1. The appeal by the revenue and the cross-objection by the assessee, Hukam Chand (HUF), arising out of the order of the AAC, have been consolidated, heard together and are being disposed of by a common order for the sake of convenience. The year of the assessment involved is 1 971-72 for which the relevant valuation date is 31-3-1971.
2. The WTO on the basis of the wealth-tax return filed by the assessee in addition to the net wealth returned for the year. (sic) added Rs. 2,74,500 being the amount due to the assessee-HUF from the bigger HUF of which Hukam Chand, the karta of the assessee-HUF, was a member, by observing as under : For the assessment year 1972-73 the assessee has shown the net amount due from Pt. Lila Ram as Rs. 2,74,500 (i.e., compensation payable Rs. 4,35,000 less amount adjusted by it: Lila Ram Rs. 1,60,500). This amount has not been shown during the period under assessment as it is stated that the actual amount was received in May 1972 by the assessee though the family had received it in May 1971 and was adjusted and carried out before 31-3-1972. When the bigger family had received the said amount, it is to be found as to what was the position as on 31-3-1971. Though the money was not received by this date, yet it was due in the shape of compensation and this is bound to be a receivable asset as the amount of compensation stood determined. I, accordingly, add a sum of Rs. 2,47,500 as calculated by the assessee during 1972-73.
3. Aggrieved by the said addition, the assessee brought the matter by way of appeal before the AAC. In the memo of appeal, the assessee-HUF had taken the stand that the aforesaid addition of Rs. 2,74,500 by the WTO to his net wealth was bad in the eyes of law. When the appeal came up for hearing, the assessee sought permission and was permitted to raise the additional ground that the entire net wealth returned by the assessee and assessed by the WTO could not in law be taxed as the net wealth of the assessee for the year under consideration and so the assessment made by the WTO was null and void in view of the provisions of Section 20(1) of the Wealth-tax Act, 1957 ('the Act'). The AAC, however, held that the WTO was not justified in adding back the said sum of Rs. 2,74,500 to the net wealth of the assessee.
4. In the appeal filed by the revenue, the departmental representative has urged that on the facts and in the circumstances of the case the AAC was not justified in deleting the addition of Rs. 2,74,500 receivable as compensation on the partition of the bigger HUF. In support of his stand, the departmental representative relied on the ratio of the deeisions of the Allahabad High Court in the cases of Dwarka Nath v. CWT [1966] 62 ITR 304 and Banarsi Dass v. CWT [1970] 76 ITR 104. These arguments were controverted by the learned counsel for the assessee, Mr. Mittal, who in support of his cross-objections urged that, in view of Section 20(1), the wealth-tax assessment of the assessee-HUF was void ab initio.
5. We have given consideration to the above arguments. The existence of the bigger HUF of Lila Ram, of which Hukam Chand, the karta of the assessee-HUF, was a member at the beginning of the year under consideration, i.e., the assessment year 1971-72, is not in dispute. It is also not in dispute that there was a complete partition with effect from 31-3-1971 of the said bigger HUF of Lila Ram, vide partition deed dated 19-6-1971 which was duly registered. Under the said partition deed Hukam Chand, karta, for and on behalf of the assessee-HUF received, besides other properties, the right to recover a sum of Rs. 4,35,000 as one-seventh share in the claim for higher compensation in respect of the agricultural land belonging to the said bigger HUF of Lila Ram. The covenant in the aforesaid partition deed is in the following terms: 10. Certain suits and claims are pending in various Courts relating to the agricultural lands belonging to the said Hindu undivided family or previously so belonging and have been acquired by the Government and the value of these claims is taken at Rs. 30,45,000 full particulars of which have been given in the Fourth Schedule.
