(1.) By the Court. - At the instance of the assessee, the ITAT referred the following question of the High Court :
"(1) Whether, in the circumstances and on the facts of the case the order dt. 28-3-1973 of the ITO allowing the assessee's claim of partial partition dt. 5-8-1971 is on accordance with the provisions of s. 171 of the IT Act, 1961.
(2) Whether, in the circumstances and on the facts of the case the Addl. CIT is justified in holding that there could not be a partition in a Hindu Joint Family consisting of only the Karta, his wife and a minor daughter.
(3) Whether, in the circumstances and on the facts of the case the Addl. CIT is justified in cancelling the order u/s 143(3) of the ITO consequent on allowing the claim of partial partition u/s 171 of the IT Act, 1961".
(2.) The assessee Dandoo Madanmohan Rao is the second son of Lata Dandoo Pentaiah. The assessee was allotted some joint family properties towards his share in the family partition which took place from time to time between himself, his brothers and his father. The assessee's wife is one Padmavathi. As the assessee had no children, he adopted one Narsamma, the daughter of one of his brothers, by a registered deed of adoption dt. 4-8-1971. The Joint family thereafter consisted of the assessee. His wife Padmavathi adopted daughter Narsamma. The assessee was being assessed in the status of an HUF upto and inclusive of the asst. yr. 19671-72 the accounting period ending with 19th October of each previous year. The year of assessment in question is 1972-73, the accounting period being the year ending with 19-10-1971. An oral partition of the family properties as between the assessee, his wife and adopted daughter was made on 5-8-1971 and a record of lists of properties partitioned or kept joint was prepared on 16-8-1971. The 'A', 'B/' and 'C' schedule properties were respectively allotted to the assessee, his wife and adopted daughter. The 'D' schedule properties were however, kept joint. There was no physical partition made of premises No. 5-2-174/2, Rashtrapathi Road, Secunderabad in which the assessee and his wife were each allotted a half share. Likewise, the adopted daughter was allotted the 1/6th share belonging to the HUF of the assessee, the remaining 5/6 share, however, belonging to the divided members of the bigger HUF. For the asst. yr. 1972-73, the assessee claimed that a partial partition took place among the members of HUF on 5-8-1971. The ITO by his order dt. 28-3-1973 accepted the claim made u/s 17(3) of the Act. He accordingly finalised the assessment for that year by his assessment order dt. 28-3-1973. The Addl. CIT in exercise of his powers u/s 263 of the Act, issued a notice dt. 14-2-1974 calling upon the assessee to show-cause as to why the order dt. 28-3-1973 should not be cancelled with a direction to the ITO to re-do the assessment in accordance with law. The assessee showed cause after considering which the Addl. CIT set aside the two orders passed by the ITO as being prejudicial to the interest of revenue and directed the ITO to re-do the assessment in accordance with law. The Addl. CIT held that neither Padmavathi nor Narsamma could be considered as coparceners entitled to claim a share in the family properties. The assessee then preferred two appeals before the ITAT, one against the order cancelling the acceptance by the ITO of the claim made u/s 171 (3) of the Act and the other against the direction of the Addl. Commissioner to re-do the assessment in accordance with law. The Tribunal dismissed both the appeals. The assessee, in his reference application made to the Tribunal u/s 256 (1) of the Act, required the Tribunal to refer the first two questions set out above for the opinion of the High Court. In making the reference, however the Tribunal also framed the third of the questions referred to above for the opinion of the High Court.
(3.) The provisions of s. 171 of the IT Act prior to Finance (No. 2) Act, 1980, became material. In terms material provisions of that section :
"171(2) : Where, at the time of making assessment under section 143 or section 144 it is claimed by or on behalf of any member of a Hindu family assessed as undivided that a partition, whether total or partial has taken place among the members of such family, the Income-tax Officer shall make an injury there into after giving notice of the inquiry to all the members of the family.
171(3) : On a completion of the inquiry, the Income-tax Officer shall record a finding as to whether there has been a total or partial partition of the joint family property, and if there has been such a partition, the date on which it has taken place.
