APOORVA SHANTILAL SHAH v. COMMISSIONER OF INCOME TAX GUJARAT-I, AHMEDABAD

Citation: [1983] 2 S.C.R. 492

Court: Supreme Court of India

Bench: P.N. BHAGWATI, AMARENDRA NATH SEN

Case summary

, the Revenue went up in appeal to the Income·Tax Appellate Tribunal (referred to as tribunal hereinafter for the sake of brevity) to challenge]the A. further held that the said partitions did not purport to have been made at th~ .

Judgment text

;92 APOORVA SHANTILAL SHAH • v. COMMISSIONER OF INCOME TAX 8 GUJARAT-I, AHMEDABAD March 3, 1983 [P. N. BHAGWATI AND AMARBNDRA NATH SEN, 'JJ. J " c, Partial partition- lVhether the father in exercise ofhis right as "patrla potestas" or otherwise can effect a pa,tial partition between himselfand his minor • so1',_s ofjoint family properties ofa Hindu Joint Family governed by the Mitakshara School ofHindu Law-Income Tax Act, 1961, Section 171. The assessee is a Hind undivided Family consisting of four members, , namely, Sri Apoorva Sbantilat Shah, his wife Smt. Karuna and their minor sons Chintan and Tejat. During the assessment pertaining to the assessment year 1975-76. Shri Apoorva as a Karta of the H. U. F. made an application to the Income Tax Officer for recognising partial partition under S. 171 of the Income . Tax Act, 1961 (hereinafter referred to as the Act) claiming that two partial parti· tions had taken place amongst the members of the said family, one on 24. 12.

1973 in respect of 200 shares of Gujarat Steel Tubes Ltd. and the other on 29. 12. 1973 in respect of 1777 shares of the same company. The Ince. me Tax Officer refused to· record them for three reasons. namely (i) the partitions have not been made at the instance of the minor sons; (ii) after making certain allocations in favour of the two minor sons, the remaining shares were not allotted in their entirety to the remaining third coparcener, namely Apoorva separately or Apoorva and Smt. Karunajointly describing them as H. U. F'. and (iii) the distribution of shares had not been made equally either amongst the three members including the two minor sons or amongst the four members of the H. U. F. , as Apoorva's wife Karuna also became entitled to an equal share on partition between the father and sons. The appeal preferred before the Assistant Appellate Commissioner was accepted.

The further appeal, by Revenue to the Income Tax Appellate Tribunal was allowed • since the Tribunal was of the opinion that the partial partitions in the instant case, being outside the framework of the Hindu Law could not be recognised as valid for the purposes 6f Section 171 of the Income Tax Act. All the questions referred to in the reference under Section 256 (1) to the High Court were answered against the assessee. The High Court held that under Hindu Law the ' father has no power or authority to effect any partial partition of joint family properties between himself and &his minor sons. Hence the appeal by speci~l Jeave. AHowing the appeal, the Cour~ ' APOORVA SHANTILAL v. c. 1. r. 493 HELD : J. I. Partial Partition of the shares belonging to the Hindu undivided Family cannot be said to be bad either under the Hindu Law or under the Indian Income Tax Act. [514 H, SIS A] 1. 2.

Partial partition of properties brought about by the father between / himself and his minor sons is valid and binding under the Hindu Law. This right of the father to effect a partial partition ofjoint family properties between himself 8 ' ' and bis minor sQDs, whether in exercise of bis superior riaht as father or in exercise of the right as patria poles/as has neqessarily (_to be exercised bonafide by the father and is subject to the right of the sons to challenge the partition, if the partition is not fair and just. [Sll C·E] • 1. 3. The right of the father to bring about the disruption nf the joint family properties in exercise pf his superior right, as fathCt" or of his rights as patria potestas is recognised in ancient Hindu Law. [509 D-E] 1. 4.

The stand taken by the High Court to the effect that the propo,ition laid down by judicial decisions to the effect that partial partition of a joint Hindu family qua some joint family properties or qua some members of the joint family is permissible and valid in law, will apply only when partial partition ) is f':ffected with the consent of the members ofjoint family and cannot be extended to a case when partial partitiori is sought to be brought by father in exercise of his superior rights as father or his right as patria potestas is incorrect.

