Gujarat High Court
Vimalbhai Nagindas Shah vs Commissioner Of Income-Tax, Gujarat on 26 February, 1981
JUDGMENT Divan, C.J.
1. In this case, at the instance of the assessee, the following three questions have been referred to us for our opinion:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that there was no partition amongst all the four members of the HUF ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that there was only a partial partition between Shri Vikrambhai and the other three members of the HUF ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the would of the capital gains arising out of the sale of the property in question is includible in the hands of the assessee-HUF ?"
2. The assessee before us is an HUF which, up to June 5, 1969, consisted of four members, namely, Vimalbhai Nagindas, the karta, his wife, Taramati, and his two sons, Gautambhai and Vikram. This joint Hindu family was the owner of a property situated in Saraspur in Ahmedabad city. It was a residential house and it bore two survey numbers 2407 and 2409. Survey No. 2407 consisted of 90 square yards and survey No. 2409 consisted of 109 square yards. The propositions for the purposes of this reference may be stated to be one Nagindas and Nagindas had three sons, Chinubhai, Anubhai and Vimalbhai. A partition had taken place on March 6, 1937, and as a result of that partition amongst the magnets of the HUF consisting of the three sons of Nagindas, the property at Saraspur came to Vimalbhai's share and Vimalbhai's share in the ancestral property had become the property of the HUF consisting of Vimalbhai, his wife and his two sons. On December 12, 1967, Vimalbhai, in his capacity as the karta of the HUF, that is, the assessee before us, agreed to sell the Saraspur property to one Arvind Nathalal and the agreed sale price was Rs. 80,000. On June 5, 1969, a deed of partial partition was executed and the parties to the deed of partial partition were Vimalbhai, his wife, Taramati, and Gautam on the one hand and in one grope and they were the parties of the firms part, and Vikram, the other son, was the second party to that deed of partial partition. As a result of this partial partition, a sum of Rs. 20,000 was given to Vikram as his share in the Saraspur Property and that amount was given by the group consisting of Vimalbhai, Taramati and Gautam, and the entire property was then, under the deed of partial partition, to belong to the group consisting of Vimalbhai, Taramati and Gautam. The Saraspur property was thus allotted jointly to the three members mentioned above. On the same day, that is, on June 5, 1969, a sale deed was executed by Vimalbhai, Taramati and Gautam jointly in favour of Arvind Nathalal. It appears that Arvind Nathalal was not in a position of pay the balance of the purchase price then due and a mortgage was executed by Arvind Nathalal in favour of Vimalbhai, Taramati and Gautam jointly. In view of the deed of partial partition which was executed earlier on the same day, Vikram, the other sons, was not a party either to the deed of sale in favour of the Arvind Nathalal, nor a mortgage in the deed of mortgages executed by Arvind Nathalal for the security of the unpaid purchased price.
