1987 (7) TMI 125 - AT - Income Tax

Tribunal upholds 'HUF' status based on partial partition and precedent. Appeals dismissed.

The Tribunal upheld the AAC's decision, affirming the assessee's status as 'HUF' based on the recognized partial partition and relevant judicial ... Assessment Proceedings Issues Involved:1. Whether the status of the assessee is 'AOP' as held by the ITO or 'HUF' as claimed by the assessee and accepted by the AAC.Issue-wise Detailed Analysis:1. Status of the Assessee: 'AOP' vs. 'HUF'Facts and Background:The assessment years involved are 1980-81 and 1981-82. The co-sharers of the assessee are members of the HUF of Shri Thakershi Chunilal Parikh, referred to as the larger HUF. The larger HUF underwent a partial partition during the previous year S.Y. 2034, relevant to the A.Y. 1979-80, involving Rs. 1,20,000, which was distributed among various co-sharers. The ITO accepted this partial partition in an order dated 18-3-1981. Each new HUF formed post-partition filed their returns, showing specific co-sharers and their respective shares.ITO's View:The ITO, in his letter dated 16-3-1983, questioned the status of the assessee as 'HUF' and suggested it should be 'AOP'. He viewed the partial partition as a sham, arguing that the arrangements made were in the hands of individuals, and legally, there cannot be separate joint family statuses for separate HUFs.Assessee's Argument:The assessee argued that once the partial partition was accepted by the revenue, it was binding. They cited the Gujarat High Court decision in CIT v. Shantikumar Jagabhai and the Supreme Court decision in Joint Family of Udayan Chinubhai v. CIT, urging that the assessments should be framed in the status of 'HUF'.ITO's Rejection:The ITO rejected these submissions, framing the assessment in the status of 'AOP'. He distinguished the cases cited by the assessee, arguing that under Hindu Law, a coparcener's interest crystallizes only upon partition. He contended that the arrangement of releasing amounts and forming separate HUFs was a sham, and the income should be taxed in the hands of individuals.AAC's Decision:The AAC accepted the assessee's submissions, noting that the partial partitions were recognized by orders under section 171 of the Act. The AAC held that the correct status of the appellant should be HUF, consisting of Thakershi Chunilal, his wife, and two sons, and directed the ITO to grant the status of HUF instead of AOP.Tribunal's Analysis:The Tribunal observed that the revenue should not have appealed without properly appreciating the issue. They noted that the ITO had already recognized the partial partition under section 171 of the Act. Referencing the Supreme Court's observations, the Tribunal stated that once an order recognizing partition is passed, the family cannot be assessed as HUF unless the order is set aside by a competent authority.The Tribunal reviewed various decisions, including the case of Joint Family of Udayan Chinubhai, where the Supreme Court held that once an order recognizing partition is passed, the ITO cannot change the status of the disrupted members. The Tribunal also considered the legislative background and the introduction of sub-section (9) in section 171, which derecognized partial partitions after 31-12-1978, but noted that the partial partition in this case occurred before this date.Conclusion:The Tribunal upheld the AAC's order, supporting the assessee's status as 'HUF' based on the recognized partial partition and relevant judicial precedents. The appeals were dismissed, affirming the AAC's decision that the correct status of the assessee is 'HUF'.