(509 F-H] If the father in exercise of his superior right or of bis right as patria potestas in entitled to bring about a complete disruption of the joint family and to effect a complete partition of joint family properties of a Hindu joint family consisting of himself and bis -minor sons even against the wishes of the minors and if partial partition be permissible with the consent of sons when they have all become major, the pOwer or authority of the father to effc:ct the partition of properties c. aonot be limited only to a case where the partition is tot111. Even if · the test of consent is to apply, the father as the natural guardian of the minor sons will normally be in a position to give such consent and it cannot be said as matter of universal application)hat in all such cases of partition, part. iaJ or other· fl wise, there is bound to be a conflict of interest between the father and bis sons.

If tbe father does not act bonafide in the matter when he effects partition ofjoint family properties between himself and his minor sons, whether wholly or partially the sons on attaining majority may challenge the partition and ask for appropriate ~eliefs lincluding a proper partition. In appropriate cases even during minority, the minor sons through a proper guardian may impeach the validity of the partition brought ab~ut by the fathCr either in entirety of the joint family properties or ,, only in respect of part thereof, if the partition had been effected by'(be father to the detriment of the minor sons and to the prejudice of their interest. [SID A-HJ Charandas Haridas v. Commissioner of Income Tax, Bombay'(1960) 39 I. T. R. 202 (S. C. ) Kalloomal Tapeswari Prasad (HUF) v. Commissiontr ofIncome t j Tax. Kanpur (1982) 133 l. T. R. 690 {S. C. ) followed: · 494 SUPREME COUF:T REPORTS [19831 2 S,C. R. 1. 5.

The provisions of the Income Tax Act, 1961 before the amendment by Finance Act (No. 2 of 1980) also clearly recognise partial partition. The defini· tioo of partial partition in Explanation (b) filakes it clear that partial partition as regards the persons constituting the Hindu undivided family or as regards properties belonging to the Hindu Undivided family, or both, is recognised. [514 F·G] 2. 1. A partial partition of any joint family property by the·father between himself and his sons does not become inva1lid on the ground that there bas been no equal distribution amongst the co-sharers It is expected that the father who seeks to bring about a partial partition of joint family properties will act bana fide in the interest of the joint family and its members bearing in mind in particular the interest of the minor sons. If, however.

any such partial revision causes any prejudice to any of the minor sons and if any minor son feels aggrieved by any such partial partition, be can always challenge the validity of such partial parti· tion in an appropriate proceeding and the validity of such partial partition will necessarily have to be adjudicated upon in the proceeding on a proper consideratioil of an the facts and circumstances of'the case. Till such partial partition has been held to be invalid by any competent court, the partial partition must be held to be valid. [515 D-FJ 2. 2. It is not open to the Income-tax Authorities to consider a partial partition to be invalid on the ground that shares b3. ve not been equally divided apd to refuse to recognise the same. It is uodoubted_ly open to the: Income-tax Officer before recognising the partition to come . to a conclusion on proper enquiry whether the partition is genuine or not.

If the Income·tax Officer on enquiry comes to a finding that the partition is sham or fictitious, be will be perfectly within his right to refuse to recognise the same. [515 F-GJ · 2. 3. In the instant case, there is no:, finding that the partial partition is sham or fictitious or that the partial partition is not a genuine one and ha~ not been acted upon. As there is no finding that the partial partition is sham or ficti· tious or not a genuineione, on enquiries made by the Income-tax Officer, and as the partial partition is otherwise valid under the Hindu Law1 the partial partition baS necessarily to be recognised under the provisions of S. 171 of the Income-tax Act and the assessment must be necessarily made on the basis that there is partial partition of the said shares. _[515 H, 5,16 A-BJ CIVIL APPELLATE JURISDICTION : Civil Appeal No. 35 of 1982 . , Appeal by Special leave from the Judgment and Order dated the 9th July, 1981 of the Gujarat High Court in Income Tax Reference No.

28 of 1980. P. H. Parekh, Harlsh Salva and Gautam Philip for the Appel- J,. nt. APOORVA SHANTILAL v. C. l. T. (A. N. Sen, J. ) 49S S. C. Manchanda, Anii·Dev Singh and Miss A. Subhashini for the Respondent. The Judgment of the Court was delivered by AMARENDRA NATH SEN, J. The principal question for decision in this appeal by Special Leave is whether the father in exercise of his right as Patria Potestas or otherwise can effect a partial partition between himself and his minor sons of joint family properties of a Hindu joint family governed by the Mitakshara School of Hindu Law. The assessee, a Hindu undivided family (hereinafter referred to as H. U. F. ), which consists of four members, namely,(l) Shri Apoorva Shantilal Shah, 2) bis wife Smt. Karuna and their minor sons (3) ) Chintan and 4) Tejal, is the appellant before us. The members of the H. U. F. are governed by the Mitaksbara School of Hindu Law. The assessment year in question is the year 1975-76.

