Partial partition in an HUF arrangement leaves fixed-deposit interest taxable in the hands of the family unit

A family arrangement that allotted fixed deposits and cash to minor daughters while the remaining family assets continued to be held jointly was treated as a partial partition for income-tax purposes. Because the daughters were made to renounce further claims in the family property, and the arrangement was inconsistent with the coparcenary position recognised in Andhra Pradesh, it was not accepted as a valid partition under the Act. The interest earned on the fixed deposits therefore remained assessable in the hands of the specified HUF.

---

---

Issues: Whether the family arrangement setting apart fixed deposits and cash in favour of the minor daughters amounted to a partial partition not recognised under the income-tax law, and whether the interest on the fixed deposits was assessable in the hands of the specified HUF.

Analysis: The arrangement provided that the six minor daughters were allotted specified amounts for their exclusive benefit, while the balance of the assets continued to be held by the family. The prohibition on the daughters asserting claims over the remaining properties, coupled with the continued collective holding and management of the assets, showed that the document was not a mere benign family arrangement. In view of the statutory position concerning daughters as coparceners in Andhra Pradesh, the attempt to exclude them from claims in the family property was not legally sustainable. The arrangement was treated as a device having the effect of a partial partition, and there was no recognition of partition under the income-tax provisions. Accordingly, the interest generated from the fixed deposits could not be excluded from the HUF's assessment.

Conclusion: The interest on the fixed deposits was rightly taxed in the hands of the specified HUF, and the Revenue's challenge succeeded.

Ratio Decidendi: Setting apart HUF assets in favour of some coparceners on terms that they relinquish further claims in the family property amounts to a partial partition not recognised under section 171(9) of the Income-tax Act, 1961, and the income from such assets remains assessable in the hands of the HUF.

---