(1.) These two appeals by certificate - one by the assessee and the other by the Commissioner of Income-tax, Kanpur are filed against the judgment and order dated Sept. 29, 1972 of the High Court of Judicature at Allahabad in Income-tax Reference No. 47 of 1971 under Section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') made by the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad (for short 'the Tribunal'). The two questions which were referred by the Tribunal for the opinion of the High Court were:
"(1) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the properties in dispute were capable of division in definite portions amongst the 10 coparceners; as contemplated in Explanation (a) (i) to Section 171 of the Income-tax Act, 1961 and that even otherwise the mere severance of status was not sufficient to entitle the assessee to succeed in its claim for partial partition?
(2) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the income from the properties in dispute which were accepted to have been partitioned under the Hindu law but with regard to which an order accepting the claim of partial partition was not made was liable to be included in the computation of the assessee's income?"
(2.) The assessee is a Hindu undivided family known as M/s. Kalloomal Tapeshwari Prasad and the year of assessment is 1964-65. THE assessee is governed by the Mitakshara school of law. THE following genealogical tree represents the relationship amongst the members of the family:
During the relevant previous year, the family consisted of Chandoolal, Sitaram and his wife Kripa Devi, Jagat Nararin, Roop Narain, Swarup Narain, Shyam Narain and Bimal Narain who were the five sons of Chandoolal and Gopalji and Ramji, the two sons of Sitaram. The assessee (Hindu undivided family) was deriving income from various sources such as income from property, income from money lending business, income from speculation business and cloth business etc. There was a partial partition in the family in the year 1951 when a sum of Rs. 5,00,000 out of its total Capital of Rs. 12,85,423 was divided amongst the coparceners at the rate of Rs. 11,666/10/8 amongst members of Chandoolal's branch and at the rate of Rs. 83,333/5/4 amongst the members of Sitaram's branch. Kripa Devi did not receive any share at that partition. The said partial partition was accepted and acted upon by the Income-tax Department whereafter the Cloth business was treated as the business of a firm consisting of most of the coparceners as partners, Again on 11/12/1963 which fell within the previous year relevant for the assessment year in question i.e. 1964-65, according to the assessee, there was another partial partition orally as a result of which its eighteen immovable properties were divided amongst the ten members of the family and that they held those properties as tenants-in-common from that date. It was claimed by the assessee in the course of the assessment proceedings that the members of the family had commenced to maintain separate accounts with regard to the income from the said eighteen properties and to divide the net profits amongst themselves according to their respective shares at the end of each year. The eighteen immovable properties were situated in different places and their valuation was as follows :-
When required by the Income-tax Officer to explain as to why the properties were not divided in definite portions as required by S. 171 of the Act, the assessee stated that physical division of the properties in question amongst the ten members was impossible and the only possible way to partition those properties was to define their respective shares and to enjoy the income from them separately. In support of the above claim the assessee relied upon a copy of an award dated April 15, 1.964 made by me S. B. Tandon which was made into a decree in Suit No. 60 of 1964 on the file of the Court of the First Civil Judge, Kanpur dated Sept. 21, 1964. In that award the arbitrator had stated that the properties did not admit of physical division, The Income-tax Officer did not agree with the assessee's contention that It, was not possible to divide the properties in question in definite portions. Accordingly he rejected the claim of partial partition in respect of the eighteen immovable properties and proceeded to assess the income derived therefrom in the hands of the assessee. Against the order of the Income-tax Officer, the assessee filed an appeal before the Appellate Assistant Commissioner of Income-tax. During the pendency of that appeal the assessee appointed another arbitrator by the name Lakshman Swaroop, a retired Chief Engineer to examine the possibility of a physical division of each of the eighteen properties into ten portions and if that was not possible to suggest any other mode or modes to divide them into ten Parts in accordance with the share allotted to each of the parties to the partition. By his award dated Feb. 3, 1965, Lakshman Swaroop stated that the aforesaid properties were "not capable of physical division into ten shares by metes and bounds and that any practical division is that of allocation of proportionate shares in all the 18 properties in question." It may be mentioned here that out of the ten shares, six shares were 1/12th each and four shares were 1/8th each. Chandoomal and his five sons had been allotted 1/12th each and Sitaram, his wife and his two sons had been allotted 1/4th each. Lakshman Swaroop was also examined as a witness before the Appellate Assistant Commissioner by the assesee and cross-examined by the Income-tax Officer. The Appellate Assistant Commissioner on a consideration of the material before him including the decree of the court referred to above and the evidence of Lakshman Swaroop held that the case of the assessee that it was not possible to divide the properties physically into ten shares referred to above was not tenable and dismissed the appeal. The assessee, thereafter took up the matter before the Tribunal in appeal. The Tribunal also was of the view that the contention of the assessee that if the properties had been divided into ten shares, they would have either been destroyed or would have lost in value was not correct. Accordingly the claim of the assessee under S. 171 of the Act that there was a partial partition was rejected. Thereupon on an application of the assessee made under S. 256 (1) of the Act, the two questions set out above were referred by the Tribunal to the High Court for its opinion.
(3.) After hearing the parties. the High Court recorded its answer to the first question in the affirmative and in favour of the Department and in reaching that conclusion, it observed thus :
"We have seen the evidence of the arbitrator as well as the Chief Engineer, and it is apparent therefrom that even though the 18 properties could not individually be divided into 10 shares without destroying their utility but after assessing the value of the properties, they could be apportioned between the ten members and the difference in the allocations could be equalised by payment of cash amounts by one to the other. In our opinion, it cannot, in such a situation, be said that these 18 properties were incapable of physical division, in 10 shares, and so, in view of clause (a) (i) of the Explanation, mere severance of status was not sufficient for recording a finding of partition."
The High Court answered the second question in favour of the assessee holding that the income accruing from the eighteen immovable properties after 11/12/1963 was however not liable to be included in the computation of the joint Hindu family's income. In recording this answer,, the High Court observed thus :
"Section 171 of the 1961 Act in essence, is a re-enactment of S. 25A with the difference that it applies not only to cases of total partition but also to cases of partial partition. There are some incidental changes as well, e. g. See. 171 applies also for purposes of levying and collecting penalty, fine or interest and in addition requires the Income-tax Officer to record a finding as to the date on which total or partial partition took place. The fact that S. 171 applies to a partial partition (meaning a partition which is partial as regards the persons or as regards the properties of the family or both) as well shows that a finding of partial partition can be recorded and on such a finding being recorded under sub-section (4) the total income of the joint family in respect of the period up to the date of partition is to be assessed as if no partition had taken place and each member of the family was to be liable, notwithstanding anything contained in clause (2) of S. 10, jointly and severally for the tax on the income so assessed. Thus S. 171, like Section 25A, seeks to nullify the effect of (2) under which a member was not liable to be taxed on the income received as a member of Hindu undivided family. The section does not entitle the inclusion of income from an asset which has ceased to belong to the joint family, in the assessment of the joint Hindu family.
In the present case, on the finding the position is that the joint Hindu family stood disrupted in relation to the 18 immovable properties as a result of the oral partition dated 11/12/1963. Thereafter the income of these properties belonged to the individual members and not to the joint family. It could not be included in the assessment of the family."