During the assessment pertaining to the assessment year under consideration, Sbri Apoorva who is the father of the minor sons and husband of Smt. Karuna and the Karta of the H. U. F. made an application to the Income Tax Officer for recognising partial partition under S. 171 of the Income Tax Act, 1961 (hereinafter referred to as the Act), claiming that two partial partitions had taken place amongst the members of the said family, one on 24. 12. 1973 in respect of 200 shares of Gujarat Steel Tubes Ltd. and the other on 29. 12. 1973 in respect of 1777 shares of the same company. On enquiry the Income-Tax Officer (hereinafter for the sake of brevity referred to as I. T. O. ) found that the partial partitions had been embodied in memoranda of agreements of partition. The I. T. O.

however, refused to record that there had been a partial partition of joint family properties, as he was of the view that partial partitions in question could not be recognised inasmuch as the remaining shares, after making certain allocations in favour of the two minor sons were not allotted in their entirety to the remammg . third coparcener, n•mely, Sbri Apoorva separately or to Shri Apoorva and his wife Karuna jointly, describing them as members of the H. U. F. The I. T. O. further held that the said partitions did not purport to have been made at th~ . instance of the minor children, as this course would require the apprQY!! l ()f the We must, therefore, hold that partial partition of properties brought about by the father between himself and his minor sons cannot be said to be invalid under the Hindu Law and must be held to be valid and binding.

We wish to make it clear that this right of the father to effect a partial partition of joint family properties between himself and his minor sons, whether in exercise of his superior right as father or in exercise of the right as patria potestas has necessarily to be exercised bona fide by the father and is subject to the right of the sons to challange the partition if the partion is not fair and just. S. 171 of the Income-tax Act, 1971 provides as follows : (I) A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in as far as a finding of partition has been given under this section in respect of the Hindu undivided family. i (2) Where, at the time of making an assessment under sec.

143 or section 144, it is claimed by or on behalf of any member of Hindu family assessed as undivided that a partition, whether total or partial, has taken place among the members of such family, the Income Income-tax Officer shall make an enquiry thereinto after giving notice of the enquiry to all lb~ members of the familr. SIZ SUPllEMB COUllT REPORTS [1983] 2 s. c. R. .. ,_ (3) On the completion of the enquiry, the IBcometax Of(icer shall record a finding as to whether there has been a total or partial partition of the joint family property, and, if there has been such a partition the date on which it has taken plac:e.

(4) Where a finding of total or partial partition has been recorded by Income tax Officer under this section, and the partition took place during the previous year- (a) the total income of the joint family in repect of the period up to the date of partioo shall be assessed as if no partion had taken place; and (b) each member or group of members shall, in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed. • (5) Where a finding of total or partial partition bas been recorded by the Income tax Officer under this section, and the partition took place after the expiry of the previous •. year, the total income of the previous year of the joint family shall be assessed at as if no partition had taken place ; and the provisions of clause (b) of sub-section (4) shall, so far as may be, apply to the case.

(6) Notwithstandi11g anything contained in this section if the Income-tax Offii:er finds, after completion of the assessment of a Hindu undivided family that the family has already effected a partition, whether total or partial the Income-tax Officer shall proceed to recover the tax from every person who was a member of the family before the partition, and every ·such person shall be jointly and severally liable for the tax on the income so assessed : (7) For the purposes of this section, the several liability of any membeir or group o! members thereunder shall be computed according to the portion of the joint family property allotted to him or it at the partition, wl! ether total or partial. APOORVA SHANTILAL •• c. J. T. (A. N. Sen, J.

) 513 (8) The provisions of this section shall, so far as may be apply in relation to the levy and collection of any penalty, interest, fine mother sum in respect of any period up to the date of the partition, whether total or partial of a Hindu undivided family as they apply in relation to the levy and collection of tax in respect of any such period. r 8 Explanation : In this section. - (a) "partition" means - (i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical 0 division of the property producing the incomc shall not be deemed to be a partition ; or (ii) where the property does not admi~ of a physical division then such div:lion as the property admits of, but a mere sevence of status shall not be deeemed to b~.

a partition ; (b) "partial partition" means a partition which is pratial as regards the persons constituting the Hindu undivided family, or the properties belonging to the Hindu undivided family, or both. •• It may· be noted that the following further prov1Sion was included in the said section as sub-section (9) by the Finance (No. 2) Act, 1980 w. e. f. ! st April, 1980 :- (9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978 among ·u the members of a Hindu undivided family hitherto assessed as undivided :- ... ,, __ . _,... _ -- - 514 sffPREM! l COURT REPoRTS (1983J i s. c. li.

