income-tax Officer Vs. Thakershi Chunilal Parikh - Court Judgment

Excerpt:
1. the only point involved in these appeals is whether the status of the assessee is "aop" as held by the ito or "hup" as claimed by the assessee and accepted by the aac.2. the assessment years involved are 1980-81 and 1981-82 and the relevant previous years are s.ys. 2035 and 2036 respectively.3. the facts of the case as narrated by the ito and not in dispute are : the co-sharers of the assessee are co-sharers of huf of shri thakershi chunilal parikh assessed by ito cir. i-a. the said huf of shri t.c. parikh would be called as larger huf. it consists of following co-sharers : the huf of rashmikant thakershi consists of the following co-sharers : 3. there had been a partial partition during the previous year s.y. 2034 relevant to the a.y. 1979-80 in respect of a sum of rs. 1,20,000. 4. the above partial partition has been accepted by the ito cir. i/a, a'bad vide order dtd, 18-3-1981. all the above hufs have filed their returns of income in this ward and have named the huf nos. 1 to 6 showing the following co-sharers in each huf. 5. as huf nos. 1 to 3 consisting of four co-sharers the each huf received rs. 16,000 each whereas huf nos. 4, 5 & 6 are consisting of 3 co-sharers and received rs. 12,000 each. 6. for releasing the shares, the following co-sharers received the following amounts from the amount of rs. 1,20,000 : while releasing the shares, from huf nos. 2 & 6, received rs. 4,000 and rs. 8,000 respectively. while releasing the rights from huf nos. 1 & 4, he received the amount of rs. 4,000 and rs. 8,000 respectively. 7. thus, it would be seen that all the co-sharers have received in one or other way an equal amount and hence the co-sharers of each huf have equally joined together in earning the income out of funds received from the main huf. 8. by way of the above arrangement of the funds, the so-called hub1 no. 1 has become a partner in the firm of m/s. parikh gandhi & co. assessed by ito cir. i/n(321-p) with 14% share. 8.1 huf no. 3 became a partner in the firm of gujarat home products assessed by ito cir. i/n (316-g). 8.2 huf no. 2 has become a partner in the firm of m/s. t.c. parikh & co. assessed by ito cir. i/a (308-t) with 14%. (1) t.c. parikh, ratanpole (assessed by ito oir. iii, c) with 25% share. 8.4 huf no. 5 has become a partner with 15 % share in parikh textile trading co. assessed by ito iv. c. 8.5 huf no. 6 has become a partner with 10% in the firm of m/s. mahipatrai thakershi & co. assessed by ito i.d. (no. 548-m).4. on the aforesaid facts, the assessee filed its return declaring the status therein as "huf". the ito, vide his letter dated 16-3-1983, called upon the assessee to show cause why its status should not be taken as "aop" and its income should not be assessed in the individual hands of the co-sharers as he was of the view that the arrangements in which the distribution of the funds have been made "are in equally in the hands of individuals and the partial partition is sham and in the eye of law there cannot be separate joint family status of separate huf".5. in its letter dated 22-3-1983 addressed to the ito, assessee took up a stand that once the partial partition has been accepted by the revenue after due enquiry, the same was binding on it. therefore, it was not correct for the ito to state that the arrangements amongst the co-sharers was sham and in the eye of law, there cannot be separate joint family status of separate huf. reliance was placed on the decision of the hon'ble gujarat high court in the case of cit v.shantikumar jagabhai [1976] 105 itr 795 and that of the hon'ble supreme court in the case of joint family of udayan chinubhai v. cit [1967] 63 itr 416. it was, therefore, urged that the assessments should be framed in the status of "huf" as claimed by it.6. the ito, however, did not accept the assessee's submissions and framed the assessment in the status of an "aop", with the following remarks : 10.1 in my opinion, in shantikumar jagabhai's case it was a case of partition between mother and her minor son by a release deed. the high court answered against the assessee and in favour of department stating that this was not a valid partition. during the course of judgment there might have been certain observations of the court which the assessee seeks to rely upon in the instant case. the overall judgment of shantikumar jagabhai being in favour of department there was no question of contesting certain observations of the high court further. this was however not a direct decision of the court on the issue involved under reference and therefore assessee's contention cannot be accepted. 10.2 regarding udayan chinubhai v. cit (sc) 63 itr it is also distinguishable from the facts of the present case. the supreme court decided it with reference to section 25a of the old act where provisions of partial partition as in the case under reference were not applicable. in the case of kalumal tapashwari prasad v. cit, kanpur, supreme court (135 itr p. 69.0) has held that income from properties which were the subject matter of partial partition could not be included by relying upon the decision which has been rendered on the basis of section 24a of 1922 act, which was not applicable to partial partitions. as such this case of udayan chinubhai cited by the assessee is also of no help to him. 11. under the hindu law, a coparcener has undivided coparcenary interest in the joint family property. in as such. (sic) such right crystallises only on partition and not prior thereto. so accordingly, the question of any particular property cannot arise for the simple reason that he does not have any such interest in any such property. all he can do is to release his entire interest in the joint family property, the legal effect of which will be that he will go out of the family. but it is difficult to visualise a situation here an individual will continue to be a member of the family but at the same time he will not have any interest in all properties belong to the family. the hindu law does not contemplate a situation where a member of the family does not have interest in all properties belonging to the family. 12. the correct effect would be that the particular property is partitioned whereby it cease to belong to the family and it is allotted to all the members of the family except one who can thereafter hold it as co-owners. but that property cannot be held by such members again as members of a huf. in other words once a property is taken out from the common hotch-potch pot and partitioned, it loses its character of 'joint family property' and becomes an individual property in the hands of the members. 