Commissioner of Income-tax Vs. Shri Khacheru (Huf) - Court Judgment

SooperKanoon Citationsooperkanoon.com/627658
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided OnAug-18-2009
Judge Adarsh Kumar Goel and; Daya Chaudhary, JJ.
Reported in(2010)228CTR(P& H)396; [2009]185TAXMAN398(Punj& Har)
AppellantCommissioner of Income-tax
RespondentShri Khacheru (Huf)
DispositionAppeal allowed
Cases ReferredUnion of India and Ors. v. M.V. Valliappan and Ors.
Excerpt:
direct taxation - assessment - section 260a and 171(9) of income-tax act, 1961 - appellant was initially huf - later on huf was partitioned - assessment was made against appellant for relevant assessment year - partition of huf was not taken into consideration under section 171(9) of act - appellant filed application before trial court under section 260a of act - dismissed - hence, present appeal - held, appellant already assessed in huf status for period prior to partition - assessment actually takes place on date after partition will not affect this position - appeal allowed accordingly - adarsh kumar goel, j.1. the revenue has preferred this appeal under section 260a of the income-tax act, 1961 (for short, 'the act') against the order dated 12.10.2007 passed by the income tax appellate tribunal, delhi bench 'a' new delhi in ita no. 2908/del/2003 for assessment year 1999-2000, proposing to raise the following substantial questions of law:a. whether on the facts and in the circumstances of the case, the hon'ble tribunal has erred in law in holding that provisions of section 171(9) are not attracted in this case despite the fact that assessments for assessment years 1994-95 to 1998-99 had already been completed on 28.9.2000 whereas assessment for the year under consideration was completed much later on 23.3.2001.b. as provided in section 171(9) of the income tax act, 1961 and the decision of hon'ble supreme court in the case of m.v. valliappan and ors. 238 itr 1027, partial partition is not recognized under the provisions of income tax act and can not be treated as a valid partition of huf.c. although tax involved is rs. 2,04,549/- which is less than the limits laid down by the cbdt in this regard, the appeal is filed as the substantial question of law of wider ramification is involved.2. during the assessment proceedings, the assessee pleaded partial partition of huf dated 18.6.1998 which was not recognized in view of provisions of section 171(9) of the act. on appeal, the cit(a) partly upheld the claim of the assessee, which was affirmed by the tribunal. the tribunal observed:one more aspect of the matter to be noticed is that even in the ground taken before us the department does not seem to question the proposition of law that section 171(9) does not apply to a joint hindu family which has never been assessed as undivided, but seems to take the point that by the time the assessment was made on the assessee for the assessment year under appeal on 23.3.2001, assessments for the assessment years 1994-95 to 1998-99 had already been completed on 28.9.2000 and thus the assessee fell under the category of a huf 'hitherto assessed'. but the cut-off point for ascertaining whether the huf has been 'hitherto assessed' cannot, in our opinion, be the date on which the assessment is made for the assessment years 1994-95 to 1998-99, but the date on which the partial partition had taken place. if before 18.6.1998, the date of partial partition, an assessment had been made on the assessee-huf then of course it cannot be contended that the assessee is not a huf which has not been hitherto assessed. but once the partial partition had been effected, and before that date no assessment had been made upon the assessee-huf, then it must follow that the huf falls under the category of a family not hitherto assessed and consequently it must be held that the section has no application. if the point of time at which it has to be determined whether the huf has been hitherto assessed or not is to be taken with reference to any other date, for instance the date on which assessments were made for the earlier years as in this case, it would be open to the assessing officer to keep the assessment proceedings for the year under appeal (in which the issue arises) pending, issue notices of assessment or reassessment for earlier assessment years and complete them either under section 143(3) or section 144 and then take the stand that since the huf has already been assessed, the provisions of section 171 are applicable to the assessment for the year under consideration. it would thus be possible to defeat the claim of the assessee in every case. since such a situation cannot be countenanced, it must follow that in order that section 171 is invoked an assessment upon the huf ought to have been made before the date of partial partition.3. we have heard learned counsel for the parties.4. at the outset, learned counsel for the assessee brought to our notice a judgment of division bench of this court dated 20.1.2009 in ita no. 30 of 2006 (tarlochan singh v. commissioner of income tax and anr.) holding that the expression 'hitherto' occurring in section 171(9) of the act would mean that assessment should not have taken place as huf before the date of partial partition. he submitted that in the present case no assessment had taken place prior to the date of partial partition.5. learned counsel for the revenue submitted that the judgment relied upon is distinguishable in its application to the present case. in the present case, as is clear from the order of assessment, the status of the assessee was huf for the earlier years from assessment years 1994-95 to 1998-99. the assessment of the said years was completed on 28.9.2000. though the said date was after partial partition, the same related