Harbhagwan and Sons vs Commissioner of Income Tax

S.S. Sodhi, J.—The assessee, a Hindu undivided family, owned two plots of land, one measuring 1,320 square yards on Mall Road, Karnal, and another plot measuring 6,000 odd square yards on Railway Road, Karnal. On October 22, 1970, an oral partition of these plots was said to have been made by the members of the Hindu undivided family. A memorandum of partial partition to this effect was later executed on November 16, 1970, and thereafter, on August 11, 1971, the two plots on the Mall Road, Karnal, were sold and the sale proceeds of these plots were credited to the accounts of the members of the Hindu undivided family on August 13, 1971. In the context of the liability for payment of capital gains tax arising from the sale of the two plots on the Mall Road, Karnal, the question that arose was with regard to the date on which this partial partition relating to these plots took place. The Income Tax Officer as also the Tribunal held that the date of this partial partition was August 13, 1971, the day on which the sale proceeds of the sale of the plots were distributed amongst the members oT the Hindu undivided family. This is the factual background leading to the following questions being referred to this court for its opinion :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that there was partial partition, qua the plots of land at Mall Road, Karnal, and the plot of land at Railway Road, Karnal, owned by the assessee-Hindu undivided family only on August 13, 1971 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the immovable property (plots) in question admitted of physical division as contemplated by the Explanation (a)(i) to Section 171 of the Income Tax Act, 1961, by an apportionment and equalisation by payment ?"

As regards question No. (ii), on the specific request of counsel for the assessee, this is returned unanswered. Further, again at the request of counsel for the assessee, the words "and the plot of land at Railway Land, Karnal" are hereby deleted from question No. (i)."

Coming now to the point in controversy, it will be seen that the matter regarding assessment after partition of a Hindu undivided family is covered by the provisions of Section 171 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). What is relevant here are the provisions of Section 171(1) and Explanation (a)(i) thereof, which are in the following terms :

"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 in so far as a finding of partition has been given under this section in respect of the Hindu undivided family ...

Explanation.--In this section,--(a) ''partition'' means-

(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,--"

There can be no manner of doubt that the property in question here, namely, each of the two plots on the Mall Road, Karnal, was capable of physical division. A specific finding to this effect was also recorded by the Income Tax Officer which was never thereafter challenged. No physical division of the property ever took place either at the time of or in pursuance of the oral agreement of partition of October 22, 1970, or even after the memorandum of partition had been executed on November 16, 1970. This being so, the Income Tax authorities could not possibly have taken either of these dates to be the relevant date of partition.

Counsel for the assessee, however, sought to contend that once it is accepted that there has been partition of the Hindu undivided family property, it must relate back in terms of Hindu law to the date of severance of this status as evidenced either by the oral partition of October 1970, or the memorandum of partition of November 1970. This is clearly a contention to be noticed merely to be rejected as being wholly without substance as the point for consideration here is the relevant date of partition in terms of the Income Tax Act, 1961, and not Hindu law. In the face of the clear statutory provisions, the date of partition here cannot but be taken to be the date of the actual physical division of the said property.

Faced with this situation, counsel sought to press in aid ,the observations of the Supreme Court in Kalloomal Tapeswari Prasad (HUF), Kanpur Vs. Commissioner of Income Tax, Kanpur, , to the effect that if a large number of items of property are there, they are usually apportioned on an equitable basis having regard to all the relevant factors and if necessary by asking the parties to make payments of money to equalize the shares. Such apportionment, it was said, was also a kind of physical division of the properties contemplated in the Explanation to Section 171 of the Act. Counsel sought to construe these observations to mean that there could be a partition otherwise than by a physical division and, therefore, in the present case, the partition be deemed to relate back to October or November 1970. This again is a contention devoid of merit. A reading of the judgment would show that these observations came to be made in the context of the partition of 18 separate and distinct immovable properties amongst 10 members of the Hindu undivided family, a situation which, on facts, bears no resemblence to the case here.

In the result, the reference, namely, question No. (i) as it now stands, is answered in the affirmative, in favour of the Revenue and against the assessee. There will, however, be no order as to costs.