13. the arrangement of releasing the amounts by one co-sharer and of running separate hufs by the remaining other coparceners, snacks of ingenuinene3s. in the above all arrangements in which the assessee has made, two separate hufs by releasing the amounts in equal parts in favour of other persons shows that this is sham arrangement and the group of persons who have joined hands together to earn the income and become the partners in the separate firms, clearly shows that the co-sharers (as stated above) has made arrangement of dividing the money in such a way that each co-sharer gets equal amount. hence the alleged huf who has become the partner in the firm, is considered to be a group of persons and would be assessed as an aop having definite shares and income earned by such group of co-sharers would be divided equally among the co-sharers and would be taxed in the hands of individual cases.7. thereafter, the assessee went up in appeal before the aac and once again urged that it should have been assessed in the status of "huf" in view of the aforesaid two decisions of the hon'ble gujarat high court and the hon'ble supreme court. the aac accepted the assessee's submissions in the following manner :- 8. i have gone through the assessment order and also through the written submissions of the appellant's representative. it is seen that all the six partial partitions have been recognised by the orders under section 171 of the act. moreover, the gujarat high court's decision relied on by the appellant's representative is also applicable to the facts of the appellant's case. i am, therefore, persuaded to hold that the correct status of the appellant should be huf consisting of thakershi chunilal, his wife and two sons. the income-tax officer is, therefore, directed to grant the status of huf instead of aop.8. being aggrieved by the order of the aac, the revenue has come up in appeal before the tribunal. the learned representative for the department strongly relied on the order of the ito and vehemently argued that the aac ought to have accepted the decision of the ito that the assessee should be assessed in the status of "aop". according to him, once a partial partition has been accepted by the ito, all the members of the huf get separated vis-a-vis the property divided in such partial partition. in other words, according to the learned representative for the department, in the instant case each of the members of the bigger huf should be treated to have been separated vis-a-vis the division of rs. 20,000 of the bigger huf. therefore, the status of the huf was rightly taken as "aop". if some of the members wanted to remain joint after such partial partition, they have to make their intention clear by executing proper declaration. till such time, according to the learned representative for the department, each of the members of the bigger get separated vis-a-vis partial partition of rs. 20,000 of the bigger huf. at this stage, the tribunal had invited the attention of the learned representative for the department to the clause (b) of the explanation to section 171 which defines "partial partition" with a view to bring to his notice that the submissions made by him may not fit in well with the said definition. thereafter, he referred to the aforesaid decision of the hon'ble supreme court in the case of joint family of udayan chinubhai (supra) and pointed out that even though the ito wanted to assess some of the members of the family in the status of "huf", the hon'ble supreme court held that the same could not be done. he also pressed into service the decision of the hon'ble supreme court in the case of mcdowell and co. ltd. v. cto [1985] 154 itr 148, as according to him, by creating multiple hufs, the sole purpose of the assessee was to reduce/avoid legitimate tax due to the national exchequer. he also referred to the order of the tribunal in the case of ito v. mayabhai laxmichand (huf) [1986] 19 itd 245 (ahd.), as according to him, the ratio laid down therein would be applicable to the facts and circumstances obtaining in the instant case. finally, he also read out certain portions appearing at pages 3351 & 3352 of income-tax law of chaturvedi & pithisaria (third edition), vol.4, with a view to urge that the aao ought to have upheld the order of the ito taking the status of the assessee as "aop".9. the learned counsel for the assessee, on the other hand, strongly supported the order of the aac. in this connection, he highlighted the fact that the partial partition took place on 26-10-1978 which was not only accepted by the ito by passing appropriate order under section 171 of the act, but till to date, the competent authority has not deemed it fit to disturb the order of the ito recognising the partial partition.in this view of the matter, according to the learned counsel for the assessee, the revenue cannot get any support from the decision in the case of mcdowell & co. ltd. (supra) which has been cited time and again by the revenue ignoring the context in which the same was delivered.thereafter, he pointed out that since there was a clear loophole in the relevant provision of the act, by which there used to be multiple hufs, the parliament brought sub-section (9) of section 171 of the act on the statute with effect from 1-4-1980 derecognising ; the partial partition effected after 31-12-1978. therefore, when the statute had not prohibited partial partition prior to 31-12-1978, it was not open for the revenue to rely on the decision in the case of mcdowell & co. ltd. (supra). the learned counsel for the assessee invited the attention of the tribunal to 123 itr 157 (statute) and 131 itr pages 36 and 37 (statute) which contain background material for the introduction of sub-section (9) in section 171 of the act, with effect from 1-4-1980.the learned counsel for the assessee strongly relied on the aforesaid decision in the case of shantikumar jagabhai (supra) which clearly approves that there can be two separate entities having certain members of the family common therein. inviting the attention of the tribunal to the decision in the case of joint family of udayan chinubhai (supra) the learned counsel for the assessee highlighted the fact that in that case, the joint family was disrupted in a suit filed by sir chinubhai whereby sir chinubhai was given his share while other members of the family got their share which they held as "tenants in common". the ito had recognised the partition by passing an order under section 25a of the indian income-tax act, 1922 (corresponding to section 171 of the act). initially, the ito assessed the other members of the joint family in their individual capacity. however, he initiated the proceedings under section 34 of the indian income-tax act, 1922 (corresponding to section 147 of the act) with a view to assess the other members of the family in the status of hup. however, in the instant case, the ito himself has recognised that the only one of the coparceners had severed his connection vis-a-vis rs. 20,000 by taking his share of rs. 4,000 or rs. 8,000. the other members of the family continued to remain joint.as regards the order of the tribunal in mayabhai laxmichand (huf)'s case (supra) the learned counsel for the assesses highlighted the fact that in that case, an attempt was made by the assessee to circumvent the provisions of prohibiting partial partition after 31-12-1978.however, in the instant case, since the partial partition has taken place prior to the introduction of sub-section (9) in section 171 of the act, the said order of the tribunal would not come in his way.finally, he also relied on an unreported decision of the hon'ble gujarat high court in the case of kanailal motilal & co. [it reference no, 108 of 1974, dated. 