Partial partition of HUF assets effective on allotment, shifting title and taxability to the son

A genuine partial partition of Hindu undivided family property was recognised where Government promissory notes and partnership interests were allotted to the son. For the promissory notes, the allotment and corresponding family book entries were sufficient to vest title, and later formal endorsement did not prevent the transfer from taking effect. For the partnership interests, a family share in a firm could be divided by appropriate allotment and book adjustments without immediate reconstitution of the firm, and separate credit of profits supported the disruption. The income from the allotted assets was therefore not assessable as family income.

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Issues: Whether there was an effective partial partition on July 26, 1954 in respect of the Government promissory notes and the family's shares in the partnership concerns, so that the resulting income ceased to be assessable as the income of the Hindu undivided family.

Analysis: The dispute turned on whether the assets allotted to the son under the partition arrangement had been effectively separated, having regard to the nature of the assets. For the Government promissory notes, the allotment in the partition and the corresponding entries in the family books were treated as sufficient to vest title in the son, even though formal endorsement occurred later, because the partition was not found to be a sham and property in the securities passed by allotment. For the partnership interests, the governing principle was that a family's share in a firm can be divided by appropriate adjustment and allotment without immediate reconstitution of the firm itself, and book entries and separate credit of profits may evidence an effective division. The accepted registration of the firms in the separate status of the father and son further supported the conclusion that the family interest had been effectively disrupted.

Conclusion: The partition was effective in respect of the Government promissory notes and the partnership interests, and the income from those assets could not be assessed as the income of the Hindu undivided family.

Final Conclusion: The reference was answered in favour of the assessee, and the income arising from the allotted securities and partnership shares was held not taxable as family income.

Ratio Decidendi: Where a partial partition of Hindu undivided family property is genuine and the assets are capable of division by allotment, title and taxability change upon effective allotment, and formal later documentation or reconstitution of the outside asset holder is not necessary to displace assessment in the hands of the family.

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