M/S Tirlochan Singh v. Commissioner Of Income Tax And Another

IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITA NO.30 OF 2006Date of decision: 20.01.2009 M/s Tirlochan Singh .......Appellant versus Commissioner of Income Tax and another ......Respondents CORAM:HON'BLE MR. JUSTICE J.S.KHEHARHON'BLE MR. JUSTICE NAWAB SINGHHON'BLE MR. JUSTICE NAWAB SINGH Present:Mr. Akshay Bhan, Advocatefor the appellant. Ms. Savita Saxena, Advocatefor the respondents. J.S.Khehar, J. A notice under Section 148 of the Income Tax Act1961(herein after referred to as the “Act”) was issued to theappellant on 14.03.2002, the same came to be served on theappallent on 21.03.2002. The claim of the Assessing Officer wasthat the appellant was assessable as a Hindu Undivided Family.On the contrary, the claim of the appellant-assessee was that apartial partition had taken place on 30.04.1978 wherebyimmovable as well as movable assests of the Hindu UndividedFamily were divided by metes and bounds between the co-parceners, and as such, there was no question of assessing theappellant as a Hindu Undivided Family. After 30.04.1978, i.e. after the partial partition hadtaken place amongst the members of the Hindu UndividedFamily, the property in question was sold, and the proceeds thereof were invested as Fixed Deposit Receipts in the name ofthe appellant-assessee i.e. in the capacity of the appellant as aas a Hindy Undivided Family. The Fixed Deposit Receiptseventually matured on 8.09.1996, whereafter, monetary shareswere allegedly apportioned amongst the members of theappellant-assessee i.e. the members of the Hindu UndividedFamily. The facts narrated herein are undisputed and are in factacknowledged by the learned counsel for the rival parties. The question which arises for consideration at thehands of this Court, while disposing of the present appeal relatesto the Assessment Year 1997-1998. The appellant-assessee as aHindy Undivided Family maintains that no assessment can bemade for the Assessment Year in question. It is the submissionof the learned counsel for the appellant that the original propertyin the hands of the Hindu Undivided Family, after partial partitionthereof on 30.04.1978 could not be assessed to tax underSection 171 of the Act. It is the alternative contention of thelearned counsel for the appellant, that even if the partialpartition referred to above is not taken into consideration, thatwould not effect assessment in the hands of the appellant as aHindu Undivided Family. In this behalf it is pointed out that theappellant as a Hindu Undivided Family could have been subjectedto tax only if it had earlier been assessed to tax as a HinduUndivided Family. Accordingly, the submission of the learnedcounsel for the appellant, that since the appellant-assessee hadnever hitherto before(i.e., prior to the Assessment Year 1997-98) ever been assessed as a Hindu Undivided Family, there was noquestion of the appellant-assessee being assessed as a HinduUndivided Family. In response to a query posed by the Court, learnedcounsel for the appellant states that the propertry in the hands ofthe Hindu Undivided Family, besides the property which wassubjected to partial partition, is not subject matter ofconsideration in this appeal. The veracity of the instant answerat the hands of the learned counsel for the appellant-assessee isnot subject matter of contest at the hands of the learned counselfor the respondents. It is in the factual background noticed hereinabovethat we must decide the claim raised by the appellant in this casein terms of the mandate of Section 171 of the Act. Section 171 ofthe Act is being extracted hereunder: Section 171(1) A Hindu family hitherto assessed asundivided shall be deemed for the purposes of thisAct to continue to be a Hindu undivided family,except where and in so far as a finding of partitionhas been given under this section in respect of theHindu undivided family. It is in the factual background noticed hereinabovethat we must decide the claim raised by the appellant in this casein terms of the mandate of Section 171 of the Act. Section 171 ofthe Act is being extracted hereunder: Section 171(1) A Hindu family hitherto assessed asundivided shall be deemed for the purposes of thisAct to continue to be a Hindu undivided family,except where and in so far as a finding of partitionhas been given under this section in respect of theHindu undivided family. (2)Where, at the time of making an assessmentunder section 143 or section 144, it is claimed by oron behalf of any member of a Hindu family assessedas undivided that a partition, whether total or partial,has taken place among the members of such family, the [Assessing] Officer shall make an inquirythereinto after giving notice of the inquiry to all themembers of