to period prior to partial partition. once assessee was assessed as huf, the said status continued. in tarlochan singh (supra) the assessee had not been assessed for any period prior to partial partition.6. learned counsel for the revenue refers to judgment of allahabad high court in commissioner of income tax v. gyan chand and sons : [2008] 303 itr 267 wherein the assessee had been assessed in the capacity of huf after the date of partition but for earlier period. partial partition in that case had taken place on october 20, 1979 and the assessment of the assessee in the status of huf took place in october, 1982 for the earlier assessment year i.e. 1978-79 and 1979-80. it was held that even though the assessment had taken place after partition, the same could be relied upon to deny the claim of partial partition, as the assessment will be relatable of the assessment year for which the assessment was made even if the assessment was after the date of partition. relevant observations are as under:from a joint reading of sub-sections (1) and (9) of section 171, the intention of the legislature appears to be that once an huf has been assessed as huf shall continue to be assessed so unless the order recognizing the partition is passed by the authority concerned. the assessment order passed is relatable to the assessment year involved therein and it will be treated to have been passed on the last date of assessment year, for the purposes of section 171 of the act.7. learned counsel for the assessee on the other hand, submitted that the assessment of assessee as huf must be prior to the date of partition. in the present case, the assessment of the assessee as huf took place for the first time on 28.9.2000 while partition had taken place on 18.6.1998. thus, the assessment of the assessee was not prior to the date of partition. the words 'hitherto' in section 171(9) are referable to the assessment taking place prior to partition. he also submitted that even notice for assessment for assessment years 1994-95 to 1998-99 was issued for the first time after the date of partition i.e. in october 1998.8. we find merit in the contention raised on behalf of revenue. we are in respectful agreement with the view taken by the allahabad high court in gyan chand case (supra). the object of inserting clause (9) in section 171 by finance act in pursuance of finance bill no. 2 of 1980 was to do away with the concept of partial partition after december 31, 1978. while considering the validity and background of this provision, the hon'ble supreme court in union of india and ors. v. m.v. valliappan and ors. : [1999] 238 i.t.r. 1027 observed:from the aforesaid section, it is clear that for the purposes of income tax, the concept of partial partition of the hindu undivided family was recognized, but is done away with by the amendment which specifically provides that where a partial partition has taken place after december 31, 1978, no claim of such partial partition having taken place shall be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition has taken place. if any such finding is recorded under sub-section (3) whether before or after june 18, 1980, being the date of introduction of the finance (no. 2) bill, 1980, the same shall be null and void. the effect of the aforesaid sub-section is that for the purposes of income-tax partial partitions taking place on or after january 1, 1979, are not to be recognized. if a partial partition has taken place after the cut-off date no inquiry as contemplated under sub-section (2) by the income-tax officer shall be held. even if the inquiry is completed and the finding is given, it would be treated as null and void. in this view of the matter, the contention raised in some of the petitions by learned counsel for the respondents that partial partition took place on april 13, 1979, and that in the assessment year it was recognized and benefit was given to the assessee, has no significance in view of the crystal clear language used in the sub-section that partial partition taking place after the cut-off date is not to be inquired into and if inquired the findings would be null and void. such a family is to be assessed under the act as if no partial partition has taken place.9. having regard to the above observation, it is clear that partial partition taking place after 1.1.1979, cannot be recognized in respect of an assessee already assessed in the status of huf, for the period prior to partition. mere fact that assessment actually takes place on a date after the partition will not affect this position.10. in the present case, the assessee having already been assessed in huf status for the period prior to partition, had to be assessed in that status ignoring partial partition. the judgment of this court relied upon in m/s tirlochan singh (supra) is distinguishable.11. accordingly, the substantial question of law whether partial partition could be recognized when assessee had already been assessed in the status of huf for the period prior to the partition even if date of assessment was later to the date of partition has to be answered in favour of the revenue and against the assessee.12. learned counsel for the assessee submitted that as a result of protective assessment, the asseee had also been assessed in individual capacity. we need not go into this question at this stage. scope of this appeal is limited to decision of above question. the tribunal can take care of other questions in the light of finding recorded above.13. accordingly, we allow this appeal, set aside the order of the tribunal and remand the matter to the tribunal for fresh decision in accordance with law. the parties may appear before the tribunal on 3.12.2009 for further proceedings.
Judgment:

Adarsh Kumar Goel, J.

