Commissioner of Income Tax vs Maganlal Vithaldas Panchmatiya

V.A. Mohta, J.—These are applications u/s 256(2) of the income tax Act 1961 (''the Act'') for directing the Tribunal to state the case and refer the following two questions said to be of law for opinion of this Court: (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the Commissioner''s order u/s 263?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income arising from property received on partition by the assessee is assessable as the income of the Hindu undivided family?

Since the applications arise out of the common order of the Tribunal, though for different assessment years, namely, 1980-81 1981-82 and 1982-83, and involve common questions of law, they are heard together and are being disposed of by this common order.

Undisputed factual background to this:

Maganlal Vithaldas Panchmatiya is a larger HUF consisting of Shri Maganlal Panchmatiya, his wife Smt. Indirabai, their minor son Amit and major unmarried daughters. There was a partial partition of the said larger HUF on 31-10-1978 in which property worth Rs. 49,693 was allotted to the smaller HUF of Maganlal and Indirabai and property worth Rs. 44,951 was allotted to the smaller HUF of Indirabai and minor son Amit. The said partition was recognised by the ITO u/s 171 of the Act. Maganlal Panchmatiya had and has individual income also which is returned in separate returns under the IT Act. Two separate returns of income were filed by the two smaller HUFs disclosing income derived from the assets allotted in the partial partition.

Assessments were made by the ITO on that basis. The Commissioner in revisional jurisdiction u/s 263 of the Act set aside the assessment order made by the ITO in the case of smaller HUF of Maganlal and his wife and ordered that the said income should be included in the individual income of Maganlal. The Tribunal set aside the said order of the Commissioner. Application for reference u/s 256(1) was made before the Tribunal but it was rejected on the ground that there was no referable question of law involved.

Now, the partial partition dated 31-10-1978 has been recognised u/s 171 and the said order has become final. The effect of such an order has been summed up thus by the Supreme Court in the case of Joint Family of Udayan Chinubhai, etc. Vs. Commissioner of Income Tax, Gujarat, while dealing with a pari materia section 25A(1) of the Indian income tax Act, 1922:

...Income from property of a Hindu undivided family, hitherto assessed as undivided, may be assessed separately if an order u/s 25A(1) had been passed. When such an order is made, the family ceases to be assessed as a Hindu undivided family. Thereafter, that family cannot be assessed in the status of a Hindu undivided family unless the order is set aside by a competent authority. Under clause (3) of section 25A if no order has been made notwithstanding the severance of the joint family status, the family continues to be liable to be assessed in the status of a Hindu undivided family, but once an order has been passed, the recognition of severance is granted by the income tax department, and clause (3) of section 25A will have no application. (p. 423)

In the circumstances, it was impermissible for the Commissioner to go behind the order passed u/s 171. Even if partial partition is ignored and treated as non est, income derived from the property of larger HUF could not be added in the individual income of Maganlal.

In the circumstances, rightly has the Tribunal held that the order passed by the Commissioner in revisional jurisdiction u/s 263 could not be sustained. No referable question of law arises out of the above order passed by the Tribunal and, hence, application u/s 256(1) was rightly rejected. In the result, these application are dismissed. Rules discharged. No order as to costs.