Judgment:
"(1) On the facts and in the circumstances of the case, the learned CWT(A) erred in directing that book debt be valued at 15% less than the value as per balance sheet though this contravenes r. 2B of the WT Rules, 1957.
(2) On the facts and in the circumstances of the case, the learned CWT(A) erred in accepting the assessees plea that value of book debts be reduced by 15% as ultimately he had not recovered the entire debts.
(3) On the facts and in the circumstances of the case, the learned CWT(A) erred in directing the AO to exclude from the computation of wealth, amount claimed as partial partition even though partial partition is not recognised under the WT Act." 2. It was admitted by the contending parties that the ground Nos. 1 and 2 stand covered in favour of the assessee by the decision of the Tribunal, Nagpur Bench, Nagpur, in the case of Shri Ram Gopal Maheshwari in WTA No. 89/Nag/1993. In view of the above facts, we dismiss the Revenues appeal on grounds Nos. 1 and 2.
3. Regarding the third ground taken by the Revenue, the facts are as under : The assessee filed the return declaring the net wealth at Rs. 2,75,200.
The assessee claimed the benefit of partial partition that took place and the following amounts have been excluded from the wealth of the family : Assessee claimed that these amounts have been allocated to the members of the HUF funds on account of partial partition. Hence, the exclusion from the assessees net wealth. Assessee did not furnish any documentary evidence in support of the assessees claim except computation furnished along with the return. The AO noted that at the stage of income-tax assessment, no such claim was made before the ITO. Assessee was asked to state reasons to why the assessees claim of partial partition should not be rejected. Assessee filed a written reply dt. 22nd Feb., 1988, and assessee made the following submissions : "Although we are assessed to income-tax as an HUF we have never been assessed to wealth-tax. Therefore, provisions of s. 20A of the WT Act not recognising partial partition of HUF "hitherto assessed as undivided" will not apply. Attention is invited to the decisions of the Supreme Court in Roshan Di Hatti vs. CIT (1968) 68 ITR 177 (SC). The Supreme Court held that the term "hitherto assessed as undivided" will mean as assessment made by the ITO meaning "actually assessed". The Supreme Court further held that it will not include a case in which return has been filed and the proceedings for the assessment are pending. In view thereof, for the purpose of wealth-tax, it should be possible to carry out partial partition of the HUF and for that purpose no order recognising the partition would be necessary under s. 20 of the Act. Attention is invited to the decision of the Karnataka High Court in CWT vs. M. L. Ramchandra Setty & Sons (1979) 116 ITR 545 (Kar), where the Karnataka High Court held that s. 20 of the Act cannot be applied in case of a partial partition of the families assets.
The term "hitherto assessed" has come for further examination by the Andhra Pradesh High Court in Addl. CIT vs. V. P. Durgamma (1987) 166 ITR 776 (AP), where the Andhra Pradesh High Court while discussing the scope of s. 171 held that the fiction that a joint family shall be deemed to continue, enunciated in s. 171(1) of the Act, is for the limited purpose of roping in cases of joint families which had "hitherto assessed". The expression "hitherto assessed" makes it clear that only an HUF which had suffered tax assessment in the past could be deemed to continue to be a HUF till an order of partition under s.
171(1) is recorded. Similar view was taken by the Hyderabad Bench of the Tribunal in Dasary Chinna Subbarao vs. IAC 21 Taxman 28 where the Tribunal held that before application of s. 171, there must be an assessed HUF. The Ahmedabad Bench of the Tribunal in Kamal Vishnubhai Panchal (HUF) vs. ITO (1987) 29 TTJ (Ahd) 166 : (1987) 34 Taxman 316 (Ahd) also independently took a similar view holding that amendment in s. 171 derecognising a partial partition is applicable only to the HUF once assessed to tax and the undivided families which were never assessed could not be brought within the net of the same amendment.
What applies with regard to interpretation of s. 171 also applies to interpretation of s. 20 as the language in both the sections is identical." Assessees claim was rejected by the AO on the ground that the assessee has misconceived the provisions of s. 20A of the WT Act regarding the partial partition that effected after 31st Dec., 1978. We distinguished the following cases relied upon by the assessee : He held that the case of Roshan Di Hatti (supra) was pronounced in relation to a period earlier to derecognition of partial partitions.
Hence, this decision has no application after the asst. yr. 1980-81.
The same is the case with the decision in M. L. Ramchandra Setty & Sons (supra). He held that the assessment under the IT Act is sufficient for denying the assessees claim of partial partition under s. 20A of the Act. The AO further held that all the cases relied upon by the assessee are old cases and have no relevance after 1st April, 1980. He held that if the assessee was assessed under the IT Act, that is sufficient for the purposes of wealth-tax under s. 20A. He held so on the analogy that the provisions of IT Act and the WT Act are parallel and there cannot be two different status for the IT purposes and for WT purposes.
