HUF partition under tax law is recognised when joint property is actually divided and the arrangement is genuinely implemented.

For section 171 of the Income-tax Act, a Hindu undivided family is recognised as partitioned only when joint family property is actually divided by metes and bounds, or in such manner as the property admits of, so it ceases to remain joint. On the facts, repeated partition efforts had failed, the dispute went to arbitration, and the award allotted the property to one coparcener with cash compensation to the others; the arrangement was then implemented through the sale transaction. The finding that this was a colourable device to avoid tax was rejected because the long-standing dispute was substantively resolved and the partition was given effect. The partition had to be accepted for income-tax purposes.

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Issues: Whether the Hindu undivided family stood completely partitioned for the purposes of section 171 of the Income-tax Act, 1961, and whether the arbitration award dated 24-9-1994, followed by implementation through the sale transaction, constituted a valid and recognizable partition under the Act.

Analysis: The relevant legal distinction is between partition under Hindu law and partition recognizable under section 171. A mere severance of status or definition of shares is not enough for income-tax purposes; the partition must result in actual division of the family properties by metes and bounds, or in such division as the property admits of, so that the property no longer remains joint. On the facts, repeated attempts to partition the property had failed, the dispute was referred to arbitration, and the award allotted the property to one coparcener with cash compensation to the others. The award was acted upon in the subsequent sale transaction, and the record showed that the family properties at Petlad had already been sold. The contention that the arrangement was a colourable device to avoid tax was rejected, as the partition dispute was longstanding and the arrangement was implemented in substance.

Conclusion: The family was validly partitioned for the purposes of section 171, and the arbitration award constituted an effective partition of the Hindu undivided family property.

Final Conclusion: The rejection of the assessee's claim under section 171 was unsustainable, and the partition had to be accepted for income-tax purposes.

Ratio Decidendi: For section 171 purposes, a partition is valid when the joint family property is actually divided in a manner the property admits of and the arrangement is given effect to, even if accomplished through an arbitration award and subsequent sale implementation rather than a separate registered partition deed.

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