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  • C.S.P Singh
  • R.R Rastogi, JJ.
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Smart Summary

Structured Summary of the Opinion (C.S.P. Singh, J.)

Factual and Procedural Background

The matter concerns a Hindu Undivided Family (HUF) consisting of Shri Shyam Sunder (the karta), his wife Smt. Gayatri Devi, and four minor sons (one being Daya Shanker). The family carried on an iron and steel business and was assessed as an HUF. By an agreement dated 30 September 1968 the assessee claimed that a partial partition of the business/HUF had taken place, whereby Shyam Sunder and three minor sons on one side, and Smt. Gayatri Devi and Daya Shanker on the other, divided the capital in accordance with that agreement.

The Income Tax Officer (ITO) declined to accept the partition, observing that the deed did not set out the shares of other coparceners and appeared to be only between Shyam Sunder and his wife. On appeal the assessing appellate authority (AAC) held that although the karta has a right to effect partition, that right must be exercised only if it is advantageous to the minor coparceners; the AAC found no necessity and no proof that the partition was in the minors' interest and dismissed the appeal. The assessee's appeal to the Income-tax Appellate Tribunal likewise failed.

After the agreement of 30 September 1968, a partnership deed dated 4 October 1968 was executed, purporting to be between Shri Shyam Sunder as karta of the HUF (consisting of himself and his four minor sons including Daya Shanker) on the one hand and Smt. Gayatri Devi on the other; it allocated 65% share to Shri Shyam Sunder and the remainder to Smt. Gayatri Devi. An application for registration of the firm was refused on the ground that the partition was not genuine and the business continued to be that of the HUF. The AAC and the Tribunal upheld refusal of registration. The Tribunal referred two questions to the High Court for opinion.

Legal Issues Presented

  1. Whether, on the facts and circumstances of the case, the claim for partial partition of the assessee under section 171 of the Income-tax Act could be allowed?
  2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration under section 185 of the Income-tax Act, 1961?

Arguments of the Parties

Assessee's Position (as presented in the opinion)

  • The assessee relied on the agreement dated 30 September 1968 as expressing that a partial partition of the HUF had taken place, effectively creating two family units (one consisting of Shri Shyam Sunder and three sons; the other of Smt. Gayatri Devi and Daya Shanker).
  • Following that agreement the business was converted into a partnership by a deed dated 4 October 1968, and the assessee applied for registration of that partnership.

Department's / Revenue's Arguments

  • The department (represented by Sri Ashok Gupta) argued that the subsequent partnership deed (4 October 1968) contained recitals that cast doubt on the genuineness of the purported partition, notably by describing the HUF as consisting of Shri Shyam Sunder and all four sons (including Daya Shanker), which suggested no earlier partition.
  • The department relied on the general legal proposition that a Hindu family is presumed to be joint unless the contrary is proved, putting the onus on the party alleging partition.
  • Authorities and facts relied upon to challenge genuineness included precedent authorities holding that a mere deed may not be sufficient if conduct indicates otherwise, continuing management by the father after partition, non-payment of stipulated interest to Gayatri under the partnership deed, the wife's low personal income, and the continued living/messing together of family members.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Ragavamma v. Chenchamma, AIR 1964 SC 136 No particular method is required to effect a partition; what is necessary is a definite, unequivocal indication of intention to effect partition. Used as authority that a partition may be effected by various means and the court must look for a clear indication of intention in the deed and attendant circumstances.
Mst. Rukmabai v. Laxminarayan, AIR 1960 SC 335 Illustrates the proposition that a Hindu family is presumed to be joint unless and until the contrary is proved (onus on party alleging partition). Relied upon to note the onus on the assessee to prove partition, as adverted to by the department.
Mudigowda Gowdappa Sankh v. Ramchandra Revgowda Sankh, (1969) 1 SCC 386 : AIR 1969 SC 1076 Reinforces the presumption of jointness of a Hindu family until contrary is proved. Invoked to support the proposition that partition must be established by the party asserting it.
Hirachand Vastaram v. CIT, [1965] 58 ITR 533 (Cal) Example of authorities recognising the presumption of jointness. Referred to as part of the body of authority that the department relied on to dispute the genuineness of the partition.
Shree Meenakshi Mills Ltd. v. CIT, [1963] 49 ITR 156 (sic) A mere deed of partition is not sufficient to establish that a partition has factually taken place if circumstances indicate otherwise (continuing management being one such circumstance). Applied to frame the standard that the court must examine the totality of conduct and circumstances, not merely the existence of a deed.
Income Tax Officer, A-Ward, Lucknow v. Bachu Lal Kapoor, [1966] 60 ITR 74 (SC) Similar principle that a partition deed can be insufficient if surrounding circumstances show continued jointness. Used to reinforce the need for inquiry into conduct to determine genuineness of partition.
M.V.S Kathirvelu Nadar v. Commr. of Agrl. I.T., [1968] 68 ITR 786 A document showing division of family properties should prima facie be taken to be true; motive (e.g., tax avoidance) is immaterial to validity. Cited to support the proposition that motive is irrelevant and a partition document should be accepted prima facie unless contradicted by conduct.
T.G Sulakhe v. CIT, [1960] 39 ITR 394 Motive for partition is immaterial in determining its validity. Applied to undermine the department's suggestion that tax motive undermines the partition's genuineness.
Hari Raj Swamp v. State of U.P., [1970] 77 ITR 853 (All) Living and messing together or separately are not conclusive of jointness or partition. Relied upon to reject the Tribunal's emphasis on the family continuing to live/mess together as conclusive proof against partition.
Indian Partnership Act (statutory reference) Under the Act each partner has management rights and acts as agent of the firm. Invoked to show that the partnership deed conferred management rights on Smt. Gayatri Devi and thereby demonstrated a change from HUF business to partnership business.

