HUF existed and no such assessment in the status of HUF can be made. The Assessing Officer further held that the income declared by the assessee HUF is assessable in the hands of the assessee, in his individual capacity.
4. The appellant being aggrieved by the assessment order of assessing his income in the status of Individual disputed the said view before the Dy. CIT (Appeals). What was submitted before the Dy. CIT (Appeals) was that no order under section 171 was passed by the Assessing Officer to make the assessment on the income as shown in his individual capacity. It was also submitted that the income once having assessing in the capacity of HUF should have been assessed in the same capacity. The Dy, CIT (Appeals) held that all Hindu Undivided Families stood automatically abolished with effect from 1-12-1976 as per the provisions of Kerala Joint Hindu Family System (Abolition) Act, 1975. He further held that there was no necessity of passing an order under section 171 of the Income-tax Act, 1961, He relied on the decision of the Kerala High Court wherein the constitutional validity of the provisions of Kerala Joint Hindu Family System (Abolition) Act, 1975 has been upheld. Therefore, he dismissed the assessee's appeal to assess in the capacity of HUF. It is this appeal which is filed against the said order.
5. The learned counsel for the assessee; Sri V. Ramachandran, argued at length. According to him, the partition of the HUF property was not effected in accordance with the provisions of section 171 of the Income-tax Act, 1961 and, therefore, there was no severance of HUF properties. He further submitted that the disruption of the HUF is not recognised by the Legislature. According to him, a deeming fiction is created by the Kerala Act. He contended that the decision to make the assessment of the income shown in the status of HUF capacity is correct and legal and, therefore, the assessee's appeal be allowed.
6. The learned departmental representative Sri T. John George also argued elaborately. He submitted that whether there is a disruption of HUF or not, the abolition of such family by the Kerala Act coming into force with effect from 1-12-1976 has to be acted upon. He relied on the provisions of the Kerala Joint Hindu Family System (Abolition) Act and in support of his contention he relied on the decision of the jurisdictional High Court in the case of Shantilal C. Shah v. CIT [1988] 169 ITR 805/37 Taxman 28 (Ker.), wherein the High Court held that 'the Appellate Tribunal was right in holding that the Hindu undivided family of the assessee got partitioned with effect from December 1, 1976, by operation of law and that his share in the income of the Hindu undivided family from the firm was assessable only in the status of individual'. This decision is in a connection with the share income of an individual in the HUF from the firm was assessable in the status of individual.
7. The learned counsel for the assessee has relied on another decision of the Kerala High Court in the case of Sankaranarayanan Bhattathiripad v. ITO [1985] 153 ITR 562/[1984] 19 Taxman 96 wherein it is held that "where a Namboodiri illom was assessed and admittedly there had been no division by metes and bounds of their properties after the coming into force of the Kerala Act" and, therefore, the assessment in the status of HUF was valid. As per this decision if the properties are not divided by metes and bound's even after coming into the Kerala Joint Hindu Family System (Abolition) Act, 1975, the assessment in the status of HUF is valid. He has also cited and relied upon the decision in the case of ITO v. Smt. N. K. Sarada Thampatty [1991] 187 ITR 696 (SC), wherein it is held that the ITO was not justified in holding that the HUF had not disrupted and that the income derived from the properties for the purpose of assessment continued to be impressed with the character of income of the Hindu Undivided Family. If the HUF is not disrupted and if the income is derived from the properties of the HUF, such income had not lost the character of HUF income to be assessable in such capacity.
8. The Supreme Court in the case of R. B. Tunki Sah Baidyanath Prasad v. CIT [1995] 212 ITR 632/80 Taxman 71 held -
"affirming the decision of the High Court, that section 171 of the Income-tax Act, 1961, created a deeming fiction of the continuance of the Hindu Undivided Family except where a finding of partition was given in respect of the concerned Hindu Undivided Family. Before this finding was recorded an inquiry had to be undertaken on the question whether there had been a total or partial partition of the joint Family property and if there had been any such partition, the date on which it took place. In view of the language of section 171(1), the Hindu undivided family would be able to be taxed as undivided notwithstanding the effect of section 14(1) of the Hindu Succession Act, 1956, in relation to B's interest in the joint family property."
This decision is dated 13-12-1994.
9. The examination of the facts clearly show that no partition had been effected in accordance with the provisions of section 171 nor at any time the appellant made an application for such purpose even for partial partition of the Hindu joint family properties. On the contrary the appellant filed the return of income in his individual capacity for the assessment year 1977-78 and the CIT(A), Ernakulam, by his order dated 5-12-1978 accepted the contention that the correct status which should have been adopted for the purposes of the assessment was HUF and not individual. He directed the Assessing Officer to modify the assessment in conformity with this finding by allowing the assessee's appeal. A return in the status of HUF was filed for the assessment year 1979-80. The assessment was made in that status.
10. The assessment year in this appeals 1990-91. The assessee claimed to assess his income in the status of HUF. The Assessing Officer assessed in the individual capacity relying on the provisions of the Kerala Joint Hindu Family System (Abolition) Act and the Dy. CIT (Appeals) confirmed the same. No change can be affected in the status of the assessee from year tax year. For the assessment year 1978-79, the HUF status is accepted and for assessment year 1979-80 the assessment is made in the status of HUF.
11. If the decision of the Kerala High Court in the case of Shantilal C. Shah (supra) and other two judgments of the Supreme Court as mentioned above is correctly followed, it would mean that in respect of creating a deeming fiction by Kerala Joint Hindu Family System (Abolition) Act, the status of HUF is nowhere disrupted nor any partition is effected on the HUF properties by meres and bounds. Therefore, there is considerable substance in the contention of the learned counsel for the assessee fur making the assessment of his income in the status of HUF. In this view of the matter, the appellant succeeds and the appeal is allowed.