9-2-1976] [1976 itat bar association, p. 145] wherein, according to mm, the ratio laid down by the hon'ble high court clearly supports the stand taken by the assessee in the present case.he, therefore, urged that we should uphold the order of the aao under appeal.10. we have carefully considered the rival submissions of the parties and are constrained to observe that the revenue ought not to have come in appeal without properly appreciating the issue involved in the present appeals. we make this observation as it is not disputed that the order passed by the ito under section 171 of the act, recognising partial partition is very much there. once the ito had recorded recognition of the partial partition in the manner the assessee had claimed, we fail to appreciate how he can change the status of the assessee from "huf" to that of "aop" in the manner he did. at this stage, we would like to reproduce below the observations made by the hon'ble supreme court : it is true that an assessment year under the income-tax act is a self-contained assessment period and a decision in the assessment year does not ordinarily operate as res judicata in respect of the matter decided in any subsequent year, for the assessing officer is not a court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year. it is open to the income-tax officer, therefore, to depart from his decision in subsequent years, since the assessment is final and conclusive between the parties only in relation to the assessment for the particuar year for which it is made. a decision reached in one year would be a cogent factor in the determination of a similar question in a following year, but ordinarily there is no bar against the investigation by the income-tax officer of the same facts on which a decision in respect of an earlier year was arrived at. but this rule, in our judgment, does not apply in dealing with an order under section 25a(1). income from property of a hindu undivided family, "hitherto" assessed as undivided, may be assessed separately if an order under section 25a(1) had been passed. when such an order is made, the family ceases to be assessed as a hindu undivided family. thereafter, that family cannot be assessed in the status of a hindu undivided family unless the order is set aside by a competent authority. under clause (3) of section 25a if no order has been made notwithstanding the severance of the joint family status, the family continues to be liable to be assessed in the status of a hindu undivided family, but once an order has been passed, the recognition of severance is granted by the income-tax department and clause (3) of section 25a will have application.on the aforesaid observations themselves, the action of the ito is clearly ba,d in law, 11. we have gone through carefully various reported/uneprorted decisions cited before us as well as the order of the tribunal in mayabhai laxmichand (huf)'s case (supra), to which both of us were the parties and are of the view that the ratio laid down in each, of them clearly supports the stand taken on behalf of the assessee. at this stage, we would like to observe that while applying the ratio laid down in the reported cases, it is also worthwhile keeping in mind the facts and circumstances obtaining in those cases and the one with which we are concerned in the present appeals. in the case of joint family of udyan chinubhai (supra), the partition was total and that too by a court decree. this was recognised by the ito by passing appropriate order under the tax law. thereafter, the ito took an action under section 34 of the indian income-tax act, 1922 (corresponding to section 147 of the act) to change the status of some of the members of the disrupted family. the hon'ble supreme court has held that once an order recognising partition has been passed by the ito, the ito is debarred to take status of the disrupted members of the family different than the one taken by him in the original assessment. in the instant case also, the ito has recognised partial partition in the manner claimed by the co-sharers of the bigger huf. therefore, the ito would not be justified in taking the status of the assessee in the instant case other than the "huf".12. the partial partition has been derecognised for and from the assessment year 1980-81 onwards in respect of partial partition which took place after 31-12-1978, in this connection, it would be worthwhile reproducing below the background under which the parliament thought it fit to plug the loophole in this regard :- memorandum explaining the provisions in the finance (no. 2) bill 1980 (123 itr 146) 44. modification in the provisions relating to partial partition of hindu undivided families-under the hindu law, a hindu undivided family is entitled to effect a partition which may be total or partial. where a hindu undivided family undergoes a total partition, the entire joint family property is divided among all the coparceners and the family ceases to exist as an undivided family. a partial partition, on the other hand, may be partial as regards the persons constituting the joint family or as regards the properties belonging to the joint family, or both. in a partial partition as regards the persons constituting the joint family, one or more coparceners may separate from others and the remaining coparceners may continue to be joint. in a partial partition as regards the property, a joint family may make a division and severance of interest in respect of a part of the joint estate while retaining their status as a joint family and holding the rest of the properties as joint and undivided family. 