the family. (3)On the completition of the inquiry, the[Assessing] Officer shall record a finding as towhether there has been a total or partial partititon ofthe joint family property, and, if there has been sucha partition, the date on whic h it has taken place. (4)Where a finding of total or partial partitition hasbeen recorded by the [Assessing] Officer under thissection, and the partition took place during theprevious year,- (a) the total income of the joint family inrespect of the period up to the date ofpartition shall be assessed as if no partitionhad taken place; and (b)each member or group of members shall,in addition to any tax for which he or it maybe separately liable and notwithstandinganything contained in clause (2) of section 10,be jointly and severally liable for the tax onthe income so assessed. (5)Where a finding of total or partial partition hasbeen recorded by the[Assessing] Officer under thissection, and the partition took place after the expiryof the previous year, the total income of the previous year of the joint family shall be assessed as if nopartition had taken place; and the provisions of clause(b) of sub-section(4) shall, so far as may be, apply tothe case. (6)Notwithstanding anything contained in thissection, if the[Assessing] Officer finds after completionof the assessment of a Hindu undivided family that thefamily has already effected a partition, whether totalor partial, the[Assessing] Officer shall proceed torecover the tax from every person who was a memberof the family before the partition, and every suchperson shall be jointly and severally liable for the taxon the income so assessed. (7)For the purposes of this section, the severalliability of any member or group of membersthereunder shall be computed according to the portionof the joint family property allotted to him or it at thepartition, whether total or partial. (8)The provisions of this section shall, so far as maybe, apply in relation to the levy and collection of anypenalty, interest, fine or other sum in respect of anyperiod up to date of the partition, whether total orpartial, of a Hindu undivided family as they apply inrelation to the levy and collection of tax in respect ofany such period. [(9) Notwithstanding anything contained in the foregoing provisions of the section, where a partialpartition has taken place after the 31[st] day ofDecember, 1978, among the members of a Hinduundivided family hitherto assessed as undivided,- (a)no claim that such partial partition hastaken place shall be inquired into under sub-section(2) and no finding shall be recordedunder sub-section(3) that such partial partitionhad taken place and any finding recorded undersub-section(3) to that effect whether before orafter the 18[th] day of June, 1980, being the dateof introduction of the Finance(No.2) Bill, 1980,shall be null and void. (b)such family shall continue to be liable tobe assessed under this Act as if no such partialpartition had taken place. [(9) Notwithstanding anything contained in the foregoing provisions of the section, where a partialpartition has taken place after the 31[st] day ofDecember, 1978, among the members of a Hinduundivided family hitherto assessed as undivided,- (a)no claim that such partial partition hastaken place shall be inquired into under sub-section(2) and no finding shall be recordedunder sub-section(3) that such partial partitionhad taken place and any finding recorded undersub-section(3) to that effect whether before orafter the 18[th] day of June, 1980, being the dateof introduction of the Finance(No.2) Bill, 1980,shall be null and void. (b)such family shall continue to be liable tobe assessed under this Act as if no such partialpartition had taken place. (c)each member or group of members ofsuch family immediately before such partialpartition and the family shall be jointly andseverally liable for any tax, penalty, interest,fine or other sum payable under this Act by thefamily in respect of any period, whether beforeor after such partial partition. (d)the several liability of any member orgroup of members aforesaid shall be computedaccording to the portion of the joint family property alloted to him or it at such partialpartition, and the provisions of this Act shall apply accordingly.] Explanation-In this section,- (a)"partition" means-- (i)where the property admits of a physicaldivision, a physical division of the property, but aphysical division of the income without a physicaldivision of the property producing the incomeshall not be deemed to be a partition; or (ii)where the property does not admit of aphysical division, then such division as theproperty admits of, but a mere severance ofstatus shall not be deemed to be a partition; (b)"partial partition" means a partition which is a