3. The question arose about the liability it pay capital gains in respect of the sale to this property. In the assessment of the assessment year 1970-71 so far as the assessee-HUF before us was concerned, it was contended that as a result of the partial partition, the property no longer belonged to the assessee-HUF consisting of four persons, Vimalbhai, Taramati Gautam and Vikram, but that it belonged to the three individuals, Vimalbhai, Taramati and Gautam and that capital gains, if any, should be assessed not in the hands oftheassessee-HUF but in the hands of the three persons or the group of there persons. The claim for partial partition was rejected by the ITO on the ground that there was no partition. The ITO observed that according to the narration in the document, stated to the deed of partial portion, between Vikram, on the one part and Vimalbhai, Taramati and Gautam on the other, at the most, it could be held that Vikram took Rs. 20,000 and the remaining coparceners continued to be the coparceners of the HUF and consequently the HUF continued in respect of this property. He further held that since the property was already the subject-matter of sale by the HUF, and it accepted part payment the balance to be paid in instalments, the property ceased to be that of the HUF having been already sold. The assessee went in appeal but the AAC upheld the order of the ITO. The assessee carried the matter in appeal before the Tribunal on is point. The question of partition claimed by the assessee in respect of the HUF property assumed importance in the context of the assessment to capital gains in respect of the sale made in favour of Arvind Nathalal. Before the Tribunal the assessee contended that since the property was sold after the partition between the members of the HUF, in respect of this property, capital gains, if any, was taxable in the respective individual's hands or in the hands of the group consisting of Vimalbhai, Taramati and Gautam and not in the assessment of the assessee-HUF which, as we have already pointed out above, consisted of four personal namely, Vimalbhai, Taramati, Gautam and Vikram. The Tribunal held that there was no partition between all the members of the family in respect of this property as contended by the representative for the assessee before the Tribunal. After considering the terms of the partition deed dated June 5, 1969, and the provision of Hindu law applicable to the case, the Tribunal rejected the contention of the assessee that there was a partition amongst the members before the sale was effected and that the capital gains arising was assessable in the hands of the individuals and not in the hands of the assessee-HUF. It further rejected the argument on behalf of the assessee that even if the partition be regarded as one whereby Vikram separated from the family, the remaining members continuing to be joint, it brought into existence a different HUF from the one constituted by all the members including the separated member, Vikram and, therefore, the capital gains should be assessed in the hands of a separate and a different HUF. The Tribunal held that with regard to the property which was the subject-matter of the partial partition when the remaining members, other than Vikram, held the property jointly, it did not result in an HUF coming into existence after the separation of the member, as the only effect of the separation of a member was that the number of members in the HUF was reduced by the exit of Vikram. The Tribunal held ultimately that in so far as Vikram was stated to have separated from the other members in respect of the particular property and taken his share, a partial partition might be recognised, but that would not have any impact on the assessment of capital gains in the hands of the HUF. Thereafter, at the instance of the assessee, the three question hereinabove set out have been referred to us for our opinion.
4. In order to appreciated the controversy in this case, it is necessary to refer to the deed of partial partition darted June 5, 1969. The deed is executed, as we have stated above, between two parties, it commences by saying that it is the deed of partial petition for Rs. 20,000 in respect of the building situated at Saraspur and the parties of the first part were Vimalbhai, Taramati and Gautam and the party of the second part was Vikrambhai. In the deed of partition, the property at Saraspur was valued at Rs. 80,000, and it was mentioned that as a result of the partial partition, the property at Saraspur had gone to the joint shares of Vimalbhai, Taramati and Gautam, the three persons who were comprising the party of the first part, and the share on partition being the one-fourth part, we to Vikram and Vikram was to be given a sum of Rs. 20,000 by the group of persons consisting of Vimalbhai, Taramati and Gautam because that was the cash equivalent of Vikram's one-fourth share in the Saraspur property. Then the deed proceeds:
"On deducting the said amount, the three persons of the party of the first part have as their joint share, 3/4 part of share in title of the property, Rs. 60,000 (in words rupees sixty thousand) and in that manner, the party of the second part, having got this day from the party of the first part Rs. 20,000 (in words rupees twenty thousand) in cash equal to his share in title of 1/4 part in the property has given up all manner of share in title of his part of the said building in favour of the party of the first part making them exclusive owners of the said property. And the party of the second part has handled over possession of the said building to the party of the first part. Since this partial partition deed is executed in the interest of the of the party of the second part, no claim in title, share in tittle or self interest, etc., of any nature of the party of the second part or of his legal heirs and successors and of any rightful claimant, creditor, shareholder or far that matter of anybody, both survive in respect of the said building."
