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Commissioner Of Income-Tax v. Hoshiari Lal Kalyani And Others
Judicial Opinion Summary — Reference under s.256(1) of the Income-tax Act, 1961 (Guha, J. & Mukharji, J.)
Factual and Procedural Background
The matter is a reference under s. 256(1) of the Income-tax Act, 1961. The question referred asked whether, on the facts and circumstances of the case and on a proper interpretation of the deed of partition, the Appellate Tribunal was justified in holding that a partial partition within the meaning of clause (b) of the Explanation to section 171 of the Income-tax Act, 1961 had taken place among members of the assessee-Hindu undivided family (HUF) on June 30, 1964.
The assessee is an HUF for the assessment year 1965-66. The HUF consisted of Hoshiari Lal Kalyani (the karta), his wife Sabitri Debi, three minor sons and five unmarried daughters. The family owned several assets including shares in three firms (Kaluram Chiranjilal; Bajrang Rice Mill; Hanuman Rice & Oil Mills) and a house property.
By a registered deed dated July 1, 1964 (described in the opinion), the karta purported to effect a partial partition that allocated specified percentages/shares in particular businesses and debited certain sums between members, thereby creating a smaller HUF for some members while other assets remained joint.
Principal allotments recorded in the deed:
- Hoshiarilal, Sabitri Debi & Sanjoy (minors) & unmarried daughters (smaller HUF): 25% share & capital in Hanuman Rice & Oil Mills and Rs. 10,000 credited (by debiting Shyamsundar & Mohanlal Rs. 5,000 each).
- Shyam Sundar Kalyani (minor): 12% share & 50% of the capital in Sree Bajrang Rice Mill; Rs. 5,000 debited.
- Mohanlal Kalyani (minor): 12% share & 50% of the capital in Bajrang Rice Mill; Rs. 5,000 debited.
The Income-tax Officer (ITO) rejected the claim of partial partition, expressing objections including that the arrangement produced a "dual character" of minors (which the ITO considered untenable under Hindu law) and that the karta could not simultaneously represent both the larger HUF and the newly formed smaller HUF.
The assessee appealed to the Additional Commissioner (AAC). The AAC found the registered deed effectual, saw no anomaly in one person performing duties in two capacities, and directed the ITO to recognise the partial partition. The department appealed to the Appellate Tribunal, which upheld the AAC: construing Expln. (b) to s.171, the Tribunal held that partial partition can relate to persons or properties or both and that the assessee's claim was acceptable.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case and on a proper interpretation of the deed of partition, the Appellate Tribunal was justified in holding that a partial partition within the meaning of clause (b) of the Explanation to section 171 of the Income-tax Act, 1961 had taken place among the members of the assessee-HUF on June 30, 1964.
Arguments of the Parties
Revenue's Arguments (Mr. Suhas Sen)
- Under a partial partition a part of the joint family cannot be separated from the family and at the same time remain part of the joint family for the rest of the estate — asserting that dual status (part separated, part joint) is not tenable.
- The karta of the larger joint family cannot function simultaneously as karta of a smaller joint family; such dual representation is untenable because interests of the two families might conflict.
- An order under the Act (s.171) could be made only where, in addition to severance in status, there has been partition of all family properties among members; until such order is made, family remains an HUF for income-tax purposes notwithstanding severance as to some properties.
- Relied on precedent: Division Bench of Madras High Court in M.S.M.M. Meyyappa Chettiar v. Commissioner of Income-Tax [1950] 18 ITR 586 to support the submission (case involved interpretation under the Indian Income-tax Act, 1922 and refusal to recognise the partition for tax purposes in that fact situation).
- Also relied on the Madhya Pradesh High Court decision in CIT v. Seth Gopaldas (HUF) [1979] 116 ITR 577, which held that the Explanation to s.171 should be understood as in general Hindu law and that a father could not effect partial partition among his sons inter se without their consent.
Assessee's Arguments (Mr. R.C. Deb)
- Relied on Mulla's Principles of Hindu Law: the father of a joint family has the power to divide family property during his life, provided he gives his sons equal share with himself; the consent of the sons is not necessary for that exercise of patrial power (patria potestas), and the father can sever the sons inter se.
- Asserted that Hindu law recognises that members of a joint family can effect a division/severance of interests in part of the joint estate while retaining joint status with respect to other assets — i.e., partial partition of particular businesses or properties is possible while other assets remain joint.
