| SooperKanoon Citation | sooperkanoon.com/65610 |
| Court | Income Tax Appellate Tribunal ITAT Pune |
| Decided On | Nov-13-1992 |
| Judge | T Natarajachandran, T Bukte, J Member |
| Reported in | (1993)44ITD295(Pune.) |
| Appellant | income-tax Officer |
| Respondent | Champalal Surajmal Sharma |
According to the learned departmental representative Shri A.K.Khaladkar the order of the AAC is not in accordance with the provisions of law and he should not have directed to accept the full and complete partition of the HUF.2. We have heard Shri A.K. Khaladkar at length and the learned counsel for. the assessee Shri K.A. Sathe, their arguments are taken into consideration.
3. Shri A.K. Khaladkar argued the appeal for the assessment year 1985-86 in ITA No. 399/PN/1987 only on the ground that the findings in other appeals either depend on the facts of this appeal or in the alternative the other appeals require to be remitted back to the file of the WTO for further investigation of facts to find out the real truth regarding the full partition of the two house properties.
Straightaway Shri A.K. Khaladkar drew attention while advancing the arguments that the partition of the immovable properties require to be made by metes and bounds as per the decision of the Supreme Court in the case of Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690.
He read over the major portion of the Supreme Court observation as well as the findings. The Supreme Court confirmed the decision of the High Court in that case holding that the properties admitted of physical division into the required number of shares and such division would not adversely affecte their utility. There was no material to show that the assessee ever seriously attempted to make a physical division of the property as required by law. This case clearly fell within Sub-clause (i) of Clause (a) of the Explanation to Section 171; Sub-clause (ii) did not apply at all. The condition in Clause (a)(i) of the Explanation to Section 171 was not satisfied. The Supreme Court further held that if a large number of items of property are there, they are usually apportioned on an equitable basis having regard to all the relevant factors and if necessary by asking the parties to make payments of money to equalise the shares. Such apportionment is also a kind of physical division of the properties contemplated in the Explanation to Section 171. The pattern would be tenants in common. While interpreting the partition deed dated 21-10-1979 Shri A.K. Khaladkar contended that this amounts to the partial partition and therefore, the Assessing Officer was right in not recognising the partial partition and further in rejecting the registration to the firm consisting of five coparceners of the HUF of Shri Champalal Surajmal Sharma. He took us through certain Clauses of the said partition deed and brought to our notice that partner No. 5 Shri Pradip Champalal Sharma was 17 years of age at the time of alleged partition and he was a minor. According to this partition deed the names of all the five coparceners were to be entered into CT Survey record after Shri Pradip Champalal Sharma attained the age of majority as owners of the House No. 1897/B/2 and 3 of Polanpeth, Jalgaon and House No. 92 in Ward No. 15 of CTS No. 1897/ B/2 and 1 of Polanpeth, Jalgaon. Accordingly after Shri Pradip Champalal Sharma attained the age of majority the names of all the partners have been entered into CTS record of these houses as equal sharers or equal owners on 2-12-1986 whereas the partition deed was executed on 21-10-1979. Shri A.K. Khaladkar relying on the judgment of the Supreme Court cited supra has contended that the Assessing Officer has righly refused to accept the partition and to issue registration to the partnership firm.
4. Shri K.A. Sathe argued at length. He has filed a copy of map of house property showing as to how the coparceners have managed to divide the rooms between them to occupy and stay there. All the coparceners are residing separately in different portions of the house property.
The last paragraph of the partition deed clarifies that the joint Hindu undivided family property is partitioned including utensils, cloths etc. All the coparceners are residing on the top floor of House No. 89 and in the ground floor the business was carried on. The second floor of House No. 92 is in occupation of M/s Pradip Steel Works and the first floor is given on rental basis to Shri Appa Mahipat Mali. The capital from the business at the end of the year was Rs. 8,622.74 and the said business was carried on in the name of Champalal Surajmal Sharma. From the date of partition the said capital was divided in five equal shares of five coparceners. The book entries were made accordingly. The joint HUF business was divided in five equal shares from 22-10-1979 including the assets and liabilities. From that date they started carrying on the partnership business. Regarding the two house properties it is mentioned in the partition deed that the partition by metes and bounds cannot be made and therefore, they will occupy the rooms on the top floor of House No. 89 till separate arrangements for their residential premises were made. According to Shri Sathe this is full and final partition deed and the acceptance of the same should have been made.
5. While distinguishing the Supreme Court judgment in the case of Kalloomal Tapeswari Prasad (supra) Shri Sathe contended that the law does not require that each and every immovable property should be divided by metes and bounds. According to him, the division of the capital in equal shares by book entries should be enough. He contended that the ground floor of House No. 89 was not divided by physical division but according to him all the five partners have equal shares in the ground floor as per the partition deed. The business premises are also not divided but according to Shri Sathe by implication of having equal shares by each coparceners in the entire property the business premises also stand divided. Shri Sathe cited an example of a HUF deity. He explained that the HUF deity cannot be divided by metes and bounds instead of effecting the partition of other properties between the coparceners. He explained that the worship of the family deity is divided equally and turn by turn. Then by division of the worship it is treated as if the deity itself is divided. Similar is the case in these appeals, according to Mr. Sathe.
