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IN THE HIGH COURT OF GUJARAT
B.J. Divan, B.K. Mehta, JJ.
Commissioner of Income-Tax, Gujarat-II - Petitioner
Versus
Govindlal Mathurbhai Oza - Respondent
Income-tax Reference No. 117 of 1976 with 93 of 1976
Decided On : 16-02-1981
PARTITION OF HUF PROPERTY - VALIDITY - PARTIAL PARTITION - DIVISION OF SALE PROCEEDS - INCOME-TAX ACT, 1961, S. 171 - CAPITAL GAINS.
Fact of the Case:
A Hindu undivided family (HUF) owned two pieces of agricultural land. The HUF entered into an agreement to sell the land to a third party. The third party, in turn, agreed to sell its rights to another party, who then sold the land to three different cooperative housing societies. The HUF members executed a registered partition deed, dividing the sale proceeds of the land among themselves. The Income Tax Officer (ITO) rejected the HUF's application to record the partition, holding that there was no physical division of the land and that the amount allotted to the other family members was not paid. The Appellate Assistant Commissioner (AAC) and the Tribunal upheld the HUF's claim that there was a valid partial partition.
Finding of the Court:
The court held that the partition deed was a valid partial partition of the HUF property. The court found that the parties were co-owners of the land, that they agreed to divide the sale proceeds of the land in severalty, and that the shares of each member were ascertained. The court also found that the manager of the HUF executed promissory notes to the other family members for their respective shares of the sale proceeds, and that these amounts were paid to them. The court concluded that the transaction was a change in the mode of enjoyment, not a transfer of property, and that the ITO was bound to recognize and record the partition.
Issues: 1. Whether the Tribunal was right in holding that since the assessee was not assessed prior to the assessment year 1967-68, the provisions of section 171 had no application and it was not necessary to effect physical division of the lands in question? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was a valid partition of the lands in question and consequently directing the Income-tax Officer to record a finding that the partition of the lands in question took place on September 12, 1966? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that since the partial partition in respect of the lands in question was treated as valid by the Tribunal, capital gains arising out, of the sale transactions in question were not taxable in the hands of the assessee-HUF?
Ratio Decidendi: The court applied the following legal principles in reaching its decision: * Partition of joint Hindu family property consists in ascertaining and defining the shares of the coparceners in the joint property, and an actual division of the property by metes and bounds is not necessary to constitute a partition. * Partition may be effected, inter alia, by agreement or conduct which evinces an intention to sever the status of the joint family. * The real test of an instrument of partition is whether there was any property of which the parties were co-owners which is divided by that deed in severalty. * A sale is the transfer of a property for a price, and partition is not a transfer of the property but is merely a change in the mode of enjoyment.
Final Decision: The court answered the second question in Income-tax Reference No. 117 of 1976 in the affirmative, in favor of the assessee and against the Revenue. The court also answered the question in Income-tax Reference No. 93 of 1976 in the affirmative, in favor of the assessee and against the Revenue.
JUDGMENT :
B.K. Mehta, J.
A few facts need to be noticed which have led to these two references. One Mathurbhai Mansukhram purchased two pieces of agricultural lands of s. Nos. 5 and 7 admeasuring 3 acres 5 gunthas and 1 acre 35 gunthas, respectively, situate within the revenue limits of village Amraiwadi within the City of Ahmedabad, The corresponding area of the land was 24,200 sq. yards. The said Mathurbhai Mansukhram had two sons Govind and Vasudev. They constituted a joint family of Mathurdas Mansukhram. Govindbhai has four sons, namely, Kandarp, Sudbir, Pankaj and Pradeep and his wife, Ramaben. It appears that a partition of the Hindu undivided family (hereinafter referred to as "the HUF") of Mathurbhai Mansukhram was effected on April 6, 1950, in pursuance of which the aforesaid two pieces of land, inter alia, came to the share of Govindbhai. Since there was a smaller HUF of Govindbhai comprising of himself, his four sons and wife, the two pieces of land belonged to his smaller HUF. It appears further that out of the aforesaid land, a portion of land admeasuring about 5,090 sq. yards was acquired by the Ahmedabad Municipality leaving to the joint family the remaining land admeasuring 19,110 sq. yards. It appears further that Govindbhai on behalf of the family entered into an agreement to sell the said remaining piece of land admeasuring 19,110 sq. yards at Rs. 14 per sq. yard for the aggregate amount of Rs. 2,67,540 to one Shri P.V. Patel by an agreement of sale of September 25, 1963. It appears further that consequent to the aforesaid agreement, Shri P.V. Patel in his turn agreed to sell on 22nd October, 1963, his rights under an agreement to Bapudas Amthalal & Company, which, again, in its turn, agreed to sell its rights to Dhanjibhai Bhailalbhai by an agreement of November .19, 1966. It appears further that the said two pieces of land admeasuring 19,110 sq. yards were divided in five plots, A to E, and were conveyed to three different parties by three different-deeds of conveyance ; the first was executed in favour of Udyog Kamdar Society for 6,703, sq., yards for. Rs. 1,07,248 on September 12, 1966 ; the second deed of conveyance was in respect of the part of land admeasuring 6,884 sq. yards in favour of Umiyadevi Co-operative Housing Society for Rs. 96,326 by a deed of conveyance of April 27, 1967, and the third was, in respect of the remaining portion of land admeasuring 5,523 sq. yards. for Rs.77,322 in, favour of Prakash Co-operative Housing Society under a deed of conveyance of September 16, 1967. Meanwhile, it appears that there was a registered partition deed between the members of the HUF of Govindbhai executed on September 12, 1966, agreeing to divide the said land and for that matter the sale proceeds of the said land which Govindbhai had agreed to sell to Shri P.V. Patel, which he sold to the aforesaid three societies. Each one of the members was given an ?th share in the property which was agreed to be divided. It appears that in the course of assessments for the assessment years 1967-68 and 1968-69, a question arose relating to the aforesaid partial partition of land when Govindbhai made an application to the ITO under section 171 of the: I.T. Act, 1961, to record a finding regarding the partial partition between himself and the members of his family. The ITO, however, rejected the application on two grounds, (i) that the amount of Rs. 2,22,950 being ?ths share of the sale proceeds allotted to the other five members of the family of Govindbhai was in fact not paid as mentioned in the partition deed dated September 12, 1966, and (ii) that there was no partition as required by the Explanation to section 171 of the I.T. Act, 1961. It appears that the same claim was advanced in the course of assessment for the assessment year 1968-69, which, for the same reasons, was rejected by the ITO.
2. The assessee, therefore, carried the matter before the AAC, who was not impressed by the claim of the assessee and, there
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