Judgment:
A.R. Dave, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal, Ahmedabad Bench 'B', has referred to this court the following question of law arising out of its order passed in I. T. A. No. 2007/Ahd of 1984 under the provisions of Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act').
'Whether, on the facts and in the circumstances of the case, the capital gains of Rs. 34,425 was liable to be included in the total income of the asses-see ?'
2. The facts giving rise to the reference, in a nutshell, are as under :
Shri Chinubhai Motilal Shah, who died intestate on February 20, 1965, was survived by his three daughters, four sons and a widow. After his death, one of his properties, a residential house situated at Panchvati, Ellisbridge, Ahmedabad, devolved upon his four sons. By executing a memorandum/deed dated March 27, 1973, the said property was given to the Hindu undivided families of the four sons. Though the said residential house was not partitioned by metes and bounds, as per the said memorandum, with effect from March 26, 1973, the Hindu undivided families of the four sons had acquired equal share in the said property.
3. The four sons of the late Shri Chinubhai, namely, Jitendrabhai, Surendra-bhai, Dilipbhai and Bharatbhai, as kartas of their respective Hindu undivided families, had filed their returns after the execution of the memorandum dated March 27, 1973, and in the returns of their Hindu undivided families, their respective share of income from property arising from the said property had also been shown. Thus, though there was no partition by metes and bounds, the share of each Hindu undivided family had been determined by virtue of the memorandum dated March 27, 1973.
4. During the assessment year 1979-80, two of the families disposed of their rights in the said property in four of the other two families by executing the sale deed dated July 7, 1978. Thus, during the previous year ending on March 31, 1979, two families ceased to be joint owners in respect of the said property whereas the families of two brothers became joint owners of enhanced shares in the said property.
5. It is pertinent to note that the said deed dated July 7, 1978, was captioned as 'partition deed of the property'. The value of the property was estimated at Rs. 3 lakhs and by virtue of the said deed, the Hindu undivided families of Shri Jitendrabhai and Surendrabhai purchased shares of the Hindu undivided families of Shri Dilipbhai and Shri Bharatbhai. Payments were made on the basis that the value of the property was Rs. 3,00,000.
6. We are concerned with the Hindu undivided family of Shri Dilipbhai Chinubhai Shah in this reference. As stated hereinabove, Dilipbhai Chinubhai Shah--Hindu undivided family received a sum of Rs. 75,000 in pursuance of the so-called 'partition deed of the property' dated July 7,1978. By virtue of the said deed, 1/4th share of the said property, which belonged to Shri Dilipbhai Chinubhai Shah--Hindu undivided family, was disposed of in favour of the Hindu undivided family of Shri Surendrabhai.
7. The applicant-assessee--Shri Dilipbhai Chinubhai Shah--Hindu undivided family, filed its return for the assessment year 1979-80 wherein it was stated that its right in the property in question was relinquished by the assessee and the assessee had received a sum of Rs. 75,000 by way of consideration from the Hindu undivided family of Shri Surendrabhai. An exemption was also claimed in respect of the capital gains as the assessee-Hindu undivided family had constructed a property but as we are not concerned with the said exemption, we need not deal with the same. The assessee had stated in the return that as per the provisions of Section 47(ii) of the Act, there was no transfer within the meaning of Section 45 of the Act because in fact, upon a dissolution of a body of individuals or an association of persons, the capital asset--the residential house, had been distributed among the brothers and hence no tax was required to be paid on the said amount. The said argument did not find favour with the Assessing Officer and the Assessing Officer held that there was a sale in respect of the share of the Hindu undivided family in the property and according to him there was a capital gain to the extent of Rs. 34,425 and he assessed the assessee accordingly. The assessee therefore filed an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner upheld the order of the Assessing Officer whereby a sum of Rs. 34,425 was included in the income of the applicant-assessee by way of capital gains.
8. Being aggrieved by the order of the Appellate Assistant Commissioner, the assessee preferred an appeal before the Tribunal. The Tribunal dismissed the appeal and in the circumstances, at the instance of the assessee, the reference has been made under the provisions of Section 256(1) of the Act.
9. The learned advocate, Shri R.K. Patel, appearing for the assessee, has submitted that looking to the provisions of Section 47(ii), no transfer had been effected in respect of the property in question in pursuance of the deed dated July 7, 1978, which was captioned 'partition deed of the property'. It has been submitted by him that as the property in question, namely, the residential building, was partitioned in pursuance of the deed dated July 7, 1978, the property was distributed among four different bodies of individuals, namely, four different families and, therefore, there was no transfer within the meaning of Section 45 of the Act and therefore there was no income under the head 'Capital gains'.
