2. Shri R.V. Nagabhushana Rao, who was the karta of the HUF expired on 29-10-1978 leaving behind his widow, Smt. R. Venkataravamma, and four sons, viz., Shri R. Ramachandra Rao, Shri R. Poornachandra Rao, Shri R.Chandrasekara Rao and Shri S. Sreenivasa Rao. On 25-9-1982, Shri R.Ramachandra Rao as the karta of the HUF of late Shri R.V. Nagabhushana Rao filed a claim of complete partition under Section 171 of the Income-tax Act, 1961 ('the Act'). It was claimed that the residential house was settled in favour of Smt. R. Venkataravamma by her four sons oh 4-12-1978 and later on on 31-3-1979 the business, silverware and household utensils were divided. It was urged that the total partition should be recorded. The 1TO did not accept the claim for partition. He held that the house property was not allotted to any single coparcener.
In the absence of the registration it cannot be said that the HUF has legally partitioned the house property. The document dated 4-12-1978 filed in support of the claim for allotment of the house property to Smt. R. Venkataravamma was not registered and it was not written on any stamp paper also and no reliance can be placed on it. In the note filed along with the return for the assessment year 1979-80, it was not mentioned that the house property was divided amongst the coparceners.
He held that there was no sufficient evidence to show that the immovable property was divided by 31-3-1979. Thus, there was no complete partition of the movable and immovable properties by metes and bounds. Thus, he did not recognise the claim for partition as on 31-3-1979 as per his order dated 31-12-1982 made under Section 171(3).
The assessee had claimed that after the partition a firm was constituted with the four coparceners as partners. The 1TO rejected the claim for registration of the firm as per his order dated 15-1-1982 made under Section 185(1)(b) of the Act. However, he made a protective assessment in the status of unregistered firm. In the assessment order dated 15-12-1983 the total income of Rs. 47,310 computed in the protective assessment of R.V. Nagabhushana Rao & Sons, the firm, was assessed in the hands of the assessee-HUF. Appeals were preferred before the AAC. He upheld the order of the ITO, rejecting the claim for partition of the HUF under Section 171. In view of that he rejected the claim of registration of the firm. In respect of the appeal relating to the unregistered firm he held that it becomes infructuous. He upheld the assessment on the HUF including the income of Rs. 47,310. Against the said orders, the assessee has preferred these four appeals.
3. The learned counsel for the assessee submitted that on 2-12-1978, the daughters relinquished their rights in the house property in favour of their mother. On 4-12-1978 the four sons executed a deed in writing under which they settled the property in favour of their mother for her enjoyment during her lifetime and in view of that it could not be divided as the house property was taken away from the HUF. Hence, only the business, silverware and household utensils were partitioned. Thus, there was a total partition of the HUF. The lower authorities were not justified in rejecting the claim for partition. He urged that the provisions of Section 171(9) cannot be applied to the assessee as there was total partition before that provision came into effect. After the partition a firm was constituted with four divided coparceners and all the formalities were complied with and the firm is entitled for registration. The lower authorities were not justified in refusing registration to the firm. The inclusion of the firm's income in the assessment of the HUF is unjustified.
4. The learned departmental representative strongly urged that Section 171 was amended in the year 1980. The so-called partition of the house property is an afterthought in view of the amendment. There was actually no complete partition as the house property was not divided.
It is not right to say that the house property has gone out of the HUF as the coparceners could have divided the house property and, thereafter, permitted their mother to live therein. Thus, the division of the house property is possible. Thus, he justified the orders of the lower authorities in refusing to recognise the claim for total partition. He urged that once partition is not accepted, registration cannot be granted to the firm as it is the property of the HUF which constituted the assets of the firm. Hence, the registration has been rightly refused and the income of the firm is rightly included in the assessment of the HUF.5. We have considered the rival submissions. We will first deal with the claim for partition under Section 171(3). The property of the HUF consisted of house property, business, silverware and household utensils, etc. The business, silverware, household utensils were divided on 31-3-1979 between the four sons of late Shri R.V.Nagabhushana Rao. So far as the house property is concerned, the claim of the assessee is that the daughters by deed executed on 2-12-1978 relinquished their rights in the residential house and the sons executed a document on a white paper on 4-12-1978 settling the said property on their mother Smt. R. Venkata-ravamma for her enjoyment during her lifetime. In view of that, the said property has gone out of the family. We have carefully considered this submission of the assessee. In the house property Smt. R. Venkataravamma, her four sons and all the daughters have share as per the Hindu Succession Act, 1956 since the deceased Shri Nagabhushana Rao died intestate. Under Section 23 of the Hindu Succession Act the right of the female heirs specified in class I of the Schedule to claim partition of the dwelling house shall not arise until the male heirs choose to divide their respective shares therein but the female heir shall be entitled to a right to residence theirin. The male heirs have a right to divide the house property but the four sons have not divided the house property. Even in the so-called deed dated 4-12-1978 executed on a white paper, it is mentioned that they have agreed not to divide the house property during the lifetime of Smt. R. Venkataravamma. This clearly shows that there was no division of the house property. This deed further states that Smt. R. Venkataravamma can use the house property as her residence. She can use it for the stay of her daughters. She can let it out and enjoy the property with full rights. Under this document, the sons who have right in the house property have created a right in favour of Smt. R.Venkataravamma by relinquishing their right during her lifetime. In respect of the house property the value of which is more than Rs. 100, this document which creates a right in favour of Smt. R. Venkataravamma is compulsorily registrable under Section 17 of the Indian Registration Act, 1908. But the document is not registered. Hence, this document cannot be admitted. Further, the very existence of this document is doubtful as it has been executed on a white paper and the execution itself is not proved. In the note filed along with the return for 1979-80 it is mentioned that the business has been partitioned, but nothing is mentioned therein about division of the house property. If the house property was also divided certainly they would have mentioned about the division of the house property. Further in the return itself the income from this very property of the HUF has been included at Rs. 340. Even in the return filed by the assessee in pursuance of the notice issued under Section 148 of the Act, the income from house property at Rs. 340 has been included. These facts clearly show that the settlement of the house property in favour of Smt. R.Venkataravamma on 4-12-1978 was not there. Section 171 was amended by the Finance Act, 1980 by inserting Sub-section (9) with effect from 1-4-1980. Under this provision in respect of a partial partition which has taken place after 31-12-1978 amongst the members of an HUF, no enquiry shall be made under Sub-section (2) and no finding shall be recorded under Sub-section (3). The above provision squarely applies to the instant case. The claim for partial partition in this case is only an afterthought after the above provision was introduced in 1980. If really partial partition had taken place, the assessee would not have returned the income from the house property in its return. Further, in the note accompanying the return the assessee has only stated about the division of the business but nothing is mentioned with regard to the house property. If really the house property was settled on Smt. R.Venkatara-vamma, the assessee would have certainly stated that fact.
