Tribunal directs inclusion of wife's income in partial partition, remands interest disallowance for fresh consideration.

The appeal was allowed in part. The Tribunal directed the Income-tax Officer to include in the income of the assessee only the income derived from the converted property received by the assessee's wife in the second partial partition dated 27th July 1970 and to adjust the assessment accordingly. The issue of disallowance of interest of Rs. 8,046 was remanded for fresh consideration by the Appellate Assistant Commissioner.

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Issues Involved:

1. Whether the properties were thrown by the assessee into the hotchpot of the joint family.
2. Whether the partial partition effected by the registered deed dated 27th July 1970 is genuine and valid.
3. Whether the non-obtaining of an order under Section 171 affects the assessee's claim.
4. Disallowance of interest of Rs. 8,046.

Issue-wise Detailed Analysis:

1. Whether the properties were thrown by the assessee into the hotchpot of the joint family:

The assessee claimed that on 25th July 1970, he threw some of his individual properties into the hotchpot of the Hindu undivided family (HUF). This was supported by an instrument of declaration duly executed by the assessee. The lower authorities did not challenge the factum of the assessee having thrown his separate property into the hotchpot. The Tribunal noted that no formalities are necessary for the merger of a coparcener's self-acquired property into the coparcenary property, and the execution of a deed of declaration is sufficient. The Tribunal held that the assessee had abandoned all his separate interest in the properties mentioned in Schedule 'A' and had impressed the said properties with the character of joint family properties. Therefore, the assessee ceased to be the owner of the properties mentioned in the declaration.

2. Whether the partial partition effected by the registered deed dated 27th July 1970 is genuine and valid:

The assessee claimed a partial partition of the properties thrown into the hotchpot by a registered deed dated 27th July 1970. The Income-tax Officer ignored the deed of declaration and the deed of partial partition because the assessee did not retain any share in the partial partition. However, the Tribunal found that the partial partition was supported by a registered deed and that the partition need not be equal. The Tribunal held that the genuineness of the second partial partition could not be questioned merely because the assessee did not take any share, especially since the joint family still possessed substantial properties. Therefore, the partial partition was deemed genuine.

3. Whether the non-obtaining of an order under Section 171 affects the assessee's claim:

The Tribunal noted that Section 171(1) provides that a Hindu undivided family assessed as undivided shall be deemed to continue as such unless a finding of partition is recorded by the Income-tax Officer. However, the Tribunal observed that Section 171(6) and (7) provide for cases where an order under Section 171 has not been obtained. If a partition (total or partial) has in fact taken place, the liability of the members should be computed in accordance with the property allotted to them. The Tribunal concluded that for the purpose of Section 64(2), which deals with the inclusion of income from converted property, it is not necessary that the partition should have been recognized under Section 171. Therefore, the non-obtaining of an order under Section 171 does not enable the department to ignore the partition.

4. Disallowance of interest of Rs. 8,046:

The Tribunal noted that a similar disallowance was made in the earlier year (1970-71), and the matter was restored to the Appellate Assistant Commissioner for fresh disposal. The Tribunal directed the Appellate Assistant Commissioner to examine the assessee's claim in the light of the statement filed and explanations offered by the assessee. Therefore, for the current year, the assessee should file an analysis statement and establish his claim before the Appellate Assistant Commissioner, who is directed to dispose of the appeal on this point afresh on merits and in accordance with law.

Conclusion:

The appeal is allowed in part. The Tribunal directed the Income-tax Officer to include in the income of the assessee only such income as is derived from the converted property received by the assessee's wife in the second partial partition dated 27th July 1970 and to modify the assessment accordingly. The issue of disallowance of interest is remanded for fresh consideration.

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