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9. The learned authorised representative of assessee has accordingly contended that under the arbitration award dated 24-9-1994, which was accepted by all the eleven members/coparceners of HUF, there had been effected the partition of the then existing Mohanlal K. Shah, HUF and so in the previous year relevant to assessment year 1997-98, the assessee-HUF did not exist. He has accordingly contended that the assessment impugned herein is bad in law, which, in turn, needs to be annulled.

10. The learned CIT-Departmental Representative, Shri K.L. Maheshwari, has contended that the assessing officer has passed the impugned order under section 171 holding that the partition of Mohanlal K. Shah, HUF has not taken place in accordance with the provisions of the Income Tax Act. He has contended that as regards partition, or rather a legally valid partition, there should be physical partition of the HUF property fully and then only the partition is acceptable under Income Tax Act. Referring to section 171 (1) of the Act, he has contended that for the purposes of' the Act, an HUF is deemed to continue as HUF unless and until an order under section 171(1) of the Act is passed holding that a partition of HUF has taken place. Referring to Explanation (a)(i) to section 171, he has contended that physical division of property should be there or otherwise, without physical division of the joint family property simply because of there being an, agreement for partition or an arbitration award for partition of the same, there cannot be deemed to be an acceptable partition under Income Tax Act. He has contended that merely defining the shares or mere allocation/allotment of shares in the HUF property without physical division by metes and bounds there cannot be a legal partition as recognised under section 171 of the Act. He has contended that earlier agreement for partition had been entered into among members of assessee-HUF in 1985, but the same was not acted upon, so in effect there was no partition at that time.

14. The learned CIT-Departmental Representative has contended that even assuming that both the other properties of Gujarat have been disposed of and there remained only one property at Khar, Bombay, still an order under section 171 of Income Tax Act accepting partition cannot be passed for there being no valid/proper partition inasmuch as no physical division of the Khar property has been done. He has contended that the assessee's learned Authorised Representative's argument has been that when physical division not possible, such division of the property as it admits of may be done but that argument is not tenable inasmuch this property at Khar Bombay was capable : of physical division but no physical division was done, and only one coparcener/member of HUF retained the property and paid cash amounts to other coparceners/members, and so it is not a proper partition in law. He has referred to CIT v. Venugopal Inani (1999) 239 ITR 514 (SC) in this regard. He has contended that the law requires that the tax should be paid on sale consideration as capital gains tax, either it should be paid in the hands of HUF or in the hands of individual. He has contended that in the instant case the tax, that is, capital gains tax, is not being paid by either appropriately, i.e., not on the whole of sale consideration. He has contended that there is no provision in the Income Tax Act that if any member of HUF received part of sale consideration, then that part of sale consideration should not be taxed in his hands. He has contended that the department's plea is that it should be taxed either in the hands of HUF or in the hands of individual recipient members. Referring to section 47(1) he has contended that the coparceners themselves did not offer their respective receipts of sale consideration in their respective returns by taking shelter under section 47(1) as has been observed by assessing officer on p. 12 of the assessment order. He has contended that assuming Rs. 90,000 to have been the value of the property, then only an amount of Rs. 90,000 alone is required to be divided among the members of HUF and it is that amount which can be exempt, that is, the value of the interest of individual coparcener and not the entire sum of Rs. 9 crores.

36. A mere severance of joint status of family or of HUF may constitute a partition under conventional Hindu law but in a partition falling in category No. (ii) mentioned above, the Income Tax Act, 1961, has further more requirements. In order that a partition of HUF may be accepted/recognised as such under section 171, an expression or manifestation of intention by any member/coparcener to separate himself from HUF/coparcenary will not, by itself, be sufficient to bring the matter of jointness to an end, that is, it will not amount to partition of HUF or severance of jointness, nor will it suffice to have the partition of HUF to be complete with respect to all the members of HUF and an the properties of HUF, but it will further be necessary that there should be physical division of the HUF property by metes and bounds. A physical division of the income without physical division of property, which is capable of physical division, will not constitute a partition. If under an alleged partition of HUF property, the shares of individual members in the property are only defined or specified but actual physical division or division by metes and bounds of property in accordance with the defined/specified shares of the respective members/coparceners does not take place, then no partition, acceptable/recognisable under Income Tax Act, 1961, can be said to have been effected. Thus, in order that there should be a valid partition of HUF, acceptable under section 171 of Income Tax Act, 1961, there should be actual physical division of the property as per the defined/specified share allotted to each individual member out of the HUF property.

