Gujarat High Court
Commissioner Of Income-Tax vs Kantilal Ambalal (Huf) on 17 June, 1991
Equivalent citations: [1991]192ITR376(GUJ)
JUDGMENT R.C. Mankad, J.
1. A Hindu undivided family of Ambalal Shivlal consisted of two coparceners one of whom was Kantilal Ambalal. There was a partial partition of the Hindu undivided family of Ambalal Shivlal on March 30, 1970. At this partition, lands bearing Survey Nos. 296 and 386/2 of Vadaj were allotted to Kantilal Ambalal. The Hindu undivided family of Kantilal Ambalal consisted of Kantilal Ambalal, the karta, his wife and his two minor sons, Kamalesh and Pradeep. On the partial partition of the properties of the Hindu undivided family of Ambalal Shivlal, as aforesaid, the lands bearing Survey Nos. 296 and 386/2 of Vadaj became the properties of the Hindu undivided family of Kantilal Ambalal.
2. A notification dated January 15, 1970, was issued by the State Government under section 4 of the Land Acquisition Act for the acquisition of the aforesaid lands bearing Survey Nos. 296 and 386/2 of Vadaj for the Gujarat Housing Board. After the partial partition as aforesaid, the Hindu undivided family of Kantilal Ambalal entered into an agreement with the Gujarat Housing Board on May 5, 1970, for the transfer of the lands bearing Survey Nos. 296 and 386/2 of Vadaj at the rate of Rs. 17.75 per sq. yd. On September 24, 1970, there was a partial partition of the properties of Hindu undivided family of Kantilal Ambalal and, under this partial partition, lands admeasuring 2,518 sq. yds. out of 3,146 sq. yds. of Survey No. 296 and 3,034 sq. yds. out of 10,043 sq. yds. of Survey No. 386/2 were div ided. The lands, as aforesaid, were divided amongst the aforesaid members of the Hindu undivided family, namely, Kantilal Ambalal, his wife and his two minor sons. These very lands were the subject-matter of acquisition and for which the Hindu undivided family had entered into agreement with the Gujarat Housing Board, as aforesaid. The Land Acquisition Officer gave a consent award in respect of the said lands on October 20, 1978, and the possession of the lands was handed over to the acquiring body, namely, the Gujarat Housing Board.
3. The Hindu undivided family of Kantilal Ambalal, which had effected the partial partition of Survey Nos. 296 and 386/2 of Vadaj, did not file a return of income for the assessment year 1971-72 as, according to it, it had not earned taxable income. The Income-tax Officer was, however, of the view that since the land belonging to the Hindu undivided family, was acquired by the Gujarat Housing Board, the Hindu undivided family had earned income by way of capital gains and that it was liable to make a return of its income under section 139 of the Income-tax Act, 1961 (the "Act" for short). The Income-tax Officer, therefore, issued a notice under section 148 read with section 147(a) of the Act for making an assessment of the Hindu undivided family of Kantilal Ambalal. In response to this notice, the Hindu undivided family of Kantilal Ambalal filed a return of income on April 22, 1974, showing income of Rs. 98. It was pointed out to the Income-tax Officer that a partial partition had taken place on September 24, 1970, and, under this partial partition, 2,518 sq. yds. of land of Survey No. 296 and 3,034 sq. yds. of land of Survey No. 386/2 were divided amongst the members of the Hindu undivided family and it was only after such partial partition that the land was transferred to the Gujarat Housing Board. The Income-tax Officer, however, held that since the partial partition was not by metes and bounds, it was an after-thought. According to the Income-tax Officer, section 171 of the Act provided that the partition should be by metes and bounds and, therefore, unless the partition was by metes and bounds, the partition could not be valid. In this view of the matter, he held that the Hindu undivided family of Kantilal Ambalal was liable to pay tax on capital gains arising out of the transfer of the lands bearing Survey Nos. 296 and 386/2 to the Gujarat Housing Board. The Income-tax Officer determined the value of the land as on January 1, 1964, at Rs. 3 per sq. yd. and worked out the capital gains on that basis. The Income-tax Officer also passed an order dated March 22, 1975, under section 171 of the Act holding that the partial partition was not genuine. In reaching this conclusion, the Income-tax Officer relied on his assessment order passed under section 143(3) read with section 147(a) of the Act for the assessment year 1971-72. Since, according to him, the partial partition was not valid, he held that the interest income earned on the amount of compensation paid to the members of the assessee was taxable in the hands of the Hindu undivided family of Kantilal Ambalal in the assessment years 1972-73 to 1975-76.
4. Kantilal Ambalal invested his share in the compensation amount received for the acquisition of the lands bearing Survey Nos. 296 and 386/2 in the firm of M/s. Kirtikumar Trikamlal and Bros. and became a partner in this firm. Since, according to the Income-tax Officer, the partial partition was not valid, he held that the amount which Kantilal Ambalal had invested in the firm of M/s. Kirtikumar Trikamlal and Bros. was not his individual money, but money belonging to the Hindu undivided family and, therefore, the share of profit received from the said firm was assessable in the hands of the Hindu undivided family. In this view of the matter, he included the share income received by Kantilal Ambalal from the firm of M/s. Kirtikumar Trikamlal and Bros. in the hands of the Hindu undivided family of Kantilal Ambalal (the assessee).
5. Being aggrieved by the assessment orders for the assessment years 1971-72 to 1975-76, the Hindu undivided family of Kantilal Ambalal (the assessee) went in appeal before the Appellate Assistant Commissioner. The assessee also challenged the order of the Income-tax Officer passed under section 171 of the Act.