1. The revenue has preferred this appeal under Section 260A of the Income-Tax Act, 1961 (for short, 'the Act') against the order dated 12.10.2007 passed by the Income Tax Appellate Tribunal, Delhi Bench 'A' New Delhi in ITA No. 2908/Del/2003 for assessment year 1999-2000, proposing to raise the following substantial questions of law:

a. Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal has erred in law in holding that provisions of Section 171(9) are not attracted in this case despite the fact that assessments for Assessment Years 1994-95 to 1998-99 had already been completed on 28.9.2000 whereas assessment for the year under consideration was completed much later on 23.3.2001.

b. As provided in Section 171(9) of the Income Tax Act, 1961 and the decision of Hon'ble Supreme Court in the case of M.V. Valliappan and Ors. 238 ITR 1027, partial partition is not recognized under the provisions of Income Tax Act and can not be treated as a valid partition of HUF.

c. Although tax involved is Rs. 2,04,549/- which is less than the limits laid down by the CBDT in this regard, the appeal is filed as the substantial question of law of wider ramification is involved.

2. During the assessment proceedings, the assessee pleaded partial partition of HUF dated 18.6.1998 which was not recognized in view of provisions of Section 171(9) of the Act. On appeal, the CIT(A) partly upheld the claim of the assessee, which was affirmed by the Tribunal. The Tribunal observed:

One more aspect of the matter to be noticed is that even in the ground taken before us the department does not seem to question the proposition of law that Section 171(9) does not apply to a joint Hindu family which has never been assessed as undivided, but seems to take the point that by the time the assessment was made on the assessee for the assessment year under appeal on 23.3.2001, assessments for the assessment years 1994-95 to 1998-99 had already been completed on 28.9.2000 and thus the assessee fell under the category of a HUF 'hitherto assessed'. But the cut-off point for ascertaining whether the HUF has been 'hitherto assessed' cannot, in our opinion, be the date on which the assessment is made for the assessment years 1994-95 to 1998-99, but the date on which the partial partition had taken place. If before 18.6.1998, the date of partial partition, an assessment had been made on the assessee-HUF then of course it cannot be contended that the assessee is not a HUF which has not been hitherto assessed. But once the partial partition had been effected, and before that date no assessment had been made upon the assessee-HUF, then it must follow that the HUF falls under the category of a family not hitherto assessed and consequently it must be held that the Section has no application. If the point of time at which it has to be determined whether the HUF has been hitherto assessed or not is to be taken with reference to any other date, for instance the date on which assessments were made for the earlier years as in this case, it would be open to the Assessing Officer to keep the assessment proceedings for the year under appeal (in which the issue arises) pending, issue notices of assessment or reassessment for earlier assessment years and complete them either under Section 143(3) or Section 144 and then take the stand that since the HUF has already been assessed, the provisions of Section 171 are applicable to the assessment for the year under consideration. It would thus be possible to defeat the claim of the assessee in every case. Since such a situation cannot be countenanced, it must follow that in order that Section 171 is invoked an assessment upon the HUF ought to have been made before the date of partial partition.

3. We have heard learned Counsel for the parties.

4. At the outset, learned Counsel for the assessee brought to our notice a judgment of Division Bench of this Court dated 20.1.2009 in ITA No. 30 of 2006 (Tarlochan Singh v. Commissioner of Income Tax and Anr.) holding that the expression 'hitherto' occurring in Section 171(9) of the Act would mean that assessment should not have taken place as HUF before the date of partial partition. He submitted that in the present case no assessment had taken place prior to the date of partial partition.

5. Learned Counsel for the revenue submitted that the judgment relied upon is distinguishable in its application to the present case. In the present case, as is clear from the order of assessment, the status of the assessee was HUF for the earlier years from assessment years 1994-95 to 1998-99. The assessment of the said years was completed on 28.9.2000. Though the said date was after partial partition, the same related to period prior to partial partition. Once assessee was assessed as HUF, the said status continued. In Tarlochan Singh (supra) the assessee had not been assessed for any period prior to partial partition.