- Argued that the partition here was effected by definite and unequivocal indication of intention to partition particular assets, there was no suggestion that the partition was against minors' interests, and minors cannot validly give consent so the father acted on their behalf; accordingly, Seth Gopaldas (which emphasized consent) did not apply to these facts.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| M.S.M.M. Meyyappa Chettiar v. Commissioner of Income-Tax, Madras, [1950] 18 ITR 586 | Illustrated a partition under the Indian Income-tax Act, 1922 (s.25A) where the partition was not recognised by tax authorities; under the 1922 Act partial partitions were not covered and the Tribunal had held the partition not complete. | The court distinguished this authority because it arose under the 1922 Act (s.25A) which did not recognise partial partition. The present case falls under the 1961 Act where s.171 expressly covers partial partition; therefore Meyyappa Chettiar was not controlling on the key statutory point. |
| CIT v. Seth Gopaldas (HUF), [1979] 116 ITR 577 (Madhya Pradesh High Court) | Held that the Explanation to s.171 does not permit understanding "partition" or "partial partition" differently from general Hindu law; concluded a Hindu father could not effect partial partition among sons inter se as part of patria potestas without their consent. | The court considered this decision but observed that the consent issue was not applicable where the sons were minors who could not give valid consent; here the father acted on behalf of minors under patria potestas. Thus the court did not treat Seth Gopaldas as barring a valid partial partition in the particular facts before it. |
Court's Reasoning and Analysis
The court proceeded stepwise:
- Framing the question: The court stated the reference question under s.256(1) and set out the factual matrix including the deed of July 1, 1964 and the specific allocations made by the karta.
- Recapitulating administrative history: The ITO rejected recognition of partial partition for tax purposes, the AAC accepted the deed and directed recognition, and the Tribunal upheld the AAC relying on Expln. (b) to s.171 (which allows partial partition as to persons or properties or both).
- Statutory meaning of "partial partition": The court noted that under s.171 of the 1961 Act "partial partition" explicitly means partition partial as regards the persons constituting the HUF or the properties belonging to the HUF or both — thus the statute contemplates partial partition and does not require complete division of all family property.
- Engaging with the revenue's contention and precedents: The court considered the revenue's argument that a part cannot be separated yet remain part of the HUF for other assets and that a karta cannot act as karta of both families. It reviewed the Madras decision in Meyyappa Chettiar and the Madhya Pradesh decision in Seth Gopaldas. The court observed that Meyyappa Chettiar was decided under the 1922 Act (s.25A), which did not recognise partial partition; hence it is distinguishable because the 1961 Act (s.171) expressly covers partial partition.
- On the question of consent and Hindu law: The court examined authoritative statement from Mulla's Principles of Hindu Law (cited by the assessee) that the father has power to divide family property and to sever sons inter se without their consent, provided shares are equal; the court observed that Hindu law now recognises that a division of part of the joint estate can be effected while retaining joint family status in relation to remaining assets.
- Characterising effective partition: The court emphasized that partition (and partial partition) in Hindu law is effected by a definite and unequivocal indication of a coparcener's intention to separate with respect to particular property or business; the father's patria potestas allows him to act for minors, and there was no suggestion the arrangement was against the minors' interests.
- Conclusion of law application: Applying these principles to the facts, the court found the partial partition recorded by the deed to be consonant with s.171 of the Income-tax Act, 1961 and with the relevant principles of Hindu law as applied to the present circumstances (including the minors' incapacity to consent and the father's authority to act on their behalf).
Holding and Implications
Holding: The court answered the referred question in the affirmative and in favour of the assessee — it held that the partial partition, as found valid by the Tribunal, is consonant with s.171 of the Income-tax Act, 1961.
Direct Implications for the Parties:
- The partial partition effected by the registered deed of July 1, 1964 is to be recognised for the purposes considered in the reference (i.e., the Tribunal's conclusion that partial partition within the meaning of s.171 had occurred was upheld).
- There will be no order as to costs.
Broader Implications: The opinion treats s.171 of the 1961 Act as encompassing partial partitions (as to persons or properties or both) and accepts that under Hindu law, and in particular where minors are involved and the father acts under patria potestas, a partial partition of some assets while other assets remain joint is permissible. The court distinguished earlier authority decided under the 1922 Act and treated the consent point (as in Seth Gopaldas) as not operative in this factual context (minors who cannot consent).