Aggrieved by the above, the assessee appealed before the CWT(A).
4. Before the CWT(A), it was submitted that the assessee has partially partitioned the family funds by creating a liability in favour of five partners totalling to Rs. 13 lakhs. It was claimed that this partial partition was made by making the book entries in the personal books of account of the assessee. It was also claimed that the assessee was not assessed to income-tax till 27th March, 1987. Hence, the claim of the partial partition has to be accepted. It was further contended that if there is no partial partition recognised, s. 20A cannot be made applicable. Sec. 20A deals with actual assessment. In the case of the assessee, the first assessments under this Act was completed for the asst. yrs. 1981-82 and 1982-83 on 27th March, 1987. Hence, at the time of partial partition, i.e., on 31st Dec., 1982, the HUF was hitherto not assessed to wealth-tax. "Hitherto assessed to" under s. 20A does not mean hitherto assessed under IT Act or under some other Act. It was further contended that s. 20 of the Act applies to the properties partitioned as a whole, whereas s. 20A deals with partial partition and it applies to HUFs hitherto assessed. If the HUF was not assessed, the partial partition as defined in s. 20A has no application and, therefore, the partition will have to be governed by the Mitakshara law. Under Mitakshara law a partition by book entries is acceptable in view of the decision of the Bombay High Court (Nagpur Bench) in the case of CIT vs. Shiolingappa Shankarappa Mendse & Bros. (1982) 135 ITR 375 (Bom). It also relied upon the decision of the Madras High Court in the case of CGT vs. K. V. K. Veerappa Chettiar (1980) 121 ITR 854 (Mad) and the decision of the Punjab and Haryana High Court in the case of CWT vs. Harbhagwan & Sons (1993) 203 ITR 240 (P&H). The Department contended before the first appellate authority that the IT and WT Acts have a scheme of integrated taxation and, therefore, if an assessee is assessed to IT Act, it should be deemed that he is assessed to wealth-tax also. Relying upon the decision of the Honble Supreme Court in the case of Kallumal Tapeshwari Prasad vs. CIT (1982) 133 ITR 690 (SC), the Department contended that the partition should be by metes and bound. The learned CWT(A) allowed the assessees appeal on the following lines : "The partition has been effected by book entries in the personal books of accounts. The partial partition is in respect of business assets and liability in favour of 5 persons have been created by book entries.
This partition need not be by metes and bounds or the mode in which the property is capable of being divided, since partition has to be considered with reference to the provisions of Hindu law, i.e., Mitakshara law. It is also seen that the parties have acted upon the partition and partitioned members have in their WT return included the amounts received on partition (such assessments of partitioned members have been completed on protective basis). So the partition has to be accepted as a fact. In law s. 20A has no application since as on the date of partition the HUF was not hitherto assessed. Therefore, the AO is directed to exclude the amount claimed as partial partition from the computation of net wealth. Relief to the appellant Rs. 13 lakhs." Aggrieved by the above order, the Revenue is in appeal before the Tribunal.
5. The learned Departmental Representative supported the order of the AO and submitted that the WT Act and the IT Act have a scheme of integrated taxation and, therefore, the assessment made under the IT Act is sufficient so as to bring the assessee within the provisions of ss. 20 and 20A of the WT Act. He further submitted that in the instant case of the assessee, there was no partition at all as there was no record to that effect. For this proposition, he relied upon the decision of the Supreme Court in the case of Kallumal Tapeshwari Prasad vs. CIT (supra). The learned Departmental Representative further contended that the CWT(A) has failed to consider the fact that the provisions of s. 20A have been amended w.e.f. 1st April, 1980, and incorporated out of necessity to curb the avoidance of wealth-tax so frequently resorted by the assessees by creating multiple HUFs.
6. Countering the above arguments of the learned Departmental Representative, the learned counsel for the assessee submitted that s.
20A applies only where partial partition is existed, and the AO is not sure whether s. 20A applies or not in the instant case of the assessee.