partialas regards the persons constituting the Hindu undividedfamily, or the properties belonging to the Hindu undividedfamily, or both. Relying on clause(1) of Section 171 of the Act, it is contended on behalf of the appellant-assessee that theassessment permissible under Section 171 of the Act envisagedcertain pre-requisites. Firstly, the aforesaid assessment must bein respect of property of a Hindu Family. Secondly, theassessment must be in respect of such a Hindu Undivided Familywhich has hitherto been assessed as a Hindu Undivided Family.Although, the facts in this case depict that at some point in time the appellant-assessee was a Hindu Undivided Family but there isno dispute whatsoever, that the appellant-assessee has not beenassessed as a Hindu Undivided Family prior to the AssessmentYear 1997-98. In view of the fact, that the conditions pre-requisite for the application of Section 171 of the Act are notfulfilled by the appellant-assessee. In the present case, it is thesubmission of the learned counsel for the appellant that it wasnot open to the Assessing Officer to assess the appellant-assessee as a Hindu Undivided Family, and as such theassessment rendered by the Income Tax Officer vide order dated6.03.2003 is liable to be set aside. We have carefully examined the ingredients of Section the appellant-assessee was a Hindu Undivided Family but there isno dispute whatsoever, that the appellant-assessee has not beenassessed as a Hindu Undivided Family prior to the AssessmentYear 1997-98. In view of the fact, that the conditions pre-requisite for the application of Section 171 of the Act are notfulfilled by the appellant-assessee. In the present case, it is thesubmission of the learned counsel for the appellant that it wasnot open to the Assessing Officer to assess the appellant-assessee as a Hindu Undivided Family, and as such theassessment rendered by the Income Tax Officer vide order dated6.03.2003 is liable to be set aside. We have carefully examined the ingredients of Section 171(1) of the Act. We have no hesitation in accepting the pleaadvanced by the learned counsel for the appellant so as toconclude, that Section 171 of the Act caters to a situation wherea Hindu Undivided Family has been partitioned. We are alsosatisfied that Section 171 of the Act deals with assessment afterthe division of the Hindu Undivided Family. In our consideredview before Section 171 of the Act can be invoked, so as toassess the property of the Hindu Undivided Family even afterpartition, as a Hindu Undivided Family, it should have beenassesed as a Hindy Undivided Family before such partition. Asimilar conclusion was also expressed by the Gujarat High Court,as well as, by the Andhra Pradesh High Court. In this behalfreference may be made to the decision rendered by the GujaratHigh Court in Commissioner of Income-Tax vs. Kantilal Ambalal (HUF),(1991)192 ITR 376 wherein the Court observed as under:- "The argument of the Revenue proceeds onthe assumption that section 171 of the Act applies tothe facts of the present case. Section 171 of the Acthas no application to a case of a Hindu family whichhas never been assessed before as a joint family i.e.,as a unit of assessment. In other words, this sectionhas application to a Hindu family which has beenassessed before as a joint family and if the Hinduundivided family has never been assessed to tax, thissection has no application. The Hindu undivided familyof Kantilal Ambalal, admittedly, was never assessed toincome-tax in the past. Therefore, section 171 of theAct has no application at all to the facts of the instantcase. A similar view has been taken by the AndhraPradesh High Court in Addl. CIT v. P.Durgamma[1987]166 ITR 776." It would be pertinent to mention that after thepassing of the assessment order dated 6.03.2003 the appellantpreferred an appeal before the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax(Appeals) vide hisorder dated 27.06.2003 accepted the appeal by holding that theappellant could not have been assessed as a Hindu UndividedFamily, under Section 171 of the Act. The aforesaid findingrendered by the Commissioner of Income Tax(Appeals) dated27.06.2003, was assailed by the Revenue before the Income TaxAppellate Tribunal. The Income Tax Appellate Tribunal agreedthat the Revenue vide order dated 10.06.2005. In other words,the Income Tax Appellate Tribunal arrived at the conclusion thatthe property in question was liable to be assessed in the hands ofthe appellant as a Hindu Undivided Family under Section 171(9)of the Act. It is pertinent to mention that sun-section(9) ofSection 171 of the Act is in the nature of an exception to sub- Section(1) of Section 171 of the Act(relied) upon by theappellant. The order passed by the Income Tax AppellantTribunal dated 