Each one of the seven members has equal rights therein subject to the payment of income-tax, wealth-tax, penalty and interest liabilities of Rs. 10,50,000 mentioned in para 8 above. It is expressly provided and declared, also keeping in view the wishes of Pandit Hukam Chand, that the value of one-seventh share of Pandit Hukam Chand is fixed at Rs. 4,35,000 and out of this amount, the first Rs. 1,50,000 will be utilised in payment of the one-seventh share of tax liability falling to the share of Pandit Hukam Chand and the balance amount of Rs. 2,85,000 will be paid to him in the first instance in full and final settlement of his right and interest and claim in respect to one-seventh share in the said claims. It is further expressly recorded and declared that in co nsideration thereof, Pandit Hukam Chand shall have no further right or interest in the said claims and, in case the final figure of the claims falls short of the estimated value of Rs. 30,45,000 the shortfall will be borne by Pandit Lila Ram and his five other sons, Pandit Trilok Chand, Pandit Chet Ram, Pandit Dharam Singh, Pandit Prem Raj and Pandit Manohar Lal, in equal shares and in case there is any excess realisation, the same shall be equally shared by Pandit Lila Ram and his five other sons, Pandit Prem Raj and Pandit Manohar Lal (sic) and Pandit Hukam Chand shall have no right or interest in such excess. It is also expressly declared and recorded that the said sum of Rs. 4,35,000 to be paid to Pandit Hukam Chand in full and final settlement of his share will be paid in the first instance out of the additional compensations to be received and the balance amount of compensations and the entire interest to be awarded by the Courts, will belong to Pandit Lila Ram and his five other sons, Pandit Trilok Chand, Pandit Chet Ram, Pandit Dharam Singh, Pandit Prem Raj and Pandit Manohar Lal in equal shares and Pandit Hukam Chand shall have no right, claim or interest therein.
It is also expressly declared and recorded that in consideration of the priority of the payment of the said amount to Pandit Hukam Chand and its allocation to additional compensation above and in consideration of the risk of shortfall and taxation liability, if any, which the others will bear, the payment of Rs. 4,35,000 to Pandit Hukam Chand is final and cannot be questioned at all by him on any ground at all including the possibility of receipt of a larger amount than Rs. 30,45,000 estimated above.
The said complete partition in the case of Pandit Lila Ram (HUF) stands accepted by the ITO assessing the said HUF vide his order under Section 171(3) of the Income-tax Act, 1961 dated 21-1-1975 and also by the WTO assessing the said bigger HUF in his assessment order for the assessment year 1971-72.
Where, at the time of making an assessment, it is brought to the notice of the Wealth-tax Officer that a partition has taken place among the members of a Hindu undivided family and the Wealth-tax Officer, after enquiry, is satisfied that the joint family property has been partitioned as a whole among the various members or groups of members in definite portions, he shall record an order to that effect and shall make assessments on the net wealth of the undivided family as such for the assessment year or years, including the year relevant to the previous year in which the partition has taken place, if the partition has taken place on the last day of t he previous year and each member or group of members shall be liable jointly and severally for the tax assessed on the net wealth of the joint family as such.
By virtue of this provision a fiction has been created whereby though the joint property of the HUF stands partitioned as a whole amongst the various members or group of members in definite portions, as on the last day of the previous year which in the present case is 31-3-1971, yet the WTO, while recording an order of accepting the said partition as a whole, has to make assessment on the net wealth of the said HUF as such for the assessment year or years including the year relevant to the previous year in which the partition has taken place. At the same time, each member or group of members was liable jointly and severally for the tax assessed on the net wealth of the joint family as such.
This fiction has to be taken to the logical end. It means that since the HUF was being assessed as such and the liability of each member or group of members, who have on partition as a whole received definite portions of the joint family property (sic) are liable jointly and serverally for the tax assessed on the net wealth of the joint family as such for the year in which the partition as a whole took place on the last day of that year, the question of making a separate assessment against the net wealth of any such member or group of members would not arise. In that view of the matter, the stand taken by the assessee in the cross-objection that the wealth-tax assessment order passed by the WTO in the case of the assessee-HUF being contrary to the provisions of Section 20(1), is null and void. We hold likewise.
7. The decisions relied upon by the departmental representative above are distinguishable on facts. In those cases, the partition was not partition as a whole but those cases were of partial partition. Even in respect of the partial partitions, Section 20A of the Act, which was added by the Finance (No. 2) Act, 1980, with effect from 1-4-1980, the position would be somewhat similar to that (sic) in the matter of assessment after partition as a whole of a HUF as provided in Section 20(1).
8. Having come to the above conclusion, we need not express our opinion on the ground of appeal raised by the revenue regarding the inclusion of the sum of Rs. 2,74,500 to the net wealth of the assessee-HUF.9. In the result, the cross-objection by the assessee is allowed and the appeal by the revenue is dismissed.