The learned counsel further submitted that the term "hitherto assessed" appearing in s. 20A deals with actual assessment and in the instant case of the assessee, the first assessment was made only on 27th March, 1987, whereas the partial partition took place on 31st Dec., 1982. For this proposition, he relied upon the decision of the Supreme Court in the case of Roshan Di Hatti vs. CIT (supra). In this case, the Honble Supreme Court held that "where the claim made is that the joint status of a HUF was dissolved before an order of assessment is made by the ITO, the decision of the Supreme Court in Kalwa Devadattam vs. Union of India & Ors. (1963) 49 ITR 165 (SC) will have no application because the Supreme Court in that case was not called upon to interpret the expression "hitherto assessed as undivided" in sub-ss. (1) and (3) of s. 25A of the Indian IT Act, 1922, and did not lay down that a family not previously assessed to tax may be assessed after partition in the status of an HUF until an order under s. 25A is passed by the ITO." The learned counsel further submitted that "hitherto assessed to" refers to assessment made under the WT Act only and not under any other Act. For this proposition, he relied upon the decision of the Tribunal, Bombay E Bench, in the case of A. H. Bhiwandiwalla vs. IAC (1988) 30 TTJ (Bom) 453 : (1988) 26 ITD 143 (Bom) and the decision of the Punjab and Haryana High Court in the case of CWT vs. Harbhagwan & Sons (1993) 203 ITR 240 (P&H). The learned counsel further submitted that s. 20 applies to total partition and not to partial partition. For this proposition, he relied upon the decision of the Karnataka High Court in the case of CWT vs. M. L. Ramachandra Setty & Sons (supra) and the case reporte (1993) 203 ITR 240 (Bom) (supra). The learned counsel further submitted that it is not necessary to have partition by metes and bound. The book entry is sufficient. For this proposition, he relied upon the decision of the Madras High Court in the case of CGT vs. K. V.K. Veerappa Chettiar (supra) and the Bombay High Court decision in the case of Shiolingappa Shankarappa Mendse & Bros. (supra). The Honble Madras High Court in the case of K. V. K. Veerappa Chettiar (supra), held that the declaration by a father before the statutory authority that the partition between the assessee and son effected is a sufficient proof of partition. In the case of Shiolingappa the Bombay High Court held that the partition in the case of HUF can be effected orally and entries in the books is the evidence of partition.
The learned counsel further submitted that the partition as envisaged under s. 20A of the WT Act does not require the partition of assets always by metes and bound. The case as reported in (1982) 133 ITR 690 (SC) (supra) was decided on the basis of facts and is not a general proposition. This applies only to such partition. The learned counsel further submitted that s. 20A is applicable only to HUF hitherto assessed, in the light of the decision of the Gujarat High Court in the case of CIT vs. Kantilal Ambalal (HUF) (1991) 192 ITR 376 (Guj) and the Andhra Pradesh High Court decision in the case of Addl. CIT vs. P.Durgamma (supra). In both these cases, the Honble High Courts held that so as to apply s. 171 of the IT Act, the condition precedent is that the HUF should have been assessed as such.
7. We have considered the rival submissions and have gone through the orders of the Revenue authorities, and the decisions relied upon by the contending parties. The main thrust of the argument of the Revenue is that the assessee being an old assessee with regard to the assessments under the IT Act is sufficient to hold that the assessee-HUF is "hitherto assessed". The second limb of the arguments of the learned Departmental Representative is that in view of the decision of the Supreme Court in the case of Kallumal Tapeshwari Prasad vs. CIT (supra), if the partition is not made by metes and bound, the partition is not valid and cannot be accepted. According to the Departmental Representative, since in the instant case of the assessee, the partial partition has come into effect after 31st Dec., 1978, the partition cannot be considered as a valid partial partition for the assessment for the purpose of assessment under the WT Act. Sec. 20A which was inserted by the Finance Act (No. 2), 1980, w.e.f. 1st April, 1980, reads as under : Where a partial partition has taken place after the 31st day of December, 1978, among the members of an HUF hitherto assessed as undivided, - (a) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place; (b) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition; (c) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition, Explanation. - For the purposes of this section, "partial partition" shall have the meaning assigned to it in cl. (b) of the Explanation to s. 171 of the IT Act." Before dealing with this section, it is necessary to go through the s.
20 of the WT Act, 1957. Sec. 20 deals with assessment after partition of an HUF. Sec. 20 reads as under : (1) Where, at the time of making an assessment, it is brought to the notice of the AO that a partition has taken place among the members of a HUF and the AO, after inquiry, is satisfied that the joint family property has been partitioned as a whole among the various members of 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 the 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.
