1992 (9) TMI 37 - HC - Wealth-tax

Oral Partition Excludes Property from HUF Net Wealth

The court held that the plot at Railway Road, Karnal, was orally partitioned on October 22, 1970, disrupting the joint Hindu family property. As a result, ... - Issues Involved:1. Whether the Income-tax Appellate Tribunal erred in law in holding that the value of the plot of land at Railway Road, Karnal, could not be included and assessed in the net wealth of the assessee-Hindu undivided family for each of the assessment years under appeal.Detailed Analysis:Issue 1: Inclusion of the Plot at Railway Road, Karnal, in the Net Wealth of the Assessee-Hindu Undivided FamilyBackground:Harbhagwan, the karta of a Hindu undivided family (HUF), purchased several plots with individual funds and later impressed these plots with the character of HUF property. The plot at Railway Road, Karnal, was claimed to be orally partitioned on October 22, 1970, and a memorandum of partial partition was written on November 16, 1970. The Income-tax Officer (ITO) initially did not accept this partial partition as it was not physically divided among the members.Income-tax Officer's Decision:The ITO held that the partial partition of the plot at Railway Road, Karnal, was not valid since the plot was not physically divided. Consequently, the value of the plot was included in the net wealth of the HUF.Appellate Assistant Commissioner's Decision:The assessee's appeal against the ITO's decision was dismissed by the Appellate Assistant Commissioner.Income-tax Appellate Tribunal's Decision:The Tribunal reversed the Appellate Assistant Commissioner's decision, holding that under Hindu law, the status of the joint Hindu family or its property can be disrupted by an oral partial or total partition. Since the plot at Railway Road, Karnal, was orally partitioned, the members would be deemed to hold this property as tenants-in-common and not as joint tenants, thereby excluding it from the net wealth of the HUF.Legal Principles:- Partition under Hindu Law: Property can be partitioned orally or by writing a memorandum. Partition can be complete or partial, with members holding partitioned properties as tenants-in-common while remaining joint in respect of other properties.- Section 171 of the Income-tax Act, 1961: Defines 'partition' and 'partial partition' and requires an order from the assessing authority to recognize the partition for income-tax purposes.- Section 20 of the Wealth-tax Act: Deals with the assessment after the partition of a HUF and requires the partition to be of the entire property among members in definite portions. It does not apply to partial partitions.- Section 20A of the Wealth-tax Act: Similar to Section 171(9) of the Income-tax Act, it states that partial partitions after December 31, 1978, are not recognized for tax purposes.Court's Analysis:- The court observed that the provisions of the Income-tax Act and the Wealth-tax Act are different. The Wealth-tax Officer must independently determine the partition under the Wealth-tax Act.- The court referred to the Supreme Court's decision in Narendra Kumar J. Modi v. CIT, which held that income-tax authorities are not bound by civil court decrees recognizing partition under Hindu law.- The Karnataka High Court's decision in CWT v. M. L. Ramachandra Setty and Sons was cited, which held that Section 20 of the Wealth-tax Act does not apply to partial partitions and that properties held as tenants-in-common after a partial partition do not belong to the HUF.Conclusion:The court held that the disruption of the joint Hindu family property qua the plot at Railway Road, Karnal, took place on October 22, 1970. From that date, the members of the HUF would be deemed to hold the property as tenants-in-common, and it ceased to belong to the joint Hindu family. Therefore, the value of the plot could not be included in the net wealth of the assessee-HUF. The Tribunal's decision to exclude the plot from the net wealth of the assessee for the assessment years under appeal was affirmed.Judgment:The question of law was answered in the affirmative, in favor of the assessee and against the Department. No costs were awarded.