Commissioner of Income Tax vs Brahma Swarup and Sons

M.C. Agarwal J.

The Income Tax Appellate Tribunal, D-Bench, Delhi, has, u/s 256(1) of the Income Tax Act, 1961, referred the following questions stated to be of law and to arise out of its order dated November 24, 1978, passed in ITA Nos. 1112 and 1113/Delhi of 1977-78 for the assessment year 1972-73 for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the order of the Commissioner of Income Tax u/s 263 was bad in law and was without jurisdiction, as no notices were served on the other members of the family ?

Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the partial partition between the two groups effected on January 1, 1971, was valid under the Hindu law ?"

We have heard Sri Shambhoo Chopra, learned counsel for the Commissioner, and Sri Neeraj Agarwal, learned counsel for the assessee-respondent.

We may mention that similar questions were referred to this court for the assessment years 1973-74 and 1974-75 in ITR No. 303 of 1980 which has been decided by this court vide order dated December 1, 1999, answering question No. 2 in the affirmative and declining to answer question No. 1 as it was merely consequential. Therefore, the question should normally be answered accordingly in the present case also that relates to the assessment year 1972-73. However, Sri Shambhoo Chopra argued the matter in some detail and relied upon two judgments of the Supreme Court. Therefore, we will dispose of this reference by a more detailed order.

There was a Hindu undivided family in the name of Brahm Swarup and Sons of which Lala Brahm Swarup was the karta. The said Hindu undivided family was a partner in a firm, Sharwan Cold Storage and General Mills. On January 1, 1971, a partial partition was effected in the Hindu undivided family with respect to its interest in Sharwan Cold Storage and General Mills. The partition is mentioned in the memorandum of partition as under :

"That, on January 1, 1971, Lala Brahma Swarup effected a partial partition in respect of the share capital rights in the share of profits and in the reserves of the firm, Sharvan Cold Storage and General Mills, hereinbefore owned by a joint Hindu family through Lala Brahma Swarup as under :

Parties

Right in the profits and reserves hereinbefore owned by the Hindu undivided family standing in the name of Lala Brahma Swarup and to be continued in his name in the firm, Sharvan Cold Storage and General Mills

Capital allotted standing with Sharvan Cold Storageof Lala BrahmaSwarup.

Lala BrahmaSwamp and Govind Swarup in one group

1/2 of 6/48 share in profits or 8/48 in loss Swarup and 1/2of the reserves pertaining to the said Lala Brahma Swarup.

Rs. 12,500 (twelve thousand five hundred only).

1.(Sd. L. Brahma Swarup and Govind Swarup)

(Sd. Smt. Ved Vati Swarup and Sharvan Kumar Swarup).

Group No.2

Smt. Ved Vati Swarup and Sri Sharvan Kumar Swarup in one Group

1/2 of 6/48 share in profits and 8/48 in loss standing in the name of ShriBrahma Swarup and 1/2of the reserves pertaining to Lala Brahma Swarup.

Rs. 12,500 (twelve thousand five hundred only)."

The Assessing Officer accepted the partition by passing an order dated February 5, 1975, u/s 171 of the Income Tax Act, 1961. However, the Commissioner acting u/s 263 set aside the Assessing Officer''s order finding it to be erroneous and prejudicial to the interests of the Revenue. His view was that the members of the Hindu undivided family could not take their shares in groups. In the present case, Lala Brahma Swamp and his son, Govind Swarup, had been allotted certain share as one group and the karta''s wife, Smt. Ved Vati Swarup, and another son, Sharvan Kumar Swarup, were given another share as another group. According to the Commissioner all the four persons should have individually taken a definite share and they cannot be allotted a share in groups of two or more. The assessee carried the matter in appeal to the Tribunal, that set aside the Commissioner''s order on two grounds. One of the reasons was that before passing an order u/s 263 of the Act, notice had not been given to all the members of the Hindu undivided family. The other reason was that the partition in the manner aforesaid was valid.

A similar partition effected in the small Hindu undivided family of Sharvan Kumar Swarup was the subject of consideration by this court in Commissioner of Income Tax Vs. Shrawan Kumar Swarup and Sons, , in which a similar partition in which the members took certain shares in groups was held to be valid. The court held that a partition can be partial qua the properties as well as qua the persons and that when a property is held by two groups and if the share of each group is well defined, the requirement of partial partition will stand fulfilled. It was this judgment that was the basis of the aforesaid decision dated December 1, 1999 in ITR No. 303 of 1980.

Sri Shambhoo Chopra, learned counsel for the Commissioner, however, placed reliance on a judgment of the Supreme Court in Lal Babu Hussein and Others Vs. Electoral Registration Officer and Others, , in which it was held that for the purpose of Section 171 of the Income Tax Act and Section 20 of the Wealth-tax Act, the joint property should be partitioned among various members in definite portions or by metes and bounds. That was a case where a suit for partition had been filed on October 7, 1950. A written statement was filed by a coparcener on October 27, 1954, agreeing to division of all the family properties in four equal shares. Another written statement was filed by the two minor defendants on attaining majority. Ultimately, on the basis of compromise between the parties a preliminary decree for partition was passed on April 1, 1956, and a final decree was passed on March 16, 1961. The question of the validity of a partition within the meaning of Section 20(2) of the Wealth-tax Act which is akin to Section 171 of the Income Tax Act was raised in relation to the assessment years 1958-59, 1959-60 and 1960-61 and the Supreme Court held that mere filing of a suit or even passing of a preliminary decree, could not bring about a partition by metes and bounds, as required by the provisions of the Wealth-tax Act. Thus, the facts in that case were different and the question as to whether partition can take place in a manner that the properties are allotted to groups was not before the Supreme Court. Reliance is also placed by Sri Chopra on Commissioner of Income Tax, A.P. Vs. Venugopal Inani, Hyderabad, , in which also it was held that where the assets were not divided by metes and bounds, the partition could not be recognised for the purposes of the Income Tax Act. In that case also there was only an ascertainment of share of the various persons in certain properties and it was admitted by the assessee that they have not divided the joint properties by metes and bounds. Therefore, this judgment of the Supreme Court is also not apposite to the facts and circumstances of the present case.

Clause (b) of the Explanation to Section 171 of the Income Tax Act defines "partial partition" to mean 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. Thus, the Income Tax Act recognises a partial partition which may be partial in so far as the persons separating are concerned, it may also be partial so far as the properties divided are concerned and there may be a partial partition in which there is neither a partition of the entire assets of the family or between all the members of the family entitled to a share in the partition. In this case when Brahma Swarup and one of his sons on the one hand and his wife and another son took a part of a particular property as groups, there was a partial partition as regards the persons and, as may be, only one of the assets of the family, namely, its interest in Sharvan Cold Storage and General Mills was partitioned. Therefore, it was a valid partition within the meaning of Section 171 of the Act. It is important to bear in mind that it was not the case of the Commissioner that the interest of the family in Sharvan Cold Storage and General Mills was not divided by metes and bounds and it remained the joint asset of all the four persons.

In view of the above discussions and following this court''s earlier judgment in Commissioner of Income Tax Vs. Shrawan Kumar Swarup and Sons, and the judgment dated December 1, 1999 in ITR No. 303 of 1980, we answer question No. 2 in the affirmative, i.e., in favour of the assessee and against the Commissioner.

In view of the answer to question No. 2, question No. 1 becomes redundant and we decline to answer the same.

An authenticated copy of this judgment be transmitted to the Appellate Tribunal in accordance with law.