45. while under the hindu law, a joint family may make a division and severance of interest in respect of the joint estate while retaining their status as a joint family, the income-tax act does not recognise a partition in status alone and where a hindu undivided family has been assessed to income-tax as such, it continues to be regarded as hindu undivided family unless the property has been partitioned by metes and bounds. this provision applies equally in the case of total as well as partial partition. 46. in spite of the measures taken in recent years, hindu undivided family continues to be used as a medium for reduction of tax liability. this appears to be specially true in cases where multiple hindu undivided families have been created by effecting partial partitions as regards persons constituting the joint family or as regards the properties belonging to the joint family, or both. with a view to curbing the creation of multiple hufs by making partial partition, it is proposed to de-recognise the partial partition of a hindu undivided family effected after 31st december, 1978, for tax purposes. in cases where a hindu undivided family has been taxed in the status of a hindu undivided family, it will continue to be taxed as such unless there has been a total partition of the family properties by metes and bounds and a finding to that effect is recorded by the income-tax officer. 47. this amendment will take effect from 1st april, 1980 and will accordingly apply in relation to the assessment year 1980-81 and subsequent years.13. the central board of direct taxes issued circular no. 281 dated 22-9-1980 containing explanatory notes on the provisions of the finance (no. 2) act, 1980 reported at pages 4 to 54 of the 131 itr (statute), at page 4, the introduction contains this line, viz : "plugging certain loopholes for tax avoidance through the medium of hindu undivided family. pages 36 & 37 of the report contain explanatory notes in respect of section 171, in the following manner :- modification of the provision relating to partial partition of hindu undivided families-section 171. 31.1 under the hindu law, a hindu undivided family is entitled to effect a partition which may be total or partial. where a hindu undivided family undergoes a total partition, the entire joint family property is divided among all corparceners and the family ceases to exist as an undivided family. a partial partition, on the other hand, may be partial as regards the persons constituting the joint family or as regards the properties belonging to the joint family or both. in a partial partition as regards the persons constituting the family one or more coparceners may separate from others and the remaining coparceners may continue to be joint. in a partial partition as regards the property, a joint family may make a division and severance of interest in respect of a part of the joint estate while determining their status as a joint family and holding the rest of the properties as joint and undivided property. 31.2 while under the hindu law, a joint family may make a division and severance of interest in respect of the joint estate while retaining their status as a joint family, the income-tax act does not recognise a partial partition in status alone and where a hindu undivided family had been assessed to income as such, it continues to be regarded as a hindu undivided family unless the property has been partitioned by metes and bounds. these pro-visions are contained in section 171 of the income-tax act and apply equally in the case of total as well as partial partition. in spite of the measures taken in recent years, a hindu undivided family continues to be used as a medium for reduction of proper tax liability. this appears to be specially true in cases where multiple hindu undivided families are created by effecting partial partitions as regards persons constituting the joint family or as regards the properties belonging to a joint family or both. 31.3 with a view to curbing the practice of creating multiple hindu undivided families by making partial partitions, the finance act has inserted a new sub-section (9) in section 171 of the income-tax act, whereunder partial partitions of hindu undivided families effected after 31st december, 1978, will not be recognised for tax purposes. the new sub-section (9) which will apply in the cases of hindu undivided families which have hitherto been assessed in the status of hindu undivided family, has made the following provisions in this regard- (i) in a case where a partial partition of a hindu undivided family has taken place after 31st december, 1978, no claim that such partial partition had actually taken place will be enquired into under sub-section (2) of section 171 and the income-tax officer shall not record a finding as to whether there has been a total partition of the joint family property under sub-section (3) of that section further, any finding regarding partial partition recorded under the said sub-section (3) shall be null and void and of no legal effect. (ii) such family shall continue to be assessed as if no such partial partition has taken place, i.e., the property or source of income shall be deemed to continue to belong to the hindu undivided family and no member shall be deemed to have separated from the family. (iii) bach 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 the income-tax act by the family in respect of any period, whether before or after such partial partition. the several liability of any member or group of members of such family shall be computed according to the proportion of the joint family property allotted to him or it on such partial partition. 31.4 this amendment has come into force with effect from 1st april, 1980 and is accordingly applicable in relation to the assessment year 1980-81 and subsequent years." [section 28 of the finance act] from the above, it would be very clear that prior to 31-12-1978, partial partition was recognised by the legislature. in this view of the matter, we fail to appreciate how the decision in the case of mcdowell & co. ltd. (supra) has any application to the facts and circumstances obtaining in the instant case. we make this observation as the hon'ble supreme court has not totally ruled out tax planning "within the framework of law.14. as the facts and circumstances obtaining in the case of maya-bhai laxmichand (huf) (supra) are clearly distinguishable from the facts and circumstances obtaining in the instant case, we do not deem it fit to discuss any thing further in this regard.15. according to us, the ratio laid down in the aforesaid two decisions in the cases of shantikumar jagabhai (supra) and joint family of udayan chinubhai (supra) as well as in the aforesaid unreported decision in the case of kanailal motilal & co. (supra) clearly support the stand taken on behalf of the assessee.16. for all these reasons, we have no hesitation in upholding the order of the aac under appeal.