6. Shri Sathe further advanced an argument and contended that there is a total partition to the best possible division. He has distinguished the Supreme Court judgment in the case of Kalloomal Tapeswari Prasad (supra) that, in that case there was an admitted case of partial partition only. Moreover, different properties in that case were quite capable of physical division. In spite of that the parties did not make attempts to divide the property. Therefore, the Supreme Court took a view that no partition can be recognised unless the divisions are made by metes and bounds. According to Shri Sathe, the said case is distinguishable on facts and the same is not applicable to the facts of the instant appeals. Thus, he urged that the case of a partial partition cannot be applied to the case of total partition.
7. Shri Sathe argued on the judgment of the Allahabad High Court in the case of CIT v. Onkar Saran & Bros. [1991] 188 ITR 320 wherein the Allahabad High Court has referred to the judgment of the Supreme Court in the case of Kalloomal Tapeswari Prasad (HUF)(supra). The observations are that a perusal of the Explanation to Section 171 of the Income-tax Act, 1961, shows that where the property admits of a physical division, it should be physically divided and any claim of division without a physical division of such property will not be deemed to be a partition. Where however, the property does not admit of a physical division then such division as the property admits of amounts to a partition, but a mere severance of status or its declaration shall not be deemed to be a partition.
The assessee-HUF owned an undivided interest in a certain estate. The assessee claimed that a partial partition had taken place with regard to the said undivided interest. The Tribunal found that the partition had been effected by specifying the share of interest of the members and accepted it. On a reference : the Allahabad High Court held that since the assessee-HUF had only an undivided interest in the property, the only division that was possible in the circumstances was by specifying and separating the shares of the members of the assessee-HUF and the division of income accordingly. This had been done and hence the partial partition was legally acceptable under Section 171. The Tribunal was in law justified in directing the exclusion of the income from the properties under consideration from the assessment of the HUF.In this case also a recognition of partial partition was granted by the Allahabad High Court. The Allahabad High Court also held that whenever partition is not possible by metes and bounds then in that case in the possible circumstances by specifying and separating the shares of the members of the assessee-HUF was accepted.
8. In the instant case, it is not the contention of the department that the house property occupied by the coparceners can be divided by metes and bounds. Such possibility is not brought on record. Therefore, the only possibility which has remained to be considered and brought on record by the assessee is that in the quite possible manner the partition is tried to be effected by metes and bounds by occupying separate rooms by each coparcener and by dividing the capital itself.
This arrangement was made until alternative arrangements could have been made having separated for all the purposes. Therefore, no effective partition by metes and bounds in each room does not come in the way of accepting the total partition. There is not only the severance of the status but the severance of each and every activity of the coparcener. Therefore, we do not find any good reason not to agree with the AAC to the point that the property does not admit of a physical division but in all other respective the divisions had taken place. The map of the house filed before the AAC as well as before us does not give any possibility to divide the house property by metes and bounds. His directions cannot be said that it is not in consonance with the provisions of Section 171 of the Act in not accepting the partition. The factual aspect as well as legal aspect do not allow us to reverse his order.
9. In the result, the revenue's appeal is dismissed as far as assessment year 1985-86 is concerned.
10. In other appeals, the learned departmental representative Shri A.K.Khaladkar has drawn our attention to the judgment of the Supreme Court in the case of Chandrakant Manilal Shah v. CIT [1992] 193 ITR 1 wherein the Supreme Court has held reversing the decision of the High Court that mere fact that N had neither separated from the family nor brought in any cash asset as his capital contribution to the partnership but was contributing only his skill and labour, could not in law detract from a valid partnership being created. The partnership between C as the karta and N was valid and the firm was entitled to registration.
The Supreme Court has further held that it is not correct to say that, under Hindu law, there can be no contract inter se between the undivided members of a HUF. The Supreme Court also made a remark that the aim of business is earning of profit. When an individual contributes cash assets to become a partner of a firm in consideration of a share in its profits, such contribution helps and, at any rate, is calculated to help achievement of the purpose of the firm, namely to earn profits. The same purpose is undoubtedly achieved also when an individual, in place of cash assets, contributes his skill and labour in consideration of a share in the profits of the firm. Just like a cash asset, the mental and physical capacity generated by the skill and labour of an individual is possessed by or is a possession of such individual. Indeed skill and labour are by themselves possessions. "Any possession" is one of the dictionary meanings of the word "property".
In its wider connotation, therefore, the mental and physical capacity generated by skill and labour of an individual and indeed, the skill and labour by themselves would be the property of the individual possessing them. They are certainly assets of that individual and there is no reason why they cannot be contributed as a consideration for earning profits in the business of a firm.
11. Shri Khaladkar contended that the further investigation regarding capital contribution in the partnership firm amongst the coparceners is required in this respect. Therefore, he has contended to set. aside the orders of the ITO as well as the AAC in those appeals and to remit the matter back to the ITO for further investigation for passing order according to law. Shri Sathe has no objection to do so and hence the orders of the ITO for the assessment years 1981-82 to 1984-85 as well as that of the AAC are set aside and they are remitted back to the file of the ITO for making further investigation of capital investment in the partnership for granting registration in view of the judgment of the Supreme Court cited supra and to pass orders in accordance with law after giving opportunity of being heard to the assessee.
12. In the result, the appeals for A. Years 1981-82 to 1984-85 are allowed for statistical purposes.
13. The Cross Objections by the assessee are filed only in support of orders passed by the AAC for directing to accept the partition and not to refuse the registration. In the light of passing our order in the appeals filed by the department, the cross objections do not survive.
They are therefore, dismissed.