M S M M MEYYAPPA CHETTIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) UNDER section 66 (i), Income-tax Act, the Appellate Tribunal referred to this Court the following question :

(2.) THE partition was not recognised by the Income-tax authorities, including the Appellate Tribunal. THE ultimate finding of the Appellate Tribunal was that though the businesses were divided, the division was unequal and that as regards the immovable properties and moveable properties, there being no physical division as contemplated by Section 25-A, the partition could not be recognised. THE Appellate Tribunal has recorded a finding that the partition of the businesses was altogether null and void, as the father's overriding power recognised under Hindu law of bringing about a division between himself and his sons could be effected only if the division actually made was fair and equal. As in the present case the division was wholly unequal, it is void and is of no legal effect. THE inequality of the division of the businesses is hased upon the fact that the father took for himself three rubber estates and houses at Ipoh whose book value was, 5,13,000 dollars, at a valuation of 1 lakh dollars which was adjusted in the account books between the various sharers. THEse assets, it was found, were undervalued, and the father practically obtained for himself the three rubber estates and the houses for one-fifth of their value, and the distribution therefore of the properties made by the father was unequal. In view of the letter of 22 2-1940, which contained the directions given to the agent at Ipoh by the father to make these adjustments with regard to the rubber estates and the houses and also to carry out the division of the other businesses in the accounts, it is a proper inference to draw that this arrangement relating to the rubber estates and the houses was part of the partition arrangement and not a sale by the father to himself of the assets of the family at a value of l lakh dollars. This is also the view of the Appellate Tribunal, and there is no reason to differ from that conclusion.

(3.) THIS last sentence, in my opinion, is conclusive on the point that mere division of interest and the disruption of the joint family status without a partition in definite portions is ineffective under Sub-section (2) of Section 25-A, to justify an assessment in the manner provided under that clause. Under Sub-section (3) the family is deemed in such circumstances to be an undivided Hindu family. THIS decision of the Privy Council is also authority for the position that even if there was a partial partition or an item of property was alienated to a stranger or an asset of the family was divided and a partnership was constituted, as the family continued joint and continued to own other properties, the assessment on the basis of undivided Hindu family would be confined to the income of the property so remaining undivided, and the income of the property partitioned or alienated would be excluded from computation of the income for assessment. It follows from the foregoing discussion that so long as the family remains undivided the section has no application. If, however, the family is merely divided in status, that would not affect the legality of the assessment of the inoome received in the previous year as the income of the undivided family, as by the operation of Sub-clause (3) of Section 25-A, the family is deemed to continus undivided, and is assessed accordingly. If, however, there is a partition of the properties in definite portions the result envisaged in. Sub-clause (2) would follow.