5. Thus, it is clear, particularly, if the wordings of e document which are originally in Gujarati are read, that though this document is the deed of partial partition in the sense that Rs. 20,000 being Vikram's share in the Saraspur property was paid over to him, there was in fact a complete partition qua this particular property between the four members of the HUF, consisting of Vimalbhai, Taramati, Gautam and Vikram. Each of the four members of this HUF was nationally given his share of 20,000 in the Saraspur property which was valued at Rs. 80,000 and the three members in the group, namely, Vimalbhai, Taramati and Gautam, took over the Saraspur property after paying off the one-fourth share to Vikram. The result obviously is that the assessee, HUF, consisting of four persons which continued to be a joint formality owning other property and having other assets and other sources of income, no longer owned the Saraspur property because a as result of the partial partition, it ceased to be the property of the assessee-HUF.
6. The Supreme Court has pointed out the legal effect of partition in such cases in Girijanandini Devi v. Bijendra Narain Choudhary. AIR 1967 SC 1124. In that case it was pointed out by the Supreme Court (headnote):
"In a Hindu undivided family governed by the Mitakshara law, no individual member of that family, while it remains undivided, can predicate that he has a certain definite share in the property of the family. The rights of the coparceners are defined when there is partition. Partition consists in defining the shares of the coparceners in the joint property; actual division of the property by metes and bounds is not necessary to constitute partition. Once the share are defined, whether by the agreement between the parties or otherwise, partition is complete. The parties may thereafter choose to divided the property by metes and bounds or may continue to live together and enjoy the property in common as before. If they live together, the mode of enjoyment alone remains joint, but not the tenure of the property.
7. Partition may ordinarily be effected by the institution of a suit, by submitting the dispute as to division of the properties to arbitrators, by demand for a share in the properties, or by conduct which evinces an intention to sever the joint family; it may also be effected by agreement to divide the property. But in each case the conduct must evidence unequivocally an intention to sever the joint family status. Merely because one members of a family severs his relation there is no presumption that there is severance between the or members; the question whether there is severance between the other members is one of fact to be determined on a review of all the attendant circumstances. Where there is severance between different branches of a joint family, severance between the members of the branches inter se may not in absence of expression of an unequivocal intention be inferred.
8. It is from the intention to sever followed by conduct which seeks to effectuate that intention that partition results; mere specification of shares without intention to sever does not result in partition."
9. In the instant case, we find that there is an agreement to partition with respect to shares in the Saraspur property by Vikram, on the one hand and the other group consisting of Vimalbhai, Taramati and Gautam, on the other. Qua the Saraspur property, therefore, there was a partition and as a result of the partition, being partial as to property, that property ceased to be of the ownership of the HUF consisting of the four members, Vimalbhai, Taramati, Gautam and Vikram, that is, the assessee-HUF before us.
10. A situation similar to situation which has arisen before us came up before the Supreme Court in Joint Family of Udayan Chinubhai v. CIT [1967] 63 ITR 416. In that case Sir Chinubahi, his wife, Lady Tanumati and his sons, Udayan, Kirtidev and Achyut were originally assessed to income-tax in the status of an HUF. Sir Chinubhai filed a suit in the High Court of Bombay for partition and separate possession of his share in the joint family estate. By a consent decree dated March 8, 1950, the High Court declared that as from October 15, 1957, the joint family stood dissolved and all the members had become separate in food, worship and estate from that dated and that each members of the family was entitled to a fifth shares in the properties, movable and immovable, belonging to the family subject to the right of maintenance of Chinubhai's mother. The properties allotted to Chinubhai were set out in the schedule and the other properties which were collectively allotted to Tanumati, Udayan, Kirtidev and Achyut were set out separately and its was claimed that these properties would absolutely belong to and vest in them inequal shares. Pursuant to this decree, Sir Chinubhai took his share in properties allotted to him by that other properties remained undivided between Lady Tanumati, Udayan, Kirtidev and Achyut, each of them holding a fourth share therein as tenant-in-common with other co-sharers. On December 3, 1952. Sir Chinubhai applied to the ITO, Bombay, for a an order under s. 25A of the Indian I.T. Act, 1922, for the purpose of recording the partition and for separate assessment. The ITO