6. Learned Counsel for the revenue refers to judgment of Allahabad High Court in Commissioner of Income Tax v. Gyan Chand and Sons : [2008] 303 ITR 267 wherein the assessee had been assessed in the capacity of HUF after the date of partition but for earlier period. Partial partition in that case had taken place on October 20, 1979 and the assessment of the assessee in the status of HUF took place in October, 1982 for the earlier assessment year i.e. 1978-79 and 1979-80. It was held that even though the assessment had taken place after partition, the same could be relied upon to deny the claim of partial partition, as the assessment will be relatable of the assessment year for which the assessment was made even if the assessment was after the date of partition. Relevant observations are as under:

From a joint reading of Sub-sections (1) and (9) of Section 171, the intention of the legislature appears to be that once an HUF has been assessed as HUF shall continue to be assessed so unless the order recognizing the partition is passed by the authority concerned. The assessment order passed is relatable to the assessment year involved therein and it will be treated to have been passed on the last date of assessment year, for the purposes of Section 171 of the Act.

7. Learned Counsel for the assessee on the other hand, submitted that the assessment of assessee as HUF must be prior to the date of partition. In the present case, the assessment of the assessee as HUF took place for the first time on 28.9.2000 while partition had taken place on 18.6.1998. Thus, the assessment of the assessee was not prior to the date of partition. The words 'hitherto' in Section 171(9) are referable to the assessment taking place prior to partition. He also submitted that even notice for assessment for assessment years 1994-95 to 1998-99 was issued for the first time after the date of partition i.e. in October 1998.

8. We find merit in the contention raised on behalf of revenue. We are in respectful agreement with the view taken by the Allahabad High Court in Gyan Chand case (supra). The object of inserting Clause (9) in Section 171 by Finance Act in pursuance of Finance Bill No. 2 of 1980 was to do away with the concept of partial partition after December 31, 1978. While considering the validity and background of this provision, the Hon'ble Supreme Court in Union of India and Ors. v. M.V. Valliappan and Ors. : [1999] 238 I.T.R. 1027 observed:

From the aforesaid section, it is clear that for the purposes of income tax, the concept of partial partition of the Hindu undivided family was recognized, but is done away with by the amendment which specifically provides that where a partial partition has taken place after December 31, 1978, no claim of such partial partition having taken place shall be inquired into under Sub-section (2) and no finding shall be recorded under Sub-section (3) that such partial partition has taken place. If any such finding is recorded under Sub-section (3) whether before or after June 18, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, the same shall be null and void. The effect of the aforesaid Sub-section is that for the purposes of income-tax partial partitions taking place on or after January 1, 1979, are not to be recognized. If a partial partition has taken place after the cut-off date no inquiry as contemplated under Sub-section (2) by the Income-tax Officer shall be held. Even if the inquiry is completed and the finding is given, it would be treated as null and void. In this view of the matter, the contention raised in some of the petitions by learned Counsel for the respondents that partial partition took place on April 13, 1979, and that in the assessment year it was recognized and benefit was given to the assessee, has no significance in view of the crystal clear language used in the Sub-section that partial partition taking place after the cut-off date is not to be inquired into and if inquired the findings would be null and void. Such a family is to be assessed under the Act as if no partial partition has taken place.

9. Having regard to the above observation, it is clear that partial partition taking place after 1.1.1979, cannot be recognized in respect of an assessee already assessed in the status of HUF, for the period prior to partition. Mere fact that assessment actually takes place on a date after the partition will not affect this position.

10. In the present case, the assessee having already been assessed in HUF status for the period prior to partition, had to be assessed in that status ignoring partial partition. The judgment of this Court relied upon in M/s Tirlochan Singh (supra) is distinguishable.

11. Accordingly, the substantial question of law whether partial partition could be recognized when assessee had already been assessed in the status of HUF for the period prior to the partition even if date of assessment was later to the date of partition has to be answered in favour of the revenue and against the assessee.

12. Learned Counsel for the assessee submitted that as a result of protective assessment, the asseee had also been assessed in individual capacity. We need not go into this question at this stage. Scope of this appeal is limited to decision of above question. The Tribunal can take care of other questions in the light of finding recorded above.

13. Accordingly, we allow this appeal, set aside the order of the Tribunal and remand the matter to the Tribunal for fresh decision in accordance with law. The parties may appear before the Tribunal on 3.12.2009 for further proceedings.