Court's Reasoning and Analysis

The court proceeded by first stating established Hindu law principles: a father (karta) has power to divide joint property; partition may be partial as to property or persons; no specific formal method is required provided there is a definite, unequivocal indication of intention to effect partition (Ragavamma v. Chenchamma).

The court then examined the agreement dated 30 September 1968 clause by clause. Some clauses indicated a partial partition of the family/business while other parts suggested separation of persons (excluding Smt. Gayatri Devi and Daya Shanker from the membership of the original HUF). The court observed an omission (possible drafting defect) in the preamble that added ambiguity, but concluded that, read as a whole, the deed recited that a partition had taken place and that two HUFs would thereafter exist (one comprising Shyam Sunder and three sons; the other comprising Gayatri Devi and Daya Shanker).

The department's principal contention was that the subsequent partnership deed of 4 October 1968 contained a recital describing the HUF as including Daya Shanker (contradicting an earlier partition) and that therefore the partition was not genuine. The court acknowledged the legal principle that the presumption of jointness places an onus on the party alleging partition, and that a mere deed is not necessarily conclusive if conduct indicates otherwise (Shree Meenakshi Mills; Bachu Lal Kapoor).

The court examined the partnership deed as a whole and found only one doubtful recital casting the HUF's constitution in terms inconsistent with the earlier deed. Other factual indicia supported the genuineness of partition: Smt. Gayatri Devi was no longer treated as a member of the erstwhile HUF; the business was converted into a partnership with Gayatri inducted as partner; the partnership deed conferred management rights consistent with the Indian Partnership Act; and there was no finding by revenue authorities that Gayatri had been excluded from management despite the partnership deed.

The court addressed other circumstances relied on by the taxation authorities and the Tribunal: (a) non-payment of interest specified in the partition/partnership deed — held to be an internal matter between partners and not determinative of the partition's validity; (b) Smt. Gayatri Devi's limited personal income — held immaterial to the genuineness of partition (Hindu law treats rich and indigent families alike); (c) continued living and messing together — held not conclusive of jointness (Hari Raj Swamp). The court also relied on authorities (M.V.S. Kathirvelu Nadar; T.G. Sulakhe) that motives such as tax avoidance do not invalidate a partition document if the document is otherwise genuine.

On balance, having considered the deed language, the partnership deed as a whole, the conduct captured by the record, and the relevant authorities, the court concluded that the earlier partition had, in law, taken place and that the revenue's reliance on the partnership deed recital and other circumstances did not suffice to negate the partition.