Judgment:
1. The only point involved in these appeals is whether the status of the assessee is "AOP" as held by the ITO or "HUP" as claimed by the assessee and accepted by the AAC.2. The assessment years involved are 1980-81 and 1981-82 and the relevant previous years are S.Ys. 2035 and 2036 respectively.

3. The facts of the case as narrated by the ITO and not in dispute are : The co-sharers of the assessee are co-sharers of HUF of Shri Thakershi Chunilal Parikh assessed by ITO Cir. I-A. The said HUF of Shri T.C. Parikh would be called as larger HUF. It consists of following co-sharers : The HUF of Rashmikant Thakershi consists of the following co-sharers : 3. There had been a partial partition during the previous year S.Y. 2034 relevant to the A.Y. 1979-80 in respect of a sum of Rs. 1,20,000.

4. The above partial partition has been accepted by the ITO Cir.

I/A, A'bad vide order dtd, 18-3-1981. All the above HUFs have filed their returns of income in this Ward and have named the HUF Nos. 1 to 6 showing the following co-sharers in each HUF. 5. As HUF Nos. 1 to 3 consisting of four co-sharers the each HUF received Rs. 16,000 each whereas HUF Nos. 4, 5 & 6 are consisting of 3 co-sharers and received Rs. 12,000 each.

6. For releasing the shares, the following co-sharers received the following amounts from the amount of Rs. 1,20,000 : While releasing the shares, from HUF Nos. 2 & 6, received Rs. 4,000 and Rs. 8,000 respectively.

While releasing the rights from HUF Nos. 1 & 4, he received the amount of Rs. 4,000 and Rs. 8,000 respectively.

7. Thus, it would be seen that all the co-sharers have received in one or other way an equal amount and hence the co-sharers of each HUF have equally joined together in earning the income out of funds received from the main HUF. 8. By way of the above arrangement of the funds, the so-called HUB1 No. 1 has become a partner in the firm of M/s. Parikh Gandhi & Co.

assessed by ITO Cir. I/N(321-P) with 14% share.

8.1 HUF No. 3 became a partner in the firm of Gujarat Home Products assessed by ITO Cir. I/N (316-G).

8.2 HUF No. 2 has become a partner in the firm of M/s. T.C. Parikh & Co. assessed by ITO Cir. I/A (308-T) with 14%.

(1) T.C. Parikh, Ratanpole (assessed by ITO Oir. III, C) with 25% share.

8.4 HUF No. 5 has become a partner with 15 % share in Parikh Textile Trading Co. assessed by ITO IV. C. 8.5 HUF No. 6 has become a partner with 10% in the firm of M/s.

Mahipatrai Thakershi & Co. assessed by ITO I.D. (No. 548-M).

4. On the aforesaid facts, the assessee filed its return declaring the status therein as "HUF". The ITO, vide his letter dated 16-3-1983, called upon the assessee to show cause why its status should not be taken as "AOP" and its income should not be assessed in the individual hands of the co-sharers as he was of the view that the arrangements in which the distribution of the funds have been made "are in equally in the hands of individuals and the partial partition is sham and in the eye of law there cannot be separate joint family status of separate HUF".

5. In its letter dated 22-3-1983 addressed to the ITO, assessee took up a stand that once the partial partition has been accepted by the revenue after due enquiry, the same was binding on it. Therefore, it was not correct for the ITO to state that the arrangements amongst the co-sharers was sham and in the eye of law, there cannot be separate joint family status of separate HUF. Reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of CIT v.Shantikumar Jagabhai [1976] 105 ITR 795 and that of the Hon'ble Supreme Court in the case of Joint Family of Udayan Chinubhai v. CIT [1967] 63 ITR 416. It was, therefore, urged that the assessments should be framed in the status of "HUF" as claimed by it.

6. The ITO, however, did not accept the assessee's submissions and framed the assessment in the status of an "AOP", with the following remarks : 10.1 In my opinion, in Shantikumar Jagabhai's case it was a case of partition between mother and her minor son by a release deed. The High Court answered against the assessee and in favour of department stating that this was not a valid partition. During the course of judgment there might have been certain observations of the Court which the assessee seeks to rely upon in the instant case. The overall judgment of Shantikumar Jagabhai being in favour of department there was no question of contesting certain observations of the High Court further. This was however not a direct decision of the court on the issue involved under reference and therefore assessee's contention cannot be accepted.

10.2 Regarding Udayan Chinubhai v. CIT (SC) 63 ITR it is also distinguishable from the facts of the present case. The Supreme Court decided it with reference to Section 25A of the Old Act where provisions of partial partition as in the case under reference were not applicable. In the case of Kalumal Tapashwari Prasad v. CIT, Kanpur, Supreme Court (135 ITR P. 69.0) has held that income from properties which were the subject matter of partial partition could not be included by relying upon the decision which has been rendered on the basis of Section 24A of 1922 Act, which was not applicable to partial partitions. As such this case of Udayan Chinubhai cited by the assessee is also of no help to him.

11. Under the Hindu Law, a coparcener has undivided coparcenary interest in the joint family property. In as such. (sic) Such right crystallises only on partition and not prior thereto. So accordingly, the question of any particular property cannot arise for the simple reason that he does not have any such interest in any such property. All he can do is to release his entire interest in the joint family property, the legal effect of which will be that he will go out of the family. But it is difficult to visualise a situation here an individual will continue to be a member of the family but at the same time he will not have any interest in all properties belong to the family. The Hindu Law does not contemplate a situation where a member of the family does not have interest in all properties belonging to the family.

12. The correct effect would be that the particular property is partitioned whereby it cease to belong to the family and it is allotted to all the members of the family except one who can thereafter hold it as co-owners. But that property cannot be held by such members again as members of a HUF. In other words once a property is taken out from the common hotch-potch pot and partitioned, it loses its character of 'joint family property' and becomes an individual property in the hands of the members.