passed an order on January 6, 1953, recording that since all the conditions of s. 25A were satisfied, from March 8, 1950, the HUF was deemed to have been partitioned and assessment subsequently to that date would be made on the two groups, namely, one consisting of Chinubhai and the other of Tanumati, Udayan, Kirtidev and Achyut separately. Thereafter, Tanumati, Udayan, Kirtidev and Achyut were each assessed separately by the ITO. Ultimately, the ITO, Ahmedabad, initiated proceedings under s. 34 for assessment years 1951-52 to 1953-54 and made assessments on Tanumati, Udayan, Kirtidev and Achyut in the status of HUF. On these facts the Supreme Court held that Tanumati, Udayan, Kirtidev and Achyut constituted a group and between them and Chinubhai there was partition in definite portions. The order passed by the ITO, Bombay, under s. 25A(1) was a valid order which he was competent to make. Thereafter the original HUF had to existence in fact or in point of law, personal or income-tax and it was not open to the ITO, Ahmedabad, to ignore the order either for the years in which the partition of the joint family was recorded or for any subsequent year and to assess the income in the hands of Tanumati, Udayan, Kirtidev and Achyut as if the original HUF continued to exist. It was further held that though the property allotted to the group consisting of Tanumati, Udayan, Kirtidev and Achyut had not been divided by metes and bounds between them, those four persons could still not be assessee as members of an HUF because such a relationship did not exist between them after severance of the joint family status of the family of which Chinubhai was the karta. It was pointed out by the Supreme Court that a complete partition among allthemembers of an HUF is not a condition for the exercise of the jurisdiction under s. 25A. Nor is the expression "group of members" in that section intended to refer only to a group consisting of as head of a branch and his sons who remained undivided. It was pointed out by Shah J. as he then was, speaking for the Supreme Court, at p. 422:
"If the members of the family, who constituted a group between whom and the other group there has been a partition in definite portions, constitute a Hindu undivided family, that ground may undoubtedly be assessed as a Hindu undivided family: they may be so assessed because of there relation inter se and not by virtue of section 25A(3)."
11. The facts of the case before us are very similar to what happened in Udayan Chinubhai's case [1967] 63 ITR 416 (SC). After June 5, 1969, the group consisting of Vimalbhai, Taramati and Gautam became the owners of the property at Saraspur. That was not because they were members of the assessee-HUF but because of the arrangement between them on the one hands and Vikram on the other when the partial partition as to the property was effected by the deed of June 5, 1969, and as the Supreme court pointed out, there were two groups, one party consisting of Vikram alone and the other group consisting of three persons, and if there was an HUF, that HUF was different from the HUF of which Vikram was also a member, namely, the assessee-HUF before us.
12. At this stage we may notice one more decision which has a bearing on the case before us and that it the decision of this High Court in CIT v. Shantikumar Jagabhai [1976] 105 ITR 795. There, Shantikumar, Gautamkumar and Bhadrakumar, were members of a joint Hindu family which owned properties including a business. At the relevant time, Bhadrakumar was a minor. By a release deed dated November 10, 1956, Gautamkumar, the major son, relinquished his interest inthejoint family business. Shantikumar died on September 1, 1961. Shantikumar had executed a will darted February 22, 1960, by which he bequeathed his interest in the joint family property including the business to his wife and two sons equally. By a document dated September 11, 1961, Gautamkumar, the major son, released his interest in the business in favour of the other legatees, his mother, Kalavati, and his minor brother, Bhadrakumar. In the same documents it was also recited that there was a partial partition of the business between the mother and the minor son, and thereafter they became partners in the said business. In connection with these facts, the Division Bench observed at p. 806:
"It is equally clear that the larger Hindu undivided family consisting of Shantikumar, Gautamkumar, Bhadrakumar and Kalavati continued to exists and continued to hold properties other than the joint family business of Bipinchandra Gautamkumar after November 10, 1956, on which date Gautamkumar had released his share in the Hindu undivided family business. Therefore, there were two separate assessable entities with effect from November 10, 1956. There was one assessable entity, namely, the joint Hindu undivided family of Shantikumar, Kalavati and Bhadrakumar, carrying on the business in the name of Bipinchandra Gautamkumar. Another assessable entity was the joint Hindu family called Shantikumar Jagabhai Hindu undivided family which owner all properties as prior to November 10, 1956, except the joint family business of Bipinchandra Gautamkumar. These two separate entities must be borne in mind in order to appreciate the correct legal position."
