Commissioner Of Income-Tax, Faridabad v. Shri Khacheru (Huf), Ward-2, Ahirwara,Ballabgarh

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 444 of 2008 Date of decision: 18.8.2009 Commissioner of Income-Tax, Faridabad Vs. Shri Khacheru (HUF), Ward-2, Ahirwara,Ballabgarh. ......Appellant ...Respondent CORAM:-HON'BLE MR.JUSTICE ADARSH KUMAR GOELHON'BLE MRS.JUSTICE DAYA CHAUDHARY PRESENT:Mr.Rajesh Katoch, Standing Counsel for revenue.Mr.Sanjay Bansal, Sr. Advocate, assisted by Mr. Parshant Bansal, Advocate, for assessee **** ADARSH KUMAR GOEL, J. (Oral) 1.The revenue has preferred this appeal under Section 260A of theIncome-Tax Act, 1961 (for short, “the Act”) against the order dated12.10.2007 passed by the Income Tax Appellate Tribunal, Delhi Bench “A”New Delhi in ITA No. 2908/Del/2003 for assessment year 1999-2000,proposing to raise the following substantial questions of law: a. “Whether on the facts and in thecircumstances of the case, the Hon'bleTribunal has erred in law in holding thatprovisions of Section 171(9) are not attractedin this case despite the fact that assessmentsfor Assessment Years 1994-95 to 1998-99 ITA No. 444 of 2008 [2] had already been completed on 28.9.2000whereas assessment for the year underconsideration was completed much later on23.3.2001.” b. “ As provided in Section 171(9) of the Income Tax Act, 1961 and the decision ofHon'ble Supreme Court in the case ofM.V.Valliappan and others (238 ITR 1027),partial partition is not recognized under theprovisions of Income Tax Act and can notbe treated as a valid partition of HUF.” c. “ Although tax involved is Rs.2,04,549/- which is less than the limits laid down bythe CBDT in this regard, the appeal is filedas the substantial question of law of widerramification is involved.” 2.During the assessment proceedings, the assessee pleadedpartial partition of HUF dated 18.6.1998 which was not recognized in viewof provisions of Section 171(9) of the Act. On appeal, the CIT(A) partlyupheld the claim of the assessee, which was affirmed by the Tribunal. TheTribunal observed: “One more aspect of the matter to benoticed is that even in the ground takenbefore us the department does not seem to ITA No. 444 of 2008 [3] question the proposition of law that Section171(9) does not apply to a joint Hindufamily which has never been assessed asundivided, but seems to take the point thatby the time the assessment was made on theassessee for the assessment year underappeal on 23.3.2001, assessments for theassessment years 1994-95 to 1998-99 hadalready been completed on 28.9.2000 andthus the assessee fell under the category of aHUF “hitherto assessed”. But the cut-offpoint for ascertaining whether the HUF hasbeen “hitherto assessed” cannot, in ouropinion, be the date on which theassessment is made for the assessment years1994-95 to 1998-99, but the date on whichthe partial partition had taken place. Ifbefore 18.6.1998, the date of partialpartition, an assessment had been made onthe assessee-HUF then of course it cannotbe contended that the assessee is not a HUFwhich has not been hitherto assessed. Butonce the partial partition had been effected,and before that date no assessment had been ITA No. 444 of 2008 [4] ITA No. 444 of 2008 [4] made upon the assessee-HUF, then it mustfollow that the HUF falls under the categoryof a family not hitherto assessed andconsequently it must be held that the sectionhas no application. If the point of time atwhich it has to be determined whether theHUF has been hitherto assessed or not is tobe taken with reference to any other date,for instance the date on which assessmentswere made for the earlier years as in thiscase, it would be open to the AssessingOfficer to keep the assessment proceedingsfor the year under appeal (in which the issuearises) pending, issue notices of assessmentor reassessment for earlier assessment yearsand complete them either under Section 143(3) or Section 144 and then take the standthat since the HUF has already beenassessed, the provisions of Section 171 areapplicable to the assessment for the yearunder consideration. It would thus bepossible to defeat the claim of the assesseein every case. Since such a situation cannotbe countenanced, it must follow that in ITA No. 444 of 2008 [5] order that Section 171 is invoked anassessment upon the HUF ought to havebeen made before the date of partialpartition.” 3.We have heard learned counsel for the parties. 4.At the outset, learned counsel for the assessee brought to ournotice a judgment of Division Bench of this Court dated 20.1.2009 in ITA No. 30 of 2006 (M/s Tarlochan Singhv.Commissioner of Income Tax and another) holding that the expression “hitherto” occurring in Section171(9) of the Act would mean that assessment should not have taken placeas HUF before the date of partial partition. He submitted that in thepresent case no assessment had taken place prior to the date of partialpartition. 5.Learned counsel for the revenue submitted that the judgmentrelied upon is distinguishable in its application to the present case. In thepresent case, as is clear from the order of assessment, the status of theassessee was HUF for the earlier years from assessment years 1994-95 to1998-99. The assessment of the said years was completed on 28.9.2000.Though the said date was after partial partition, the same related to periodprior to partial partition. Once assessee was assessed as HUF, the saidstatus continued. In M/s Tarlochan Singh (supra) the assessee had notbeen assessed for any period prior to partial partition. 