13. The arrangement of releasing the amounts by one co-sharer and of running separate HUFs by the remaining other coparceners, snacks of ingenuinene3S. In the above all arrangements in which the assessee has made, two separate HUFs by releasing the amounts in equal parts in favour of other persons shows that this is sham arrangement and the group of persons who have joined hands together to earn the income and become the partners in the separate firms, clearly shows that the co-sharers (as stated above) has made arrangement of dividing the money in such a way that each co-sharer gets equal amount. Hence the alleged HUF who has become the partner in the firm, is considered to be a group of persons and would be assessed as an AOP having definite shares and income earned by such group of co-sharers would be divided equally among the co-sharers and would be taxed in the hands of Individual cases.

7. Thereafter, the assessee went up in appeal before the AAC and once again urged that it should have been assessed in the status of "HUF" in view of the aforesaid two decisions of the Hon'ble Gujarat High Court and the Hon'ble Supreme Court. The AAC accepted the assessee's submissions in the following manner :- 8. I have gone through the assessment order and also through the written submissions of the appellant's representative. It is seen that all the six partial partitions have been recognised by the orders Under Section 171 of the Act. Moreover, the Gujarat High Court's decision relied on by the appellant's representative is also applicable to the facts of the appellant's case. I am, therefore, persuaded to hold that the correct status of the appellant should be HUF consisting of Thakershi Chunilal, his wife and two sons. The Income-tax Officer is, therefore, directed to grant the status of HUF instead of AOP.8. Being aggrieved by the order of the AAC, the revenue has come up in appeal before the Tribunal. The learned representative for the department strongly relied on the order of the ITO and vehemently argued that the AAC ought to have accepted the decision of the ITO that the assessee should be assessed in the status of "AOP". According to him, once a partial partition has been accepted by the ITO, all the members of the HUF get separated vis-a-vis the property divided in such partial partition. In other words, according to the learned representative for the department, in the instant case each of the members of the bigger HUF should be treated to have been separated vis-a-vis the division of Rs. 20,000 of the bigger HUF. Therefore, the status of the HUF was rightly taken as "AOP". If some of the members wanted to remain joint after such partial partition, they have to make their intention clear by executing proper declaration. Till such time, according to the learned representative for the department, each of the members of the bigger get separated vis-a-vis partial partition of Rs. 20,000 of the bigger HUF. At this stage, the Tribunal had invited the attention of the learned representative for the department to the Clause (b) of the Explanation to Section 171 which defines "partial partition" with a view to bring to his notice that the submissions made by him may not fit in well with the said definition. Thereafter, he referred to the aforesaid decision of the Hon'ble Supreme Court in the case of Joint Family of Udayan Chinubhai (supra) and pointed out that even though the ITO wanted to assess some of the members of the family in the status of "HUF", the Hon'ble Supreme Court held that the same could not be done. He also pressed into service the decision of the Hon'ble Supreme Court in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, as according to him, by creating multiple HUFs, the sole purpose of the assessee was to reduce/avoid legitimate tax due to the national exchequer. He also referred to the order of the Tribunal in the case of ITO v. Mayabhai Laxmichand (HUF) [1986] 19 ITD 245 (Ahd.), as according to him, the ratio laid down therein would be applicable to the facts and circumstances obtaining in the instant case. Finally, he also read out certain portions appearing at pages 3351 & 3352 of Income-tax Law of Chaturvedi & Pithisaria (Third Edition), Vol.4, with a view to urge that the AAO ought to have upheld the order of the ITO taking the status of the assessee as "AOP".

9. The learned counsel for the assessee, on the other hand, strongly supported the order of the AAC. In this connection, he highlighted the fact that the partial partition took place on 26-10-1978 which was not only accepted by the ITO by passing appropriate order Under Section 171 of the Act, but till to date, the competent authority has not deemed it fit to disturb the order of the ITO recognising the partial partition.

In this view of the matter, according to the learned counsel for the assessee, the revenue cannot get any support from the decision in the case of McDowell & Co. Ltd. (supra) which has been cited time and again by the revenue ignoring the context in which the same was delivered.

Thereafter, he pointed out that since there was a clear loophole in the relevant provision of the Act, by which there used to be multiple HUFs, the Parliament brought Sub-section (9) of Section 171 of the Act on the statute with effect from 1-4-1980 derecognising ; the partial partition effected after 31-12-1978. Therefore, when the statute had not prohibited partial partition prior to 31-12-1978, it was not open for the revenue to rely on the decision in the case of McDowell & Co. Ltd. (supra). The learned counsel for the assessee invited the attention of the Tribunal to 123 ITR 157 (statute) and 131 ITR pages 36 and 37 (statute) which contain background material for the introduction of Sub-section (9) in Section 171 of the Act, with effect from 1-4-1980.

The learned counsel for the assessee strongly relied on the aforesaid decision in the case of Shantikumar Jagabhai (supra) which clearly approves that there can be two separate entities having certain members of the family common therein. Inviting the attention of the Tribunal to the decision in the case of Joint Family of Udayan Chinubhai (supra) the learned counsel for the assessee highlighted the fact that in that case, the joint family was disrupted in a suit filed by Sir Chinubhai whereby Sir Chinubhai was given his share while other members of the family got their share which they held as "tenants in common". The ITO had recognised the partition by passing an order Under Section 25A of the Indian Income-tax Act, 1922 (corresponding to Section 171 of the Act). Initially, the ITO assessed the other members of the joint family in their individual capacity. However, he initiated the proceedings Under Section 34 of the Indian Income-tax Act, 1922 (corresponding to Section 147 of the Act) with a view to assess the other members of the family in the status of HUP. However, in the instant case, the ITO himself has recognised that the only one of the coparceners had severed his connection vis-a-vis Rs. 20,000 by taking his share of Rs. 4,000 or Rs. 8,000. The other members of the family continued to remain joint.

