Holding

A partition of a Hindu Undivided Family for tax purposes is recognised only when there is actual physical division of the family property; a preliminary court decree or agreement without such division does not terminate HUF status, so the income remains assessable to the HUF.

Summary

The respondent, a member of a Hindu Undivided Family (HUF), claimed that a partition agreement dated 3 July 1958 and a subsequent civil court decree had dissolved the HUF, so that the family could not be taxed as a HUF for assessment years 1967-68, 1968-69 and 1969-70. The Income Tax Officer rejected the claim, holding that no physical division of the property had taken place and therefore the HUF status continued. The Kerala High Court, on a writ petition, set aside the officer's assessment, but the Revenue appealed. The Supreme Court examined the meaning of "partition" under Section 171 of the Income Tax Act, 1961 and held that for tax purposes a partition is recognised only when there is actual physical division of the property (or division to the extent possible where physical division is impossible). A preliminary decree or an agreement without such division does not disrupt the HUF status. Since no physical partition had occurred, the income remained assessable to the HUF. The Court allowed the appeals, set aside the High Court order and dismissed the writ petition.

Issues considered

The meaning of "partition" under Section 171 of the Income Tax Act, 1961 for the purpose of assessing a Hindu Undivided Family.
Whether a civil court decree or a private agreement without physical division of property suffices to prove disruption of HUF status.
Whether the Income Tax Officer was correct in treating the respondent's HUF as continuing for the assessment years in question.

Legislation cited

Income Tax Act, 1922s. 25A
Income Tax Act, 1961s. 171, s. 171 (Explanation)
Kerala Agricultural Income Tax Act, 1950s. 29

Subjects

Hindu Undivided FamilyPartitionIncome Tax ActSection 171Physical division of propertyTax assessment

Judgment

INCOME TAX OFFICER, CALICUT
V.
A
SMT. N.K. SARADA THAMPATTY

SEPTEMBER 14, 1990

[K.N. SINGH, K. JAGANNATHA SHE1TY AND B
KULDIP SINGH, JJ.]

Income Tax Act, I96I-Section 17 I-Scope of-Assessment
under-Hindu Undivided Family-Construction of-Plea of partition
taken by assessee-Duties of Income Tax Officer indicated.

Income Tax Act, I96I~Section I71, Explanation-"Partition"- c
M anaging and Legislative intention of

Income Tax Act, I96 I-Section 171, Explanation-AsseS8ee
claming partition-Onus to prove disruption of Hindu Undivided
Family status on the assessee. D
Income Tax Act, I96I-Section 17 I, Explanation-Partition
under and Hindu Law partition-Differentiated.

Income Tax Act, I96 I-Section 171, Explanation-Assessee
claiming partition-No physical division of properties status of Hindu E
Undivided Family not disrupted~lncome derived from the properties
continued to be impressed with the HUF character and can be taxed.

Respondent was assessed for the assessment years of 1967·68,
1968-69 and 1969·70 treating her as the head of the HUF. She con•
tended before the Income Tax Officer that under the partition agree· F
ment dated 3. 7.1958 the Tavazhi was divided, the HUF status of the
Tavazhi was disrupted on account of the Civil Court decree made in a
partition suit and the properties were divided into 14 shares and the
HUF could not be assessed to income tax. The Income Tax Officer
rejected the claim of the respondent on the ground that since the pre·
liminary decree of the Civil Court, and not becOme fmal and no physical or G
actual partition had taken place; the status of HUF continued for the
purpose of Tax.

The Single Judge of the High Court allowed the Writ Petition of
the respondent holding that Section I 7i of the Income Tax Act does not
apply to a case where the division was effected before the commence· H

473
474 SUPREME COURT REPORTS [1990] Supp. I S.C.R.

ment of the accounting period and HUF having received no income
A
during the accounting period it could not be assessed to tax notwith-
standing the legal fiction under Section 171. In appeal the Division
Bench held that there was no express provision in Section 171 nor was
there any necessary implication arising from the provisions of the sec-
tion that the income of the family after its division must be treated or
B deemed .to be the income of the HUF inspite of disruption of joint status.
The Bench held that HUF is a separate and distinct entity from the members
constituting it and if that entity does not receive any income, the mem-
bers' income conld not be assessed as income of the HUF. The Division
Bench further held that since there had been partition in the family and
Tavazhi had ceased to be HUF long before the accounting periods, the
provisions of the Act could not be pressed into service for the purpose of
c ~axing the income of the individual members of the family treating them
having the statns of HUF with the aid of Section 171 of the Act.

The High Court granted certificate to the Revenue under Article
133 of the Constitution. Hence these appeals.
D
Allowing the appeal, the Court,

HELD: 1. Under Section 171 a Hindu Family assessed as HUF, is •
deemed for the purposes of the Act to continue as HUF except where
partition is proved to have been effected in accordance with the section.
E The section further provides that if any person at the time of making of
assessment claims that partition total or partial has taken place among
the members of the HUF, the Income Tax Officer is required to make
an inquiry after giving notice to all tile members of the family, and to
record findings on the question of partition. If on inquiry he comes to
the finding that there has been partition, individual liability of members
p is to be computed according to the portion of the joint family property
allotted to them.