Precedential Note: The decision resolved the reference in favour of the assessee on the facts and statutory interpretation presented. The opinion does not purport to create an expansive new rule beyond the statutory scope of s.171; its holding is directed to the recognition of the particular partial partition recorded by deed in this case.
Judges: Sudhindra Mohan Guha, J. (delivering) — Sabyasachi Mukharji, J. concurred.
Sudhindra Mohan Guha, J.:— In this reference under s. 256(1) of the I.T Act, 1961, the following question was referred to this court:
“Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the deed of partition, the Appellate Tribunal was justified in holding that a partial partition within the meaning of clause (b) of the Explanation to section 171 of the Income-tax Act, 1961, had taken place amongst the members of the assessee-Hindu undivided family on June 30, 1964?”
2. The assessee is an HUF and the assessee's reference relates to the assessment year 1965-66. It was claimed that by a registered deed there was a partial partition of the assessee-HUF with effect from July 1, 1964. As a result, the assessee-HUF continued to be joint in respect of other assets and a smaller HUF was formed in respect of the assets mentioned in the deed. The assessee was an HUF consisting of Hoshiari Lal Kalyani, his wife, Sabitri Debi, three minor sons and five unmarried daughters. The HUF had: (i) half share in the firm of Kaluram Chiranjilal, Dhupguri, (ii) three annas share in the firm, Bajrang Rice Mill, Maynaguri, (iii) three annas share in the firm, Hanuman Rice & Oil Mills, Dhupguri, and (iv) a house property. On July 1, 1964, Hoshiari Lal Kalyani, the karta (the husband of Sm. Sabitri Debi and father of other minor sons and daughters) made a partial partition of the family as under:
Allotments 1. Hoshiarilal, Sabitri Debi & Sanjoy minors & unmarried daughters—(smaller HUF) 25% share & capital in Hanuman Rice & Oil Mills, Dhupguri and Rs. 10,000 credited by debiting Shyamsundar & Mohanlal, Rs. 5,000 each. 2. Shyam Sundar Kalyani (Minor) 12% share & 50% of the capital in Sree Bajrang Rice Mill, Maynaguri & by debiting Rs. 5,000. 3. Mohanlal Kalyani (Minor) 12% share & 50% of the capital in Bajrang Rice Mill, Maynaguri & by debiting Rs. 5,000.
3. According to the ITO this resulted in a dual character of the minor which was not tenable in Hindu law. Another anomalous situation pointed out by the ITO was that the karta of the assessee-HUF at one and the same time could not represent both the assessee-HUF and the smaller HUF of which as a result of the alleged partial partition he became the karta in respect of the assets received by the smaller HUF on partial partition which, in his opinion, appeard to be untenable inasmuch as the interests of the two families might not always coincide. He, therefore, rejected the assessee's claim of partial partition.
4. An appeal was filed by the assessee to the AAC. The AAC held that there was no anomaly in one person having to perform duties at one and the same time in two different capacities and the partial partition was effected by a registered deed. He, therefore, directed the ITO to recognise the claim of partial partition and allowed the assessee's appeal.
5. The department being aggrieved by the order of the AAC came up in appeal before the Appellate Tribunal. The Appellate Tribunal held that as laid down under Expln. (b) to s. 171 of the I.T Act, 1961, partial partition could be partial as regards the persons constituting the HUF or the properties belonging to the HUF or as to both the properties and the persons, and, therefore, there was nothing wrong in the claim of partial partition made by the assessee. Thus, the order passed by the AAC was upheld.
6. In the facts stated above it is to be seen whether such an arrangement for partial partition is permissible under the Hindu law and the income-tax law. The whole controversy rests on the fact whether a division of some of the joint Hindu family assets between a new small joint Hindu family and the members of the family are tenable and whether the new small Hindu family could be separated with regard to certain assets only.
7. Under s. 171 of the I.T Act, partial partition means a partition which is partial as regards the persons constituting the HUF or the properties belonging to the HUF or both.