Holding and Implications

Holding: The court answered both referred questions in the affirmative — in favour of the assessee and against the department. Specifically, the court held that the claim for partial partition under section 171 could be allowed, and that the assessee was entitled to registration under section 185. The assessee was awarded costs of Rs. 200.

Implications:

  • Direct effect: The court recognized the partition as having taken place in law for the purposes before it, and concluded that the grounds on which registration was refused (i.e., that no partition had taken place) were unsound.
  • Consequences for parties: The assessee's claim of partial partition is upheld and the refusal to register the partnership on the basis of non-genuineness of partition is disturbed; the assessee is entitled to costs of Rs. 200.
  • Broader precedent: The opinion applies and reiterates established legal principles (e.g., no particular form for partition; onus on party alleging partition; motive immaterial; living together not conclusive). The court did not purport to lay down new legal principles beyond applying these established authorities to the facts of the case.

This summary is strictly confined to the material and findings contained in the provided opinion and does not add information beyond the text of that opinion.

Show full summary ...

    Daya Shanker Vijay Kumar v. Commissioner Of Income-Tax.

    C.S.P Singh, J.:— The Tribunal has at the instance of the assessee referred the following two questions for the opinion of this court:

    “1. Whether, on the facts and circumstances of the case, the claim for partial partition of the assessee under section 171 of the Income-tax Act could be allowed?

    2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration under section 185 of the Income-tax Act, 1961?”

    2. Shri Shyam Sunder, his wife, Gayatri Devi, and four minor sons, one of them being Daya Shanker, constituted a HUF. This family carried on business in iron and steel and was being assessed in the status of a HUF. In the year 1969-70, a claim was made before the ITO that a partial partition of the business had taken place between Shyam Sunder and three minor sons and Smt. Gayatri Devi and Daya Shanker with the result that the capital of the HUF firm was divided in accordance with the agreement dated 30th September, 1968.

    3. The ITO on the view that the deed did not set out the share of the other coparceners and was only between Shri Shyam Sunder and his wife, declined to accept the partition. On an appeal being filed, the appellate authority took the view that although the karta of a HUF had a right to effect a partition, the right can be exercised only in case it is advantageous to the minor coparceners. In the present case, he found that there was no necessity for making the partition and neither was it proved that it was made in the interest of the minors. On these facts, he dismissed the appeal.

    4. The assessee then took up the matter before the Income-tax Appellate Tribunal, but the appeal filed by it failed.

    5. Subsequent to the agreement of 30th September; 1968, a partnership deed was drawn up on the 4th of October, 1968, which purported to be between Shri Shyam Sunder as karta of the HUF consisting of himself and his four minor sons including Daya Shankar on the one hand and his wife, Smt. Gayatri Devi, on the other. Shri Shyam Sunder as karta of the HUF had 65 per cent. share in the profits and losses and Smt. Gayatri Devi, the remining share.

    6. The firm applied for registration but that too was declined on the ground that the partition effected in the HUF was not genuine and the business continued to be that of the HUF. Both the AAC and the Tribunal have upheld this order also.

    7. Addressing ourselves to the first question, the principle that the father of a joint Hindu family has power to divide joint property at any moment is well established, and we think it unnecessary to refer to the host of decisions which firmly establish this proposition. In such a partition, the father has to give his sons equal shares with himself. Even if unequal shares are allotted, the partition still holds good in case it is acquiesced by the sons or not repudiated by the minor sons on attaining majority. A partition may be partial as to the property and also as to the persons separating. In a case, where it is a partial partition as to the property, the members of the HUF continue as a joint family as respects the undivided properties. We have alluded to these general propositions for they will become handy for deciding the dispute that has arisen. Before coming to grasp with the controversy it is necessary to state a further proposition which is equally well established. No particular method is required to effect a partition, and all that is necessary is that there should be a definite unequivocal indication of the intention of a member of a joint family to effect partition (see Ragavamma v. Chenchamma, AIR 1964 SC 136).