As regards the order of the Tribunal in Mayabhai Laxmichand (HUF)'s case (supra) the learned counsel for the assesses highlighted the fact that in that case, an attempt was made by the assessee to circumvent the provisions of prohibiting partial partition after 31-12-1978.

However, in the instant case, since the partial partition has taken place prior to the introduction of Sub-section (9) In Section 171 of the Act, the said order of the Tribunal would not come in his way.

Finally, he also relied on an unreported decision of the Hon'ble Gujarat High Court in the case of Kanailal Motilal & Co. [IT Reference No, 108 of 1974, dated. 9-2-1976] [1976 ITAT Bar Association, P. 145] wherein, according to Mm, the ratio laid down by the Hon'ble High Court clearly supports the stand taken by the assessee in the present case.

He, therefore, urged that we should uphold the order of the AAO under appeal.

10. We have carefully considered the rival submissions of the parties and are constrained to observe that the revenue ought not to have come in appeal without properly appreciating the issue involved in the present appeals. We make this observation as it is not disputed that the order passed by the ITO Under Section 171 of the Act, recognising partial partition is very much there. Once the ITO had recorded recognition of the partial partition in the manner the assessee had claimed, we fail to appreciate how he can change the status of the assessee from "HUF" to that of "AOP" in the manner he did. At this stage, we would like to reproduce below the observations made by the Hon'ble Supreme Court : It is true that an assessment year under the Income-tax Act is a self-contained assessment period and a decision in the assessment year does not ordinarily operate as res judicata in respect of the matter decided in any subsequent year, for the assessing officer is not a court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year. It is open to the Income-tax Officer, therefore, to depart from his decision in subsequent years, since the assessment is final and conclusive between the parties only in relation to the assessment for the particuar year for which it is made. A decision reached in one year would be a cogent factor in the determination of a similar question in a following year, but ordinarily there is no bar against the investigation by the Income-tax Officer of the same facts on which a decision in respect of an earlier year was arrived at. But this rule, in our judgment, does not apply in dealing with an order under Section 25A(1). Income from property of a Hindu undivided family, "hitherto" assessed as undivided, may be assessed separately if an order under Section 25A(1) had been passed. When such an order is made, the family ceases to be assessed as a Hindu undivided family.

Thereafter, that family cannot be assessed in the status of a Hindu undivided family unless the order is set aside by a competent authority. Under Clause (3) of Section 25A if no order has been made notwithstanding the severance of the joint family status, the family continues to be liable to be assessed in the status of a Hindu undivided family, but once an order has been passed, the recognition of severance is granted by the income-tax department and Clause (3) of Section 25A will have application.

On the aforesaid observations themselves, the action of the ITO is clearly ba,d in law, 11. We have gone through carefully various reported/uneprorted decisions cited before us as well as the order of the Tribunal in Mayabhai Laxmichand (HUF)'s case (supra), to which both of us were the parties and are of the view that the ratio laid down in each, of them clearly supports the stand taken on behalf of the assessee. At this stage, we would like to observe that while applying the ratio laid down in the reported cases, it is also worthwhile keeping in mind the facts and circumstances obtaining in those cases and the one with which we are concerned in the present appeals. In the case of Joint Family of Udyan Chinubhai (supra), the partition was total and that too by a court decree. This was recognised by the ITO by passing appropriate order under the tax law. Thereafter, the ITO took an action Under Section 34 of the Indian Income-tax Act, 1922 (corresponding to Section 147 of the Act) to change the status of some of the members of the disrupted family. The Hon'ble Supreme Court has held that once an order recognising partition has been passed by the ITO, the ITO is debarred to take status of the disrupted members of the family different than the one taken by him in the original assessment. In the instant case also, the ITO has recognised partial partition in the manner claimed by the co-sharers of the bigger HUF. Therefore, the ITO would not be justified in taking the status of the assessee in the instant case other than the "HUF".

12. The partial partition has been derecognised for and from the assessment year 1980-81 onwards in respect of partial partition which took place after 31-12-1978, In this connection, it would be worthwhile reproducing below the background under which the Parliament thought it fit to plug the loophole in this regard :- Memorandum explaining the provisions in the Finance (No. 2) Bill 1980 (123 ITR 146) 44. Modification in the provisions relating to partial partition of Hindu undivided families-Under the Hindu Law, a Hindu undivided family is entitled to effect a partition which may be total or partial. Where a Hindu undivided family undergoes a total partition, the entire joint family property is divided among all the coparceners and the family ceases to exist as an undivided family. A partial partition, on the other hand, may be partial as regards the persons constituting the joint family or as regards the properties belonging to the joint family, or both. In a partial partition as regards the persons constituting the joint family, one or more coparceners may separate from others and the remaining coparceners may continue to be joint. In a partial partition as regards the property, a joint family may make a division and severance of interest in respect of a part of the joint estate while retaining their status as a joint family and holding the rest of the properties as joint and undivided family.

