Notional partition does not dissolve the family, but separate heir shares make capital gains taxable individually and bar reopening

A notional partition under section 6 of the Hindu Succession Act, 1956 fixes the heir's share but does not by itself dissolve a Hindu undivided family. On the facts, the heirs had accepted distinct one-fourth shares, recorded their names separately and sold their interests individually, so the capital gains were taxable in the hands of the respective co-sharers and not the Hindu undivided family. Because the returns disclosed the material facts and there was no escapement of income in the hands of the Hindu undivided family, reopening under section 148 of the Income-tax Act, 1961 was not sustainable.

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Issues: (i) Whether the concept of notional partition under section 6 of the Hindu Succession Act, 1956 meant that the Hindu undivided family ceased to exist on the death of a coparcener; (ii) whether the capital gains on sale of the property were taxable in the hands of the Hindu undivided family or in the hands of the individual co-sharers; (iii) whether the notice issued for reopening under section 148 of the Income-tax Act, 1961 was sustainable.

Issue (i): Whether the concept of notional partition under section 6 of the Hindu Succession Act, 1956 meant that the Hindu undivided family ceased to exist on the death of a coparcener.

Analysis: The legal fiction of notional partition does not operate beyond its limited purpose. It fixes the share of the heir but does not, by itself, dissolve the family or compel an actual partition. The ruling in Gurupad Khandappa Magdum was confined to the position of a female heir claiming partition and could not be extended to mean that the family automatically comes to an end on the death of a male coparcener.

Conclusion: The Hindu undivided family did not cease to exist merely because of the death of the coparcener; this issue was decided in favour of the Revenue.

Issue (ii): Whether the capital gains on sale of the property were taxable in the hands of the Hindu undivided family or in the hands of the individual co-sharers.

Analysis: The record showed that the legal heirs had accepted and acted upon their respective one-fourth shares, had their names recorded in the public records, and sold their respective interests individually. Mere use of the expression "Hindu undivided family property" in the agreement did not establish that the property continued to belong to a Hindu undivided family. On those facts, the co-sharers held the property as tenants in common and the sale was by individuals, not by the family.

Conclusion: The capital gains were assessable in the hands of the respective co-sharers and not in the hands of the Hindu undivided family; this issue was decided in favour of the assessee.

Issue (iii): Whether the notice issued for reopening under section 148 of the Income-tax Act, 1961 was sustainable.

Analysis: The individual returns had disclosed the material facts showing separate ownership shares and individual liability to capital gains tax. There was no material to show escapement of income in the hands of the Hindu undivided family or failure to disclose material facts. Since the capital gains were not taxable in the hands of the Hindu undivided family, the reopening could not stand.

Conclusion: The notice under section 148 was not sustainable; this issue was decided in favour of the assessee.

Final Conclusion: The ruling was mixed on the first issue but upheld individual assessment of capital gains and invalidated the reopening, leaving the reference disposed of with no order as to costs.

Ratio Decidendi: A notional partition under section 6 of the Hindu Succession Act, 1956 does not by itself dissolve a Hindu undivided family, but where the heirs have accepted distinct shares and sold their interests individually, the gain is taxable in their hands and reopening is impermissible in the absence of nondisclosure or escapement of income.

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