    8. Can it be said that the partition was effected as a result of the agreement dated 30th September, 1968? To begin with, does the agreement express a clear indication or intention on behalf of the parties to effect a partition? We will now immediately turn to that deed. The first clause sets out the parties to the deed, viz., Sri Shyam Sunder Saraf, first party, and Smt. Gayatri Devi on her own behalf and as guardian of Daya Shanker Saraf, her son. The details of the personnel of the HUF are set out in cl. 2. The third clause is relevant and begins with the words “And whereas the parties hereto have agreed amongst themselves to effect partition of the said Hindu undivided family hitherto styled as M/s. Daya Shanker Vijay Kumar with effect from 30-9-1968”. It is necessary to dwell on this paragraph a little longer. As will be seen, the first three lines of this clause indicate that the parties had agreed to a partial partition of the HUF, but the later part departs from this, for, it describes the firm which was carrying on business. There appears to be an omission of the word “business” after the words “Hindu undivided family” in this clause. The third clause also points in the same direction, for, it says, in effect, that Daya Shanker Saraf and his mother, Smt. Gayatri Devi Saraf, will separate themselves to the extent of their respective shares in the capital of the joint HUF credited in the books of that firm. The fourth clause of the preamble and the first and the second clauses of the deed throw doubt as to whether the deed is a partial partition only as respects the family business or it has effected a partition of persons constituting it. This is so, because the fourth clause speaks of Sri Shyam Sunder Saraf along with Vijay Kumar Saraf, Ajai Kumar Saraf and Sanjai Kumar Saraf as constituting the HUF, and leaves out Smt. Gayatri Devi and Sri Daya Shanker Saraf. Thus, it excludes Smt. Gayatri Devi and Sri Daya Shanker Saraf from the membership of this HUF. Of similar effect are clauses first and second of the deed of agreement, which recite that Smt. Gayatari Devi Saraf and Sri Daya Shanker Saraf were separating themselves from the HUF, while Sri Shyam Sunder Saraf, Sri Vijay Kumar Saraf, Sri Ajai Kumar Saraf and Sri Sanjai Kumar Saraf would continue to constitute a joint Hindu family. But the fact, as to whether the deed effects a partial partition of the property alone, as is suggested by some clauses or effects a partition of the persons constituting the HUF, is immaterial for purposes of deciding as to whether a partial partition has taken place. For, even if the deed is read as effecting a partition between the persons constituting the HUF both as to their property and person, it does on the face of it recite that such a partition has taken place, and thenceforth two HUFs would come into existence, consisting (1) of Sri Shyam Sunder Saraf, Sri Vijay Kumar Saraf, Sri Ajai Kumar Saraf and Sri Sanjai Kumar Saraf, and the other (2) of Smt. Gayatri Devi Saraf and Sri Daya Shanker Saraf.

    9. Sri Ashok Gupta, appearing for the department, however, urged that the partnership deed executed on the 4th October, 1968, throws doubt on the genuineness of the partition, and the ITO was thus justified in not relying on this partition. It was contended that the normal state of a HUF is one of jointness and the onus of proving a partition lies upon the parties alleging it. It was urged that, in the present case, the assessee had failed to discharge that onus. The proposition that a Hindu family is presumed to be joint unless the contrary is proved is exemplified by the decisions in the cases of Mst. Rukmabai v. Laxminarayan, AIR 1960 SC 335, Mudigowda Gowdappa Sankh v. Ramchandra Revgowda Sankh, (1969) 1 SCC 386 : AIR 1969 SC 1076, and Hirachand Vastaram v. CIT, [1965] 58 ITR 533 (Cal).