40. In (2003) 87 ITD 537 (Mum)(SB) (supra), it has been held as under :

"The observations made in McDowefl's & Ltd.'s case (supra), regarding tax evasionlavoidance are weighty observations of the Apex Court and even if they do not constitute the ratio of decision; they are indicative of approach to be adopted by lower courts, which includes Tribunal to the question of tax avoidance; they have to be followed as guiding principles while deciding as to whether there was tax evasion or not."

41. However, considering the legal position as emanating from the cited decisions as also the celebrated commentaries, we find that the elaboration made by the assessee's learned advocate, Shri Shashi Tulsiyan, as to how a physical division of property of HUF should take place in order that there is a valid partition, acceptable/recognisable under Income Tax Act, 1961, has substance. We agree with the contention of the learned Authorised Representative of assessee that for a partition of HUF to be valid/acceptable under section 171 of the Income Tax Act, it is not always essential that each of the properties of HUF should be broken into pieces/portions, nor that each property should be broken into as many shares as are the sharers or members of HUF, so as to fall within "division by metes and bounds". In our considered opinion, what is meant by the expression "physical division of property by metes and bounds", in the context of partition of HUF, is that there should be actual physical division of the property as per defined/specified shares allotted to each member of HUF under partition, if that property admits of such physical division and if the property is of such nature that it does not admit of such physical division, then such division as the property admits of. However, it will very much depend upon the sweet will of the members of HUF to mutually agree as to in what manner they divide the property so as to allot separate shares to each one of the members. We take an illustration, suppose there is an HUF having four members Q, R, S, T and one property P1 which has four equal divisible portions or flats say A, B, C and D. The four members may, under partition, agree that each one of the members Q, R, S, T should get one portion/flat in the property P1 say A, B, C, D, respectively, then by this defining/specification alone the partition as per section 171 of the Act will not be valid if they simply define/specify their shares that the members Q, R, S,T to get the portions/flats A, B, C and D of the property P1 as their respective shares of the property P1 but still all the four portions/flats A, B, C, D remaining joint as they have been so far without the portions/flats A, B, C, D, being actually physically divided/separated and thenceforth each of the members taking one portion of the combined total rental income earned from the whole compact property Pl. In the given illustration, for a valid partition under section 171 of the Act, the property P1 has to be actually physically divided into four separate portions in the manner that one specific portion of the property (separated) goes to the share of each member as per the respective defined/specified share allotted to him, say one specific portion P-1A goes to the share of Q, the second portion of property, P-1B goes to the share of R, the third portion of the property P-1C goes to the share of S and the fourth portion P-1D goes to the share of the fourth member R. But, the members Q, R, S, T, may also mutually so agree that Q takes half portions of the property comprising of P-1A and P-1B, R takes P-1C, S takes one portion P-1D and T takes no portion of this property P1 but takes only cash compensation in lieu of his share of the property P1 and thus the property P1 is actually physically divided into three shares only and the fourth sharer is not taking any portion of the property P1 but is taking only cash compensation from other member/members, then such partition, whereunder even though there were four members of HUF and one property P1 but only three divisions of property PI have been made and allotted to three members while the fourth member has received only cash compensation by way of his share of HUF property will be legally valid partition, acceptable under section 171 of the Act. Again, if the four members mutually so agree that the whole property P1 is given to Q as his share of HUF property and the remaining three members R, S and T do not get any portion of the property P1 but they receive cash compensation from Q, then this will also be a valid partition of HUF and its property and acceptable/recognisable under section 171 of the Act. Thus, the position of actual physical division or physical division by metes and bounds to be made implies that when the shares of members of HUF in the joint property have been defined/specified under the agreement/arrangement/award or scheme of partition, then in order that there may be a valid partition under section 171 of Income Tax Act, actual physical division of the joint property of HUF as per the defined/specified respective shares allotted to the members under partition agreement/arrangement/award has to be made and so divided separate shares to be given to the respective members, and without that there will be no valid partition. In other words, the actual physical division of property or physical division of property by metes and bounds has essentially to bedone to effect a valid partition under section 171 of the Act when defined shares in the HUF property are allotted to various shares or members of HUF under partition scheme, so that effect is given to that scheme of partition. However, if under partition agreement/scheme the members mutually so agree that they allot a particular property to one member Q only and the other members R, S and T agree to take cash compensation only, then if that property is given to one member Q, then that will also be a valid partition acceptable/recognisable under section 171 of Income Tax Act inasmuch as its actual physical division comprises in the whole of it being given to one member Q and no portion of it being given to any of the other members R, S and T; the essence of the expression 'physical division by metes and bounds' in the context of a partition under section 171 of the Act being that after partition the property should, in no manner, remain in jointness.