- (1.) Prior to 1955 Rai Bahadur Tunki Sah was the Karta of' HUF comprising his wife Budhi Devi, his son Baidyanath Pd. Sah and his daughter-in-law Godawari Devi. On the demise of the Karta Rai Bahadur Tunki Sah in 1955, his son Baidyanath became the Karta of the HUF. The widow of the deceased Budhi Devi was entitled to a limited interest in the property under the provisions of the Hindu Women's Right to Property Act, 1937. However, on the coming into force of the Hindu Succession Act, 1956 her limited interest turned into an absolute one and she acquired absolute ownership rights under Section 14 (1 of the said Act. Budhi Devi died in 1960 or thereabout and her share in the properly was inherited by her only son Baidyanath. Baidyanath and his wife Godawari Devi adopted Nand Ktimar as their son sometime in 1961. Thereafter, on 3/5/19699 Baidyanath executed a registered gift deed in respect of his share in the property which he had inherited from his mother to his adopted son Nand Kumar which gift was accepted by the Gift Tax Officer, who recovered gift tax thereon. In the present appeals, we are concerned with the income tax assessment years 1972-73.1973-74, 1974-75 and 1975-76. It appears that in the assessment years 1970-71 and 1971-72 the Income Tax Officer while assessing the HUF and Nand Kumar accepted the contention of the assessee that only 50 per cent of' the income from the property and business was assessable in the hands of the HUF and the balance in the hands of the adopted son Nand Kumar. However, in the subsequent assessment years the Income Tax Officer rejected the assessee's contention that the income was liable to be divided 50 : 50 between the HUF and the adopted son Nand Kumar for determining the tax under the Income Tax Act, 1961 and instead assessed the entire income as income of HUF making a protective assessment of 50 per cent of the income in the hands of the adopted son Nand Kumar as individual. This order was questioned in appeal, but the Appellate Assistant Commissioner rejected the appeal of the HUF upholding the view taken by the Income Tax Officer. The adopted son Nand Ktimar had also filed separate appeals and they too were rejected following the view taken in the appeals preferred by the HUF. In further appeal in regard to the assessment years 1972-73 and 1973-74 the Income Tax Appellate tribunal upheld the assessee's contention that the income was divisible in equal shares and that the HUF could be assessed for 50 per cent of the income only leaving the balance 50 per cent tobe assessed as income in the hands of the individual i. e. adopted son Nand Kumar. For the subsequent years also the tribunal in separate appeals passed similar orders. The appeals of Nand Kumar were also similarly accepted by the tribunal. The question came to be referred to the High court in regard to the order passed by the tribunal in the appeals referable to the assessment years 1972-73 and 1973-74. Similar orders came to be passed in regard to the subsequent assessment years. So also orders to the same effect were passed in the case of the adopted son Nand Kumar in regard to the assessment years 1972- 73 to 1975-76. On a reference to the High court in the case of the HUF as well as the individual Nand Kumar the High court reversed the view taken by the tribunal and upheld the view taken by the Appellate Assistant Commissioner. In other words, the High court upheld the contention urged by the Revenue
(2.) The decision turns on the language of Section 171 of the IT Act. Sub- section (1 of Section 171 in terms provides that a Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu Undivided Family, except where and insofar as a finding of' partition has been given under this section in respect of the Hindu Undivided Family. On a plain reading of this Ss. it becomes clear that a Hindu family which is assessed as undivided has for the purposes of the Act to be deemed to continue as such unless there is evidence of partition and finding is recorded to that effect under the Act in respect of such family. The section creates a deeming fiction of continuing the HUF except where a finding of partition has been given in respect of the HUF concerned. Before this finding is recorded an inquiry has to be undertaken on the question whether there has been a total or partial partition of the joint family property and if there has been any such partition, the date on which it took place. The explanation defines the expression 'partition' to mean- (I) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition: or (Ii) where the property does not admit of any physical division, then such division as the property admits of, but a mere severance of status shall not be deemed to be a partition
(3.) The expression "partial partition" has been defined in clause (b) as a partition which is partial as regards the persons constituting the Hindu Undivided Family, or the properties belonging to the Hindu Undivided Family, or both. In the instant case, admittedly, no inquiry was undertaken on the question whether there had been a total or partial partition of the joint family property and if yes the date on which it had taken place. That being so, in view of the language of Section 171 (1, the HUF would be liable to be taxed as undivided notwithstanding the effect of Section 14 (1 of the Hindu Succession Act. In our view, it is not necessary to go into the details because the matters stand covered by the decision of this court in Kulloumal 'tupeswari Prasad (HUF) v. commissioner OF INCOME TAX which came to be followed in the subsequent decision recordedin ITO v. N. K. Sarada Thampatty. In these two decisions, this court examined the language of Section 171 (1 and ultimately came to the conclusion that unless an inquiry is undertaken by the Department and a finding is recorded as required by Ss. (3 of Section 171 read with the definition of the expressions 'partition' and "partial partition" in the explanation to that provision, there could for the purposes of the IT Act be no partition and the HUF would continue to be an HUF assessable to tax as if the property continues to belong to the HUF. This is the position which emerges on a plain reading of Section 171 and that too for the limited purposes of the Act only. The underlying idea seems to be that unless an inquiry is undertaken and existence of total partition or partial partition, :;s the case may be, is found as a fact and recorded along with the particulars in regard to date, etc. , in the eye of the income tax law the HUF continued to be assessable to tax as if there has been no change in the situation for the purposes of the Act. An attempt was made by the learned counsel for the appellants to contend that since in the previous orders the ITO had held that Baidyanath had become the owner of his mother's share in the property which share was later transferred by gift inter vivos to his adopted son, the HUF can only be taxed for 50 per cent of the interest and no more and the remaining 50 per cent would have to be reckoned as the income of the adopted son; therefore, it was not open to the Revenue to take somersault and contend otherwise in the subsequent assessment years. Counsel further submitted that in view of the language of Section 14 (1 of the Hindu Succession Act, 1956 the widow acquired an absolute right by statute and, therefore, if the view urged by the Revenue is accepted as correct it would be setting the clock back to the position as existed prior to the Hindu Succession Act, 1956 which could not be the intention of the legislature. At first blush this argument may appear to be attractive but it does not stand close scrutiny. A similar proposition was canvassed successfully before the High court of Madras in A. Kannan Chatty v. commissioner OF INCOME TAX. The impact of this decision was considered by this court in Kalloomal case and the relevant extract was reproduced (ITR at p. 709 taking note of the fact that in the passage extracted by the court, the Madras High court had distinguished the case of an alienation in favour of a stranger from the case where the joint family dealt with one or more items of property. This court observed as under: "We do not consider that such a plea is available to the assessee because the acceptance of such a plea would lead to the nullification of the scheme of Section 171 of the Act itself. "it is thus clear that even in the case of alienation in favour of a stranger the court insisted on compliance with Section 171 of the IT Act. In view of this we think that the conclusion reached by the High court is not assailable. The appeals, therefore, fail and are dismissed, but we make no order as to costs;