6. The Appellate Assistant Commissioner, in the appeal against the order passed under section 171 of the Act, held that since the Hindu undivided family of Kantilal Ambalal was not assessed to income-tax at any time prior to 1971-72, the provisions of section 171 were not applicable and the entire proceedings were misconceived. He, therefore, allowed the appeal of the Hindu undivided family.
7. In the appeals preferred by the Hindu undivided family of Kantilal Ambalal against the assessment orders for the years 1971-72 to 1975-76, the Appellate Assistant Commissioner took the view that since the partial partition was not by metes and bounds, it was not valid. He also rejected the contention that section 171 of the Act had no application since the Hindu undivided family was not assessed prior to 1971-72. The Appellate Assistant Commissioner determined the value of the land as on January 1, 1964, and directed the Income-tax Officer to work out the capital gains again on that basis.
8. The Revenue, being aggrieved by the order passed by the Appellate Assistant Commissioner, setting aside the order passed by the Income-tax Officer under section 171 of the Act, went in appeal before the Income-tax Appellate Tribunal (the "Tribunal" for short). The assessee challenged before the Tribunal the order passed by the Appellate Assistant Commissioner in the appeals against the assessments made by the Income-tax Officer. The Revenue filed cross-objections in regard to the determination of the value of the land as on January 1, 1964, in these appeals. The Tribunal disposed of the said appeals and the cross objections by a common order. The Tribunal, relying on its earlier order, held that, since the Hindu undivided family of Kantilal Ambalal was not previously assessed, section 171 has no application. According to the Tribunal, the partial partition was genuine. There was no material on record "to show that the partial partition was sham or an artifice pressed into service to defeat the legitimate claims of the Revenue." It was observed that the Revenue had not challenged the partial partition on any ground other than legal grounds, namely, that it had to be valid under section 171 of the Act. In the view which it took, the Tribunal held that it was not necessary for it to enter into the question of the value of the land as on January 1,1964. The Tribunal, relying on its earlier decisions, was of the view that the question of the value of the land as on January 1,164, was required to be re-examined and, therefore, for statistical purposes, it allowed the cross objections of the Revenue.
9. It is in the background of the above facts that the Tribunal has referred to us for our opinion the following questions under section 256(1) of the Act :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that section 171 of the Income-tax Act, 1961, had no application to the facts of the case as the assessee was not 'hitherto assessed' and the Income-tax Officer, therefore, was not entitled to reject the claim of partial partition ?
2. Whether the surplus realised on account of acquisition of land bearing Survey Nos. 296 and 386/2 situate at Vadaj was liable to capital gains tax in the hands of the assessee-Hindu undivided family ?
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the interest received on the amount of compensation received by the members of the assessee-Hindu undivided family in respect of the lands of Survey Nos. 296 and 386/2 acquired by the State of Gujarat for Gujarat Housing Board was not assessable in the hands of the assessee-Hindu undivided family ?
4. Whether, on the facts and in the circumstances of the case the share income received by Kantilal Ambalal from the partnership firm of M/s. Kirtikumar Trikamlal and Bros. Was assessable in the hands of the assessee-Hindu undivided family ?"
10. Section 171(1) which is relevant for the purpose of resolving the controversy involved in this reference reads as follows :
"A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family."
11. It is the case of the Revenue that unless the Income-tax Officer has recorded a finding of partition under section 171 of the Act, the Hindu undivided family will continue to be undivided. The Hindu undivided family of Kantilal Ambalal effected a partial partition on September 24, 1970, but such partition was not by metes and bounds and, therefore, it was not valid. Since the partial partition was not valid, the land which was sought to be divided amongst the members of the Hindu undivided family, continued to be the land belonging to the Hindu undivided family. Therefore, capital gains arising out of the acquisition of the land for the Gujarat Housing Board will have to be taxed in the hands of the Hindu undivided family.
12. The argument of the Revenue proceeds on the assumption that section 171 of the Act applies to the facts of the present case. Section 171 of the Act has no application to a case of a Hindu family which has never been assessed before as a joint family, i.e., as a unit of assessment. In other words, this section has application to a Hindu family which has been assessed before as a joint family and if the Hindu undivided family has never been assessed to tax. This section has no application. The Hindu undivided family of Kantilal Ambalal, admittedly, was never assessed to income-tax in the past, therefore, section 171 of the Act has no application at all to the facts of the instant case. A similar view has been taken by the Andhra Pradesh High Court in Addl. CIT. v. P. Durgamma [1987] 166 ITR 776.
13. The genuineness of the partial partition has not been challenged on any ground other than the legal ground that it was not valid under section 171 of the Act. Partial partition which was made on September 24,1970, must, therefore, be held to be valid. In our opinion, therefore, the Tribunal was right in holding that section 171 of the Act is not applicable and that the partial partition was valid. In the view which we are taking, capital gains were not assessable in the hands of the Hindu undivided family of Kantilal Ambalal. It follows as a necessary corollary that the income earned on the compensation amount received by the members of the Hindu undivided family would not be taxable in the hands of the Hindu undivided family, Kantilal Ambalal. Kantilal Ambalal, admittedly invested his share in the compensation amount in the firm of M/s.Kirtikumar Trikamlal and Bros., and became a partner therein. The amount invested by Kantilal Ambalal did not belong to the Hindu undivided family and, therefore, the share income earned from the firm of M/s.Kirtikumar Trikamlal and Bros. Was not assessable in the hands of the Hindu undivided family of Kantilal Ambalal (the assessee).
14. In the view which we are taking, we answer question No. 1 in the affirmative and against the Revenue, question No. 2 in the negative and against the Revenue, question No. 3 in the affirmative and against the Revenue and question No. 4 in the negative and against the Revenue.
15. Reference answered accordingly with no order as to costs.