6.Learned counsel for the revenue refers to judgment of ITA No. 444 of 2008 [6] Allahabad High Court inCommissioner of Income Tax v. Gyan Chand and Sons [2008] 303 ITR 267 wherein the assessee had been assessed inthe capacity of HUF after the date of partition but for earlier period. Partialpartition in that case had taken place on October 20, 1979 and theassessment of the assessee in the status of HUF took place in October, 1982for the earlier assessment year i.e. 1978-79 and 1979-80. It was held thateven though the assessment had taken place after partition, the same couldbe relied upon to deny the claim of partial partition, as the assessment willbe relatable of the assessment year for which the assessment was made evenif the assessment was after the date of partition. Relevant observations areas under: “From a joint reading of sub-sections (1)and (9) of Section 171, the intention of thelegislature appears to be that once an HUFhas been assessed as HUF shall continue tobe assessed so unless the order recognizingthe partition is passed by the authorityconcerned. The assessment order passed isrelatable to the assessment year involvedtherein and it will be treated to have beenpassed on the last date of assessment year,for the purposes of Section 171 of the Act.” Learned counsel for the assessee on the other hand, submitted ITA No. 444 of 2008 [7] “From a joint reading of sub-sections (1)and (9) of Section 171, the intention of thelegislature appears to be that once an HUFhas been assessed as HUF shall continue tobe assessed so unless the order recognizingthe partition is passed by the authorityconcerned. The assessment order passed isrelatable to the assessment year involvedtherein and it will be treated to have beenpassed on the last date of assessment year,for the purposes of Section 171 of the Act.” Learned counsel for the assessee on the other hand, submitted ITA No. 444 of 2008 [7] that the assessment of assessee as HUF must be prior to the date ofpartition. In the present case, the assessment of the assessee as HUF tookplace for the first time on 28.9.2000 while partition had taken place on18.6.1998. Thus, the assessment of the assessee was not prior to the date ofpartition. The words “hitherto” in Section 171(9) are referable to theassessment taking place prior to partition. He also submitted that evennotice for assessment for assessment years 1994-95 to 1998-99 was issuedfor the first time after the date of partition i.e. in October 1998. 8.We find merit in the contention raised on behalf of revenue.We are in respectful agreement with the view taken by the Allahabad HighCourt inGyan Chandcase (supra). The object of inserting clause (9) inSection 171 by Finance Act in pursuance of Finance Bill No.2 of 1980 wasto do away with the concept of partial partition after December 31, 1978.While considering the validity and background of this provision, theHon'ble Supreme Court inUnion of India and others v. M.V.Valliappanand others [1999] 238 I.T.R.1027 observed: “From the aforesaid section, it is clear thatfor the purposes of income tax, the conceptof partial partition of the Hindu undividedfamily was recognized, but is done awaywith by the amendment which specificallyprovides that where a partial partition hastaken place after December 31, 1978, no ITA No. 444 of 2008 [8] claim of such partial partition having takenplace shall be inquired into under sub-section (2) and no finding shall be recordedunder sub-section (3) that such partialpartition has taken place. If any such findingis recorded under sub-section (3) whetherbefore or after June 18, 1980, being the dateof introduction of the Finance (No.2) Bill,1980, the same shall be null and void . Theeffect of the aforesaid sub-section is that forthe purposes of income-tax partial partitionstaking place on or after January 1, 1979, arenot to be recognized. If a partial partitionhas taken place after the cut-off date noinquiry as contemplated under sub-section(2) by the Income-tax Officer shall be held.Even if the inquiry is completed and thefinding is given, it would be treated as nulland void. In this view of the matter, thecontention raised in some of the petitions bylearned counsel for the respondents thatpartial partition took place on April 13,1979, and that in the assessment year it wasrecognized and benefit was given to the ITA No. 444 of 2008 [9] assessee, has no significance in view of thecrystal clear language used in the sub-section that partial partition taking placeafter the cut-off date is not to be inquiredinto and if inquired the findings would benull and void. Such a family is to beassessed under the Act as if no partialpartition has taken place.” 9.Having regard to the above observation, it is clear that partialpartition taking place after 1.1.1979, cannot be recognized in respect of anassessee already assessed in the status of HUF, for the period prior topartition. Mere fact that assessment actually takes place on a date after thepartition will not affect this position. 10. In the present case, the assessee having already been assessedin HUF status for the period prior to partition, had to be assessed in thatstatus ignoring partial partition. The judgment of this Court relied upon inM/s Tirlochan Singh(supra) is distinguishable. 9.Having regard to the above observation, it is clear that partialpartition taking place after 1.1.1979, cannot be recognized in respect of anassessee already assessed in the status of HUF, for the period prior topartition. Mere fact that assessment actually takes place on a date after thepartition will not affect this position. 10. In the present case, the assessee having already been assessedin HUF status for the period prior to partition, had to be assessed in thatstatus ignoring partial partition. The judgment of this Court relied upon inM/s Tirlochan Singh(supra) is distinguishable. 11.Accordingly, the substantial question of law whether partialpartition could be recognized when assessee had already been assessed inthe status of HUF for the period prior to the partition even if date ofassessment was later to the date of partition has to be answered in favourof the revenue and against the assessee. ITA No. 444 of 2008 [10] 12.Learned counsel for the assessee submitted that as a result ofprotective assessment, the asseee had also been assessed in individualcapacity. We need not go into this question at this stage. Scope of thisappeal is limited to decision of above question. The Tribunal can take careof other questions in the light of finding recorded above. 13.Accordingly, we allow this appeal, set aside the order of theTribunal and remand the matter to the Tribunal for fresh decision inaccordance with law. The parties may appear before the Tribunal on3.12.2009 for further proceedings. (ADARSH KUMAR GOEL) JUDGE August 18, 2009 raghav (DAYA CHAUDHARY) JUDGE Note: Whether this case is to be referred to the Reporter? ........Yes/No