45. While under the Hindu Law, a joint family may make a division and severance of interest in respect of the joint estate while retaining their status as a joint family, the Income-tax Act does not recognise a partition in status alone and where a Hindu undivided family has been assessed to income-tax as such, it continues to be regarded as Hindu undivided family unless the property has been partitioned by metes and bounds. This provision applies equally in the case of total as well as partial partition.

46. In spite of the measures taken in recent years, Hindu undivided family continues to be used as a medium for reduction of tax liability. This appears to be specially true in cases where multiple Hindu undivided families have been created by effecting partial partitions as regards persons constituting the joint family or as regards the properties belonging to the joint family, or both. With a view to curbing the creation of multiple HUFs by making partial partition, it is proposed to de-recognise the partial partition of a Hindu undivided family effected after 31st December, 1978, for tax purposes. In cases where a Hindu undivided family has been taxed in the status of a Hindu undivided family, it will continue to be taxed as such unless there has been a total partition of the family properties by metes and bounds and a finding to that effect is recorded by the Income-tax Officer.

47. This amendment will take effect from 1st April, 1980 and will accordingly apply in relation to the assessment year 1980-81 and subsequent years.

13. The Central Board of Direct Taxes issued circular No. 281 dated 22-9-1980 containing Explanatory Notes on the provisions of the Finance (No. 2) Act, 1980 reported at pages 4 to 54 of the 131 ITR (statute), at page 4, the introduction contains this line, viz : "plugging certain loopholes for tax avoidance through the medium of Hindu undivided family. Pages 36 & 37 of the report contain Explanatory Notes in respect of Section 171, in the following manner :- Modification of the provision relating to partial partition of Hindu undivided families-Section 171.

31.1 Under the Hindu law, a Hindu undivided family is entitled to effect a partition which may be total or partial. Where a Hindu undivided family undergoes a total partition, the entire joint family property is divided among all corparceners and the family ceases to exist as an undivided family. A partial partition, on the other hand, may be partial as regards the persons constituting the joint family or as regards the properties belonging to the joint family or both. In a partial partition as regards the persons constituting the family one or more coparceners may separate from others and the remaining coparceners may continue to be joint. In a partial partition as regards the property, a joint family may make a division and severance of interest in respect of a part of the joint estate while determining their status as a joint family and holding the rest of the properties as joint and undivided property.

31.2 While under the Hindu law, a joint family may make a division and severance of interest in respect of the joint estate while retaining their status as a joint family, the Income-tax Act does not recognise a partial partition in status alone and where a Hindu undivided family had been assessed to income as such, it continues to be regarded as a Hindu undivided family unless the property has been partitioned by metes and bounds. These pro-visions are contained in Section 171 of the Income-tax Act and apply equally in the case of total as well as partial partition. In spite of the measures taken in recent years, a Hindu undivided family continues to be used as a medium for reduction of proper tax liability. This appears to be specially true in cases where multiple Hindu undivided families are created by effecting partial partitions as regards persons constituting the joint family or as regards the properties belonging to a joint family or both.

31.3 With a view to curbing the practice of creating multiple Hindu undivided families by making partial partitions, the Finance Act has inserted a new Sub-section (9) in Section 171 of the Income-tax Act, whereunder partial partitions of Hindu undivided families effected after 31st December, 1978, will not be recognised for tax purposes.

The new Sub-section (9) which will apply in the cases of Hindu undivided families which have hitherto been assessed in the status of Hindu undivided family, has made the following provisions in this regard- (i) In a case where a partial partition of a Hindu undivided family has taken place after 31st December, 1978, no claim that such partial partition had actually taken place will be enquired into under Sub-section (2) of Section 171 and the Income-tax Officer shall not record a finding as to whether there has been a total partition of the joint family property under Sub-section (3) of that Section Further, any finding regarding partial partition recorded under the said Sub-section (3) shall be null and void and of no legal effect.

(ii) Such family shall continue to be assessed as if no such partial partition has taken place, i.e., the property or source of income shall be deemed to continue to belong to the Hindu undivided family and no member shall be deemed to have separated from the family.

(iii) Bach 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 the Income-tax Act by the family in respect of any period, whether before or after such partial partition. The several liability of any member or group of members of such family shall be computed according to the proportion of the joint family property allotted to him or it on such partial partition.

31.4 This amendment has come into force with effect from 1st April, 1980 and is accordingly applicable in relation to the assessment year 1980-81 and subsequent years." [Section 28 of the Finance Act] From the above, it would be very clear that prior to 31-12-1978, partial partition was recognised by the Legislature. In this view of the matter, we fail to appreciate how the decision in the case of McDowell & Co. Ltd. (supra) has any application to the facts and circumstances obtaining in the instant case. We make this observation as the Hon'ble Supreme Court has not totally ruled out tax planning "within the framework of law.

14. As the facts and circumstances obtaining in the case of Maya-bhai Laxmichand (HUF) (supra) are clearly distinguishable from the facts and circumstances obtaining in the instant case, we do not deem it fit to discuss any thing further in this regard.

15. According to us, the ratio laid down in the aforesaid two decisions in the cases of Shantikumar Jagabhai (supra) and Joint Family of Udayan Chinubhai (supra) as well as in the aforesaid unreported decision in the case of Kanailal Motilal & Co. (supra) clearly support the stand taken on behalf of the assessee.

16. For all these reasons, we have no hesitation in upholding the order of the AAC under appeal.