(2) Where the AO is not so satisfied he may, by order, declare that such family shall be deemed for the purposes of this Act to continue to be a HUF liable to be assessed as such." 8. In this s. 20, the word "Wealth-tax Officer" was substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1988. Reading of cl. (1) of this section makes it clear that if the AO after inquiry, was not satisfied that a partition had taken place in HUF, he was to assess the HUF property as joint family property. This indicates that the order of the ITO was not binding on the WTO has to pass an independent order (sic). The ITO or the WTO, as the case may be, was bound to make an inquiry. This supports the view that the assessment under the IT Act was not sufficient for all the assessments under the WT Act also. Coming to s. 20A regarding the partial partition, the Explanation to this section states that for the purposes of this section, "partial partition" shall have the meaning assigned to it in cl. (b) of the Explanation to s. 171 of the IT Act. In other words, this Explanation clearly excludes the Expln. (a) to s. 171 of the IT Act. Explns. (a) and (b) to s. 171 of the IT Act reads as under : (i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition; or (ii) where the property does not admit of a physical division, then such division as the property admits of but a mere severance of status shall not be deemed to be a partition; (b) "partial partition" means a partition which is partial as regards the persons constituting the HUF or the properties belonging to the HUF, or both." The contention of the Department that in the instant case of the assessee, the properties were not divided by metes and bound applies only to properties where physical division admits. First of all, in the Expln. (b) to s. 171 of the IT Act, 1961, there is no talk of physical division of a property. In other words, there can be a partial partition even without physical division where the property admits such partial partition.
9. In the case of CIT vs. Govindlal Mathurbhai Oza (1982) 138 ITR 711 (Guj), the Honble Gujarat High Court held that the actual division of a property by metes and bound is not always necessary. A business cannot be physically divided between two members in the same manner as a piece of land is divided. In the case of business division may be possible only in the books of account, that is, by making appropriate entries in the books of account. Having regard to the nature of property, a partition may be recognised under this section even if there is no physical division of property as held in the case of Gordhandas T.Mangaldas vs. CIT (1943) 11 ITR 183 (Bom) as approved by the Honble Supreme Court in the case of Joint Family of Udayan Chinubhai, Etc. vs.
CIT (1967) 63 ITR 416 (SC). Though this decision was rendered under s.
25A of 1922 Indian IT Act, the principle laid down by the Supreme Court is clearly applicable to the 1961 Act also. In the case of CIT vs.
Pabbati Shankaraiah & Ors. (1984) 145 ITR 702 (AP), the Honble Andhra Pradesh High Court held that in case where the movable properties are involved, the partition can be effected even without the division of property without metes and bound. In the instant case of the assessee, therefore, making appropriate entries in the books of account, was sufficient evidence of partial partition. It is not necessary that there should be a division by metes and bound as contended by the Department relying upon the decision of the Supreme Court reported in (1982) 133 ITR 690 (SC) (supra). In that case, the property involved was immovable property whereas in the instant case of the assessee it is movable property. In the case reported in (1982) 135 ITR 375 (Bom) (supra), the Nagpur Bench of the Honble Bombay High Court held as under : "that the fact of partition was specifically stated in the partnership deed. The entries in accounts were good evidence not only of the severance of the joint family status but also of the genuineness of the partnership deed, the firm was entitled to registration.
It is well established so far as the partition of a joint Hindu family is concerned that it is open to any member of a family to bring about the severance of the joint family status and that can be done by a definite and unequivocal indication of his intention to separate himself from the family and enjoy his share in severally. It is no requirement of a valid partition in Hindu Law that there should be an immediate actual partition by metes and bounds or division of property by metes and bounds. A partition may be evidenced by entries in accounts." Coming to the argument of the Department that "hitherto assessed" means assessed either under the WT Act or under the IT Act, we are afraid, that the stand of the Department cannot be accepted. As rightly pointed out by the learned CWT(A) in his order, "hitherto assessed" means "hitherto assessed" under this Act (WT Act) and not under any other Act. This view gets support from the Commentary by Shri C. A. Gulanikar on Law and Practice of Gift-tax and Wealth-tax, 1984 edition which reads as under : "Hitherto assessed : The condition is HUF should be assessed to tax. If HUF is not assessed to tax, it cannot be assessed as such after complete partition of the family, Roshan Di Hatti vs. CIT (1972) 85 ITR 370 (Del), Rameshwar Sirkar vs. ITO (1973) 88 ITR 374 (Cal).
To illustrate. The HUF is not assessed to wealth-tax. It undergoes a partial partition, after 31st Dec., 1978. This section would not apply.
The point is the HUF should have been assessed at the point of time of partition and such partition should be after 31st Dec., 1978. Then only this section would apply." Under the provisions of Hindu Law (Mitakshara Law), the partition can be effected by book entries. Even otherwise, we have seen hereinabove that even under the IT Act, for the purpose of partial partition where the property does not admit physical division, the division can be effected by the such modes of division as the property admits. As per Expln. (b) to s. 171, we have seen in the instant case of the assessee, the property being a movable property, the division of such asset by modes of book entries is sufficient for partial partition.
10. In view of the above, we have no hesitation in upholding the order of the CWT(A) in directing the AO to exclude from the computation of wealth the amounts claimed as partially partitioned. The order of the CWT(A) is upheld.