13. In the case before us also, therefore, there were two separate assessable entities. One is the HUF consisting of Vimalbhai, Taramati, Gautam and Vikram which continued to hold all the properties other than the Saraspur property after June 5, 1969. The other separate assessable entity could be either the group consisting of Vimalbhai, Taramati and Gautam to whose share, on the partial partition of June 5, 1969, the Saraspur property was allotted or the assessable entries would be three individuals, Vimalbhai, Taramati and Gautam. It is not for us at the present juncture, or while dealing with the present reference, to decide whether there was a new HUF or a new assessable entity consisting of the three persons or whether they were tenants-in-common or whether the purchases price which was coming to the three of them should be treated as individual capital gains in individual hands, but one thin is very clear in the light of the decisions in Udayan Chinubhai's case [1967] 63 ITR 416 (SC) and Shantikumar Jagabhai's case [1976] 105 ITR 795 (Guj), namely, that the assess-HUF consisting of Vimalbhai, Taramati and Gautam and Vikram could not be said to have earned the capital gains from the sale of Saraspur property. Once the partial partiton was effected on June 5, 1969, this property went out of the hands of the assessee-HUF and whoever else may be assessed for capital gains in respect of the sale of the Saraspur property, assessee-HUF could not be assessed in respect of the same.
14. We may point out that a case of partition between the members of an HUF that had agreed to sell joint family property, the partition talking place between the date of the agreement to sell and the date of the execution of the sale deed, was dealt with by this very Bench in Income-tax Reference No. 117 of 1976 with Income-tax Reference No. 93 of 1976 decided by us on February 16, 1981 (CIT v. Govindlal Mathurbhai Oza-[1982] 138 ITR 711). In that case, a partition had taken place between all the members of the family between two dates, namely, the date of the agreement to sell and the date of the execution of the sale deed, and it was observed (p. 716):
"It is no doubt true that the partition died not effect a partition by metes and bounds, of the land in question and they decided to divide the sale proceeds of the land in question which Govindbhai had agreed to sell by his agreement of September 25, 1963, to Shri P. V. Patel. In our opinion, that was the only legitimate course which the parties could have adopted, inasmuch as the only right which the family had under the agreement provided it was carried out, was in receive the sale proceeds. The partition could have, therefore, been effected only of the sale proceeds which the family was to receive on a sale of the land in question."
15. Under these circumstances, it is obvious that the Tribunal, with due respect, was in error when it held that the capital gains in respect of sale of the Saraspur property could be assessed in the hands of the assessee-HUF which consisted of four persons including Vikram, the four persons being Vimalbhai, Taramati, Gautam and Vikram. It may be pointed out at this stage that the Tribunal found that the partial partition of June 5, 1969, was a genuine partition and it was also recognized by the Tribunal as a good partition for the purposes of s. 171 of the I.T. Act, 1961, Under these circumstances, the Tribunal was in error in coming to the conclusion that the capital gains in respect of sale of the Saraspur property could be assessed in the hands of the assessee-HUF. We are not concerned with ascertaining in whose hands those capital grain could have been assessed for the relevant assessment year by the I.T. authorities, so far as the question referred to use are concerned.
16. We, therefore, answer the question referred to us as follows:
Question No. (1) - In the negative, that is, in favour of the assessee and against the Revenue.
Question No. (2) - It is not necessary to answer this question.
Question No. (3) - In the negative, that is, in favour of the assessee and against the Revenue.
17. The Commissioner will pay the costs of this reference to the assessee.