6. The document dated 4-12-1978 executed by the four sons on a white paper as well as the document dated 2-12-1978 executed by the daughters on a five rapes stamp paper cannot be admitted as evidence and they cannot be looked into as they are not registered under the Indian Registration Act. In Chandreshwar Singh v. Ramchandra Singh AIR 1973 Pat. 215, the Patna High Court held that a document which involved declaration of a right would require registration. On the facts of that case, it was held that the family arrangement followed by a petition in the Court containing a reference to it for making record of the arrangement involves declaration of right and, therefore, requires registration. In Dharampal Gir v. Smt. Angoori Devi AIR 1981 All. 164, the Allahabad High Court did not accept the contention that the agreement amounts to a family settlement by which no interest in the property has been created in favour of anyone and this does not require registration under Section 17(6). As it was clearly stated that the defendant is the absolute owner, the terms of the agreement clearly create an interest in the property. In that case the defendant entered into an agreement not to alienate the property during her lifetime and it should go to the heirs after her death. On those facts, it was held that she is the absolute owner and the terms of the agreement create an interest in the disputed property in future in favour of the heirs and would clearly amount to transfer of property. In the absence of the document, being registered, the same would be inadmissible in evidence.
The ratio laid down in the above cases squarely applies to the instant case.
7. Thus, we hold that the document dated 2-12-1978 executed by the daughters and the document dated 4-12-1978 executed by the sons require registration under the Indian Registration Act as they relinquished their rights in the immovable property the value of which is more than Rs.100 during the lifetime of Smt. R. Venkataravamma. In the absence of registration those documents cannot be admitted as evidence. There is no partition of the house property amongst the members of the family.
Only the business, silverware and household utensils have been partitioned on 31-3-1979. Thus, there was only a partial partition but no complete partition of the HUF. Hence, the provisions of section 171(9) clearly apply. The assessee is not entitled to recognition of the partition. We agree with the lower authorities in refusing to accept the claim for partition.
8. The firm has been constituted by four coparceners with the HUF property. Since the entire property of the firm is an HUF property, a firm cannot be constituted by the four coparceners as partners representing an HUF property. They could have joined as partners with their individual property. Since they are partners, not on account of their contribution of individual property but representing an HUF property, the firm is not a valid one and registration cannot be granted. Under Section 171(9) no partial partition after 31-12-1978 should be recognised and the family shall be deemed to continue as an HUF as if no partial partition has taken place. In view of the above provisions, the contention that there can be partial partition in general Hindu law and registration should be granted cannot be accepted. The business carried on in the name of the firm really belongs to the HUF. Since partition of the HUF is not accepted, registration to the firm cannot be granted as the firm is constituted by the four coparceners with the HUF property as assets of the firm. In Firm Bhagat Ram Mohanlal v. CEPT [1956] 29 ITR 521, the Supreme Court observed as.under : ... It would cut at the very root of the notion of a joint undivided family to hold that with reference to coparcenary properties the members can at the same time be both coparceners and partners. (p.
526) In Ude Singh & Sons v. CIT [1981] 128 ITR 437 (MP), on the partition of the larger HUF Shri Sant Singh was allotted a business asset with which he and his sons carried on the business constituting a firm. The firm claimed registration. On those facts, the Madhya Pradesh High Court held that it was not possible to hold that there was, in law, a partnership. The partnership business was in a true sense the joint family business in spite of the execution of the partnership deeds, as there was no partial partition amongst the sons and the family members with reference to the business asset. Thus, the partnership business was in fact carried on by the family members wholly with the aid of the coparcenary assets. Thus no valid firm has been constituted and registration was rightly rejected. The above ratio squarely applies to the instant case. The registration to the firm is rightly rejected.
Since the income of the firm really belonged to the HUF, it is rightly included in the assessment of the HUF. Thus, we uphold the orders of the lower authorities in these years.