Section 171 deeming rule keeps a Hindu undivided family taxable as undivided until partition is found

Section 171(1) of the Income-tax Act, 1961 creates a deeming rule that a Hindu undivided family assessed as undivided continues to be assessed in that status unless and until a partition finding is recorded under the section. The rule applies to both total and partial partitions, and the absence of a claim, inquiry, or finding under section 171 prevents the Department from treating the family as divided for tax purposes. A change in rights by devolution under the Hindu Succession Act, 1956 does not alter this position; income-tax treatment remains controlled by section 171 unless partition is recognised in accordance with that provision.

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Issues: Whether, for income-tax purposes, the income attributable to property or share that had devolved by statutory inheritance on members of a Hindu undivided family could be excluded from the family's assessable income without a finding of partition under section 171 of the Income-tax Act, 1961.

Analysis: The governing principle is that section 171(1) creates a statutory deeming fiction under which a Hindu undivided family hitherto assessed as undivided continues to be so assessed unless and until a finding of partition is recorded under that section. The section applies to total and partial partitions alike, and the absence of a claim, inquiry, or finding under section 171 prevents the Department from treating the family as divided for income-tax purposes. Even where rights in the family property are altered by operation of the Hindu Succession Act, 1956, the income-tax consequences remain controlled by section 171(1) unless partition is found in accordance with that provision.

Conclusion: The income in question could not be excluded from the Hindu undivided family's assessment, and the matter was decided against the assessee and in favour of the Revenue.

Final Conclusion: For purposes of assessment under the Income-tax Act, the statutory continuance of a Hindu undivided family prevails until a partition finding is recorded under section 171, notwithstanding any devolution of rights under the Hindu Succession Act.

Ratio Decidendi: A Hindu undivided family assessed as undivided must continue to be taxed as such unless a partition finding is recorded under section 171 of the Income-tax Act, 1961, and this requirement is not displaced by statutory succession under the Hindu Succession Act, 1956.

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