Partial partition of HUF property barred recognition where immovable assets remained undivided and unregistered relinquishment failed.
A claimed Hindu undivided family partition was held to be only partial because the residential house remained undivided and the alleged relinquishment of rights in immovable property was not proved by a registered instrument. The unregistered documents could not validly create or transfer rights in immovable property, and section 171(9) barred recognition of the partition for tax purposes. On that basis, a firm said to be constituted by the coparceners was not treated as a validly constituted partnership for tax purposes, registration was refused, and the business income remained assessable in the hands of the HUF.
Issues: (i) Whether the claim of complete partition of the Hindu undivided family could be recognised under section 171 of the Income-tax Act, 1961, in respect of the house property and other assets; (ii) Whether the firm constituted by the coparceners was entitled to registration and whether its income could be excluded from the assessment of the Hindu undivided family.
Issue (i): Whether the claim of complete partition of the Hindu undivided family could be recognised under section 171 of the Income-tax Act, 1961, in respect of the house property and other assets.
Analysis: The business, silverware and household utensils were divided, but the residential house was not partitioned by metes and bounds. The alleged documents said to have settled rights in the house property in favour of the mother were not registered, and the claimed arrangement was not satisfactorily proved. The documents, being instruments creating or relinquishing rights in immovable property worth more than Rs. 100, attracted compulsory registration and could not be relied upon when unregistered. The statutory bar under section 171(9) also applied because the case disclosed only a partial partition after the relevant cut-off date.
Conclusion: The claim for complete partition was not sustainable and was rightly rejected; only a partial partition was established.
Issue (ii): Whether the firm constituted by the coparceners was entitled to registration and whether its income could be excluded from the assessment of the Hindu undivided family.
Analysis: Since the family property was not fully partitioned and the business continued to be treated as part of the Hindu undivided family assets, the firm was not constituted on the basis of individual property of the partners. A partnership cannot validly rest on coparcenary property while the family continues as a joint family for tax purposes. As the firm was not a validly constituted firm in law on the facts found, registration could not be granted, and the business income remained taxable in the hands of the Hindu undivided family.
Conclusion: Registration of the firm was rightly refused and its income was rightly included in the assessment of the Hindu undivided family.
Final Conclusion: The tax authorities' findings were affirmed, with the family treated as continuing in respect of the undivided assets and the business income assessed in the hands of the Hindu undivided family.
Ratio Decidendi: Where a claimed partition leaves immovable family property undivided and the alleged relinquishment is unsupported by a registered instrument, the arrangement is only a partial partition and section 171(9) prevents recognition of that partition for tax purposes; a firm founded on such undivided coparcenary property is not entitled to registration.
TaxTMI 
AI Drafter ✕
TaxTMI 