10. On the other hand, the learned advocate, Shri Akil Qureshi, appearing for the Revenue, has submitted that the case of the assessee has not been covered under the provisions of Section 47(ii) of the Act. While supporting the orders passed by the Revenue authorities and the Tribunal, he has drawn our attention to the fact that, in fact, there was no partition or distribution of capital asset as submitted by the learned advocate, Shri R.K. Patel, in pursuance of the deed dated July 7, 1978. As a matter of fact, as per the submission of the learned advocate Shri Qureshi, in pursuance of the memorandum dated March 27, 1973, partition had already been effected with effect from March 26, 1973. In pursuance of the said memorandum, the families of all the four brothers had got their respective share in the said property. He has drawn our attention to the fact that after the property was partitioned under the deed dated March 27, 1973, in the income-tax returns filed by all the kartas of the respective families they had shown their share of property income from the said residential house. Thus, right from March 26, 1973, the Hindu undivided families of the four brothers had become owners of their respective shares in the property and, therefore, it cannot be said that the partition had taken place on July 7, 1978, as submitted by the assessee.
11. It has been submitted by Shri Qureshi that, though the deed dated July 7, 1978, was captioned as 'partition deed of the property', in fact, the said deed was a deed whereby the assessee had sold its share in the property to the Hindu undivided family of Shri Jitendrabhai Chinubhai Shah and a sum of Rs. 75,000 was received by the assessee-Hindu undivided family from the Hindu undivided family of Jitendrabhai Chinubhai Shah.
12. We have heard the learned advocates at length and have also perused the relevant portion of the deeds referred to hereinabove from the paper-book. Upon a perusal of the said deeds and looking to the conduct of the four families, it is very clear that the said property had been divided among four families under the memorandum dated March 27, 1973. It has been stated in the said memorandum that with effect from March 26, 1973, the property was partitioned, though not by metes and bounds, but the families of the four brothers had got equal shares in the said property with effect from that date.
13. It is not in dispute that the assessee had shown its share of income from the said property in its return after the property was partitioned with effect from March 26,1973. Had the property not been partitioned with effect from March 26, 1973, in pursuance of the memorandum dated March 27, 1973, the asses-see-Hindu undivided family would not have shown income arising from the said house property in its returns filed for the assessment years 1974-75 and onwards. This fact clearly denotes that the assessee-Hindu undivided family had got its 1/4th share in the property in pursuance of the memorandum dated March 27, 1973, and by virtue of the deed dated July 7, 1978, the assessee had sold its share to the Hindu undivided family of Shri Jitendra Chinubhai Shah.
14. It is pertinent to note that the said property was not owned by a body of individuals or an association of persons as contended by the learned advocate appearing for the assessee. There was no association of persons or body of individuals as on July 7, 1978, which was the owner of the entire property. As stated hereinabove, four different families were having their distinct share, though not defined by metes and bounds, as on July 7, 1978, and the share of the assessee was in fact sold to another Hindu undivided family on that day.
15. Looking to the above facts and the legal position to the effect that the property was not owned by any body of individuals or association of persons, the assessee, who was the owner of 1/4th share of the said property, sold its share on July 7, 1978, and, therefore, the Revenue had rightly taxed the amount which was earned by the assessee by way of capital gains.
16. Let us look at the issue from a different angle. It is the case of the assessee that there was an association of persons and the said association of persons was the owner of the property and on July 7, 1978, there was a dissolution of the said association of persons and the share in respect of each individual had devolved upon different individuals. Had it been so, 1/4th share of the said property would have devolved upon each brother or the Hindu undivided family of each brother. That is not the case here. In the instant case, by virtue of the deed dated July 7, 1978, only two Hindu undivided families had remained the owners of the said property because two Hindu undivided families, including that of the assessee, had sold their shares to the remaining two Hindu undivided families, who had continued to remain not only owners of their respective share, but they also had become owners of the shares of the two Hindu undivided families which had disposed of, by way of sale, their shares in favour of the two remaining Hindu undivided families. Thus, the submission of the learned advocate appearing for the assessee is not correct, even if we view the issue from this angle.
17. Looking to the facts stated hereinabove, we are in agreement with the order passed by the Tribunal and, in our opinion, the Tribunal was right in upholding the orders passed by the Assessing Officer and the Appellate Assistant Commissioner.
18. In the circumstances, we answer the question in the affirmative, i.e., in favour of the Revenue and against the assessee.
19. The reference stands disposed of accordingly with no order as to costs.