8. Mr. Suhas Sen, the learned counsel for the revenue, contends that under a partial partition a part of the joint family cannot be separated from the family and at the same time form a part of the joint family for the rest of the joint family estate. He cannot also support the idea that the karta of a larger joint family would function as a karta of a smaller joint family. According to him, an order under s. 171 could be made only when, in addition to a severance in status, there has been a partition of all family properties among the members and until such an order is made, the family is deemed to be an HUF for the purpose of income-tax, notwithstanding the severance in status and a partition of some of the properties. In support of his argument he relies on the decision of the Division Bench of the Madras High Court in M.S.M.M Meyyappa Chettiar…Applicant; v. Commissioner Of Income-Tax, Madras…. reported in [1950] 18 ITR 586. In this case, the assessee was the karta of a HUF which consisted of himself and his two minor sons. During the assessment year 1940-41, the assessee applied under s. 25A for an order recording a partition arrangement effected by the assessee dividing himself and his sons, inter se. The property of the family consisted of business, houses and other immovable properties, jewels and shares. There were four businesses which were exclusively owned by the family and one in partnership with others. Under the partition deed two sole businesses were exclusively allotted to the father and the other businesses were divided equally between the sharers. The division of the businesses was made by appropriate entries in the accounts showing a division of capital and further contributions. In respect of the family immovable properties which consisted of houses and house sites as well as silverware, jewels and vessels valued at Rs. 1,50,000 each of the members was allotted one-third share. The partition was not recognised by the income-tax authorities. The Appellate Tribunal held that as the division of the businesses was unequal and as there was no physical division of the movable and immovable properties as contemplated by s. 25A, the partition could not be recognised. The Tribunal further held that the partition of the businesses was altogether null and void imsmuch as the division of the businesses between the shares was wholly unequal.
9. On a reference it was held that the division of the businesses brought about by the father in exercise of his power under the Hindu law was valid and effective, notwithstanding the unusual nature of the division. It was further held that the partition could not be said to be complete and, therefore, an order under s. 25A could not be recorded.
10. It should be remembered that this case was under the Indian I.T Act, 1922, which did not recognise partial partition. Under the Act of 1922 s. 25A did not cover cases of partial partition. But under s. 171 of the I.T Act, there need not be a complete partition. This section covers cases of partial partition also.
11. Mr. Sen also refers to the decision of the Madhya Pradesh High Court in the case of CIT v. Seth Gopaldas (HUF), reported in [1979] 116 ITR 577. It is held therein that the Explanation to s. 171 of the I.T Act, 1961, which defines “partition” and “partial partition” contains nothing to permit an inference that these expressions are to be understood for the purpose of the Act in a manner different from that in which they are understood under the general Hindu law. Hence, according to their Lordships, a Hindu father could not have the right to bring about a partial partition of the family properties among his sons, inter se, as part of his patria potestas without the consent of his sons.
12. Mr. R.C Deb, the learned counsel for the assessee, in reply places Mulla's Principles of Hindu Law, 14th Edn., p. 610, which runs as follows:
“The father of a joint family has the power to divide the family property at any moment during his life, provided he gives his sons equal share with himself and if he does so, the effect in law is not only a separation of the father from the sons, but a separation of the sons inter se. The consent of the sons is not necessary for the exercise of that power. The right of a father to sever the sons inter se is a part of the patria potestas still recognised by the Hindu law.”
13. It is now recognised in Hindu law that the members of a joint family can make a division and severance of interest in respect of a part of the joint estate while retaining the status of a joint family and holding the rest of the estate as properties of the joint family.
14. The partition in Hindu law is effected by a definite and unequivocal indication of a coparcener's intention to separate. Similarly, a partial partition is effected by a definite and unequivocal indication of the coparcener to partition a particular business or property of the joint family leaving the other assets as joint family property. The father as patriot, potestas can effect a partition in the family if he considers the same to be in the interest of the family. There was no suggestion that such partition was, in any case, made against the interests of the minors. An aggrieved member of the coparcenary can question such a partition but not a third party, namely, the I.T Dept. As regards the issues raised in the case of CIT v. Seth Gopaldas (HUF), [1979] 116 ITR 577 (MP) that a partial partition can be made only by the consent of all, it may be pointed out that the question of consent would not arise in this case as the sons were minors and they could not give any valid consent. It is the father who acted on their behalf. Thus, we would hold that the father in this case had every right to bring about a partial partition of the family properties among his sons inter se as part of his patria potestas.
15. In this view of the matter, the partial partition in this case as found valid by the Tribunal seems to be in consonance with s. 171 of the I.T Act, 1961. Thus, we answer the question in the affirmative and in favour of the assessee. There will, however, be no order as to costs.
Sabyasachi Mukharji, J.:— I agree.
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