1714(4) : Where a finding of total or partial partition has been recorded by the Income-tax Officer under this section, and the partition took place during the previous year,
(a) the total income of the joint family in respect of the period upto the date of partition shall be assessed as if no partition had taken place; and
(b) each member of group of members shall, in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed.
171(7) : For the purposes of this section, the several liability of any member or group of members thereunder shall be computed according to the portion of the joint family property allotted to him or it at the partition, whether total or partial."
The partial partition was orally made on 5-8-1971 during the accounting period 1971-72, the year of assessment being 1972-73. It was on such a claim by the assessee that the ITO recorded a finding that the partition in fact took place on 5-8-1971, after giving notice of the enquiry to all the members of the family and after making the enquiry in terms of s. 171(2) of the Act. Consequent on the acceptance of such claim made by the assessee, the assessee, his wife and daughter became jointly and severally liable to pay the income-tax on the total income of the total income of the joint family in respect of the period till 5-8-1971 and thereafter severally in respect of the income arising to each of them from the properties allotted to their respective shares. Consequent on the acceptance of such claim for partial partition, the ITO finalised the assessment of the assessee for the year 1972-73 u/s 143(3) of the IT Act. The Addl. Commissioner as also the Tribunal took the view that the assessee was the only member of the family entitled to the status of a coparcener and that neither his wife nor the adopted daughter could be coparceners, entitled to claim partition and that, therefore the oral partition dt. 5-8-1971 is ab initio void and illegal. Mr. Dasaradharama Reddy has fairly stated that there cannot be any valid partition as such between the assessee, his wife, and adopted daughter. He has, however, tried to persuade us to uphold the validity of the partition on the basis of a family settlement In support of this submission he placed reliance on CIT v. Narain Dass Wadhwa . The facts in that case were Narain Dass Wadhwa constituted an HUF along with his son Krishna Lal Wadhwa, his wife Sita Devi and two unmarried daughters Veena and Chandrika On the death of Narain Dass Wadhwa on 19-1-1964, the HUF constituted by Krishna Lal his mother and two sister, was a partner in the firm known as 'M/s Paxit Containers'. On 15-5-1969, there was a partial partition in respect of the amount of Rs. 60,000 which stood invested by the assessee HUF in the said firm. Necessary entries were made in the books of M/s Paxit Containers showing the Division of the aforesaid amount of Rs. 60,000. Consequent upon this partial partition, Sita Devi, Veena and Chandrika withdrew the amounts from M/s Paxit Containers and invested the same somewhere else. Krishna Lal thereafter joined the firm M/s Paxit Containers as representative of the smaller HUF, consisting of himself, his wife and a minor child. On 10-7-1970, the assessee HUF filed an application u/s 171 of the It Act requesting the ITO to record a finding to the partial partition of the joint family as on 15-5-1969. That claim was supported by an affidavit filed by each member of the assessee HUF. The claim was in fact presented that there was nothing in law to compel the Karta of the family to remain joint with his mother and sister and as such, the partial partition in question, which in fact, was tantamount to a family arrangement, was valid in the eye of law. The ITO refused to accept the claim of partial partition on the ground that there must be at least two coparceners for the purpose of effecting a partition of the joint family property, but there was only Krishna Lal, one male co-parcener. The ITO thereafter proceeded to add the interest on the total amount of Rs. 60,000 in computing the income of the assessee HUF. On appeal, the AAC accepted the claim of the assessee and the order of the AAC was confirmed by the Tribunal. The facts disclosed beyond doubt that Sita Devi, Veena, and Chandrika became the legal representatives alongwith Krishna Lal, son of Narain Dass Wadhwa who died in 1964 subsequent to the Hindu Succession Act, 1956. Each of them had therefore, a right to claim a share in the assets belonging to Narain Dass Wadhwa. The ld. Judges of the Punjab and Haryana High Court accepted the partial partition both as of fact and on the alternative basis that it represents a family arrangement arrived at fairly between the members belonging to the family of Narain Dass Wadhwa. Mr. Dasaradharama Reddy cannot, therefore, rely upon this decision, in view of the facts which arose for decision in that case.;