10.06.2005 has also been challenged at the handsof the appellant by asserting that the same is inapplicable in thiscase. Section(1) of Section 171 of the Act(relied) upon by theappellant. The order passed by the Income Tax AppellantTribunal dated 10.06.2005 has also been challenged at the handsof the appellant by asserting that the same is inapplicable in thiscase. During the course of hearing of the instant appeal,learned counsel for the respondent has solely relied on sub-section(9) of Section 171 of the Act to defeat the claim of theappellant. It is the vehement contention of the counsel for therespondent that partition of the Hindu Undivided Family in thepresent case must be deemed to have taken place on 8.09.1996,and that, the same cannot be deemed to have taken place priorthereto, because after the sale of the property of HinduUndivided Family the sale proceeds came to be deposited in asFixed Deposit Receipts in the name of the Hindu UndividedFamily. It is submitted that on maturity of the Fixed DepositReceipts on 8.09.1996, the proceeds thereof were dividedamongst the members of the Hindu Unidivided Family. It istherefore, the submission of the learned counsel for therespondents that it is not open to the appellant to claim partialpartition of the property in question on 30.04.1978. Learnedcounsel for the respondent further submitted, that the partitionof the Hindu Undivided Family in respect of the assessment whichis a subject matter of consideration in the instant appeal, can bedeemed to have taken place after 8.09.1996 i.e., after thematurity of the Fixed Deposit Receipts, and the distribution thereof in the hands of the co-parceners. Under the mandate of sub-section(9) of Section 171 ofthe Act(extracted above) a partial partition which has taken placeafter 31.12.1978 is not recognised, and as such, the partialpartition alleged to have taken place on 8.09.1996 cannot berecognised for purpose of taxing the appellant-assessee.We have considered the submission advanced by thelearned counsel for the respondent based on sub-section(9) ofSection 171 of the Act. There can be no doubt that sub-section(9) of Section 171 of the Act, is an exception to sub-Section(1) ofSection 171 of the Act, as such, if the Revenue can establish theapplicability of sub-section(9) of Section 171 of the Act, thatwould completely negate the submission advanced by the learnedcounsel for the appellant. We shall therefore, in the first instance,determine the applicability of sub-section(9) of Section 171 ofthe Act, to the facts and ciucumstances of the present case. Weare satisfied that for the applicability of sub-section(9) of theSection 171 of the Act, two pre-requisites are essential. Firstly,the partial partition should have taken place after 31.12.19978.And secondly, such partial partition must have taken place in aHindu Undivided Family which hitherto before was assessed as aHindu Undivided Family. It is not a matter of dispute, that theappellant-assessee had not been assessed as a Hindu UndividedFamily ever before the Assessment Year in question, namely1997-98. We are, therefore, of the firm view, that the secondessential ingredient for the applicability of sub-section(9) of Section 171 of the Act cannnot be treated to have been fulfilledin the facts and circumstances of the present case. As such weare of the view that sub-section(9) of Section 171 of the Actwould be clearly inapplicable to the facts of the present case. In view of the above, we are of the view that thefollowing substantial question of law framed at the time ofadmission of the instant appeal deserves to be answered infavour of the appellant-assessee and against the Revenue: "Whether in the facts and circumstances ofthe present case, the action of the authorities below ininvoking the provision of Section 171, when theappellant was never assessed before the issuance ofnotice under Section 148 of the Act on 14.3.2002 forassessment year 1997-98, is illegally sustainable inthe eyes of law?" In view of the above, we are of the view that thefollowing substantial question of law framed at the time ofadmission of the instant appeal deserves to be answered infavour of the appellant-assessee and against the Revenue: "Whether in the facts and circumstances ofthe present case, the action of the authorities below ininvoking the provision of Section 171, when theappellant was never assessed before the issuance ofnotice under Section 148 of the Act on 14.3.2002 forassessment year 1997-98, is illegally sustainable inthe eyes of law?" Answered accordingly. Resultantly, the instant appeal is allowed and the order passed by the Income Tax AppellateTribunal 10.6.2005 assessing the appellant-assessee underSection 171 of the Income Tax Act is hereby set aside. [J.S.KHEHAR]JUDGE JUDGE