    10. In the case of Shree Meenakshi Mills Ltd. v. CIT, [1963] 49 ITR 156 (sic) it was held that a mere deed of partition is not sufficient to establish that the partition has factually taken place in case there are circumstances which indicate to the contrary. One of the circumstances which tilted the balance in that case was that the father, after effecting the partition had continued to manage the property as before. Similar was the position in the case of Income Tax Officer, A-Ward, Lucknow v. Bachu Lal Kapoor., [1966] 60 ITR 74 (SC). Let us now scrutinise the partnership deed and see whether the partition so clearly evinced by the partition deed dated 30th September, 1968, is nullified by the recitals in the partnership deed. The only recital which was said to throw doubt on the genuineness of the partition was that contained in the preamble of the partnership deed, which recited that the deed of partnership was being made by Sri Shyam Sunder Saraf as karta of the HUF consisting of himself and his sons, namely, Sri Daya Shanker Saraf, Vijay Kumar Saraf, Ajai Kumar Saraf and Sanjai Kumar Saraf and Smt. Gayatri Devi of the other party. It was pointed out that if in fact a genuine partition had taken place earlier on the 30th September, 1968, Daya Shanker Saraf would not have been mentioned in the partnership deed as a member of the HUF of which Sri Shyam Sunder Saraf was the karta. The question whether a partition deed is a genuine one or is a sham transaction cannot be decided solely on the consideration of the circumstances. The entire conduct of the parties has to be inquired into before coming to such a conclusion. When the partnership agreement is looked into as a whole, apart from this doubtful recital as to the constitution of the HUF of which Sri Shyam Sunder Saraf was the karta, there is nothing else to indicate that the earlier partition was not acted upon. One fact which strikes us is that Smt. Gayatri Devi is no longer treated as a member of the erstwhile HUF. This apart, the business which was being run as that of the HUF is converted into a partnership business by inducting Smt. Gayatri Devi as a partner. No restriction on the right of Smt. Gayatri Devi to participate in the management of the business is imposed by this agreement. In fact, cl. 7 of the deed recites that the rights and the liabilities of the partners will be in accordance with the provisions of the Indian Partnership Act. Under the Indian Partnership Act, each partner has a right to look after the business of the firm, and acts as its agent. Thus, looking at this deed, the nature of the management of the erstwhile business has changed, as also its character from a HUF business to a partnership business in which both Sri Shyam Sunder Saraf and Smt. Gayatri Devi Saraf have rights of management. There is also no finding by the I.T authorities that in spite of the partnership deed, Sri Shyam Sunder Saraf excluded Smt. Gayatri Devi Saraf from the management of the business. In the case of M.V.S Kathirvelu Nadar v. Commr. of Agrl. I.T, [1968] 68 ITR 786, the Madras High Court held that a document showing a division of family properties should be prima facie taken to be true, and the motive of the transaction which may be avoidance of tax is immaterial. The Andhra Pradesh High Court has also echoed the same tone in the case of T.G Sulakhe v. CIT, [1960] 39 ITR 394, where it has been stressed that the motive for a partition is immaterial for purposes of deciding upon its validity. Some other circumstances relied upon by the taxing authorities for holding that the partition was not valid may now be looked into. The Tribunal has commented adversely upon the fact that although the partition deed made provision for payment of interest on the capital invested by Smt. Gayatri Devi in the firm, no payment of interest was made. Now, whether the interest was paid or not in accordance with the partnership deed, cannot by itself affect the validity of the earlier partition, as that related to an internal matter between the partners inter se. The fact that Smt. Gayatri Devi Saraf had no source of income except Rs. 400 is also immaterial for purposes of adjudging the genuineness of the partition. For, on that consideration, a partition would be genuine only in cases of rich families and not those which had limited means. The Hindu law, however, treats rich and indigent families alike. The other circumstance relied upon is that Sri Daya Shanker Saraf and Smt. Gayatri Devi Saraf continued to remain with the other members of the family, and were messing together. It has been consistently held that living and messing jointly or separately are not conclusive of the fact that the family is either joint or partitioned: See Hari Raj Swamp v. State of U.P, [1970] 77 ITR 853 (All). The Tribunal erred in the circumstances of this case in holding that the family had not been partitioned. So far as registration is concerned, that has been refused solely on the ground that no partition had taken place in the HUF and, as such, the partnership could not be registered separately. On the conclusion that we have reached, that a partition had, in fact, taken place in the eye of law, the grounds for rejecting the registration application are not sound. We, accordingly, answer both the questions in the affirmative, in favour of the assessee and against the department. The assessee is entitled to its costs, which are assessed at Rs. 200.

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    Daya Shanker Vijay Kumar v. Commissioner Of Income-Tax.
    (Jul 31, 1979)