(a) no claim that such partial partition has taken ' place shall be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition had taken place and any finding recorded under sub-section (3) to that effect whether before or after the 18th day of June, 1980 being the date of introduction of the Finance (No 2) Bill 1980, shall be null and void; (b) such family shall continue to be liable to be asses· sed under this Act as if no such partial parti· tion had taken place ; (c) each member or group of members of such family immediately before such partial partition and the family, shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period whether before or after such partial partition; (d) the several liability of any member or group of I members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition : and the provisions of this Act shall apply accordingly.

This sub-section (9) wa. 1 not in existence at the relevant time and has no retrospective operation and it is of no material conse· quence in deciding the present case. The aforesaid provisions of the Income-tax Act, as they stood at the material time, clearly recognise partial partition. The definition of partial partition in explanation (b) makes it clear that partial partition as regards the persons constituting tbe Hindu undivided family or as regards properties belonging to the Hindu undivided family, or both, is recognised. ff In the present case, the partial partition of the shares belong· ging to the Hindu undivided family cannot, therefore, be said to Ai'Cl6RVA SHANtILAL v. C. l. T. (A. N. Sen, J. ) 515 be bad either under the Hindu Law or under the Indian Income tax Act. We must, therefore, hold that the High Court went wrong in deciding that partial partition of the . joi?

t ) family properties of the Hindu joint family by the father was mvahd and could not be recognised under the Income-tax Act. The sub· sequent amendment of section 171 by the inclusion of su~·section 8 (9) does not require any consideration as the said sub·sectton was not in existence in the relevant assessment year and is only operative from ! st April, 1980. The other question which falls for determination is whether the partition can be said to be bad at the time of the partition there was no equal division of the shares by the father amongst himself and his minor sons and a part of the share holding had not been distributed to the father or to the father and mother jointly. We may point out that the A. A. C. has found that at the time of division of the shares, the shares had been distributed equal- [} ly taking into consideration the shares which had earlier been distributed amongst the parties.

In our opinion, a partial partition of any joint family property by the father between himself and his sons does not become invalid on the ground that there has been no equal distribution amongst the co-sharers. It is expected that the father who seeks to bring about a partial partition of joint family properties will act bona fide in the interest of the joint family and its members, bearing in mind in particular the interests of the minor sons. If however, any such partial partition causes any prejudice to any of the minor sons and if any minor son. feels aggrieved by any such partial partition, he can always challenge the validity of such partial partition in an appropriate proceeding and the validity of such partition will necessarily have to be adjudicated upon in the . proceeding on a proper consideration of all the facts and circumstances of the case.

Till such partial partition has been held to be invalid by any competent court, the partial partition must be •• held to be valid. It is not open to the Income-tax Authorities to consider a partial partition to be invalid on the ground that shares have not been equally divided and to refuse to recognise the same. It is undoubtedly open to the Iocome·tax Officer before recognising the partion to come to a conclusion on proper enquiry whether the partition is genuine or not. If the Income-tax Officer on enquiry comes to a finding that the partition is sham or fictious, be will be 8 I• perfectly within his right to refuse to recognise the same. Io the instant case, there is no finding that the partial partition is sham or ------ -- SuPIBME cotJll. T REPORT' (1983] 2 s. ". I! · fictitious or that the partial partition is not a geoioue one and has not been acted upon.

As there is no finding that the partial partition is sham or fictitious or not a genuine one, oa enquiries made by the Income-tax Officer, and as the partial partition is otherwise , valid under the Hindu Law, the partial partition bas necessarily to be recognised under the provisions of S. 171 of the Income-tax 8 Act and the assessment must be necessarily made on the basis that there is partial partition of thu said shares. In the result, the appeal succeeds. The judgment and order of the High Court are hereby set aside. The partial partition is held to be valid and the Income-tax Officer is directed to recognise the c+-' ' same and to proceed to make the assessment on the basis that there bas been a partial partition of the said shares between the parties. In the facts and circumstances of this case, we do not propose to make any order as to costs. S. R. Appeal allowed.