2. The definition of partition does not recognise a partition even if

.
it is effected by a decree of court unless there is a physical division of the
property and if the property is not capable of being physically divided
G then there should be division of the property to the extent it is possible -
otherwise the. severance of status will not amount to partition. In con·
sidering the factnm of partition for the purposes of assessment it is not
permissible to ignore the special meaning assigned to partition under
the explanation, even if the partition is effected through a decree of the
conrt. Ordinarily decree of a Civil Conrt in a partition suit is good
H evidence in proof of partition but under Section 171 a legal fiction has
l.T.0. v. N.K. SARADA 475

been introduced according to which a preliminary decree of partition is
A
not enough, instead there should be actual physical division of the pro-
perty pursuant to final decree, by metes and bounds. The Legislature
has assigned a special meaning to partition under the aforesaid Expla:
nation with a view to safeguard the interest of the Revenue.

3. Any assessee claiming partition of HUF must prove the disrup- B
tion of the status of HUF in accordance with the provisions of Section
171 having special regard to the Explanation. The assessee must prove
that a partition effected by agreement or through court's decree, was
followed by actual physical division of the property. In the absence of
such pr.oof partition is not sufficient to disrupt the status of Hindu
Undivided Family for the purpose of assessment of tax.
c
4. Under the Hindu Law members of a joint family may .agree to
partition of the joint family property by private settlement, agreement,
arbitration or through court's decree. Members of the family may also
agree to share the income from the property according to their respec-
tive sh.are. In all such eventualities joint status of family may be dis- D
rupted but such disruption of family status is not recognised by the
Legislature for purpj>ses of Income Tax. Section 171 of the Act and the
Explanation to it, prescribes a special meaning to partition which is
different from the general pririciples of Hindu Law. It contains a deem-
ing provision under which partition of the property of HUF is accepted
only if there has been actual physical division of the property, in the E
absence of any such proof, the HUF shall be deemed to continue for the
purpose of assessment of tax. Any agreement between the members of
the joint family effecting partition, or a decree of the Court for partition
cannot terminate the status of. HUF unless it is shown that the joint
family property was physically divided in accordance with the agree-
ment or decree of the Court. F

5. The respondent for the first time raised the plea of partition
and disruption of HUF in the procee'dings. for the assessment years
1967-68, 1968-69 and 1969-70. There had been no physical division of
the properties by metes and bounds. The status of HUF had not been
disrupted, and the income derived from the properties for the purposes G
of assessment contillned to be impressed with the HUF character.
'
•,
Parameswaran Nambudiripad v. Inspecting Assistant Commis-
sioner of Agricultural Income tax, 72 I. T .R. 644; Inwecting Assistant

- Commissioner of Agricultural Income Tax and Sales Tax (Special),
Kozhikode v. Poomulli Manekkal Parameswaran Namboodiripad, 83
I. T.R. 108, distinguished. · ·
H
476 SUPREME COURT REPORTS [ 1990] Supp. 1 S.C.R.

Kaloomal Tapeshwar Prasad v. C./. T., Kanpur, 133 I.T.R. 690,
A
followed.

Sunder Singh Majithia v. Commissioner of Income Tax, [1942] IO
I. T.R. 457 Shankar Narayanan v. Income Tax Officer,
. . . 153 I.T.R.
562, referred.
B
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 778
and 781 of 1976.

From the Judgment and Order dated 30.6.1975 and 8.8. 1975
of the K~~ala High Court in Writ Appeal Nos. 126 and 378 of
1973. . .. . . .
c
V. Gaurishanker, S. Rajappa and Ms. A. Subhashini for the
Appellant.

G. Vishwanatha Iyer, Mrs. K. Prasanti and N. Sudhakaran for
D the Respondent.

The Judgment of the Court was delivered by

SINGH, J. These appeals on certificate issued by the High Court
under Article 133 of the Constitution are directed against the order
E and judgment of the High Court of Kerala.

Briefly, the facts giving rise to these appeals are: the respondent
was a member of the erstwhile Nilambut Kovilagam governed by the
Madras Marumakkathyyam Act, she was assessed to Income Tax as
Hindu Undivided Family as the family possessed considerable prop-
F erty including lands, forests and other properties. The Income Tax
Officer assessed the respondent for the assessment years 1967-68,
1968-69 and 1969-70 treating the members of the family included
within the HUF. Before the Income Tax Officer, the respondent
raised a plea, that there had been division of Tavazhi under a partition
agreement dated 3.7.1958 whereby all lands except forest lands were
G divided among the members of the family. The Fespondent further
claimed that the members of the Tavazhi swelled to 14 and these
members effected a division in status by a registered document dated
21.2.1963. She further alleged that the division of Tavazhi into 14
shares was effected by a Civil Court decree in partition suit No. O.S.
22/1961 in the Court of Kozhikode. It was pointed out on behalf of the
H respondent that the partition suit was decreed and the properties were
·1.T.O. ,.. ~·"· SARADA !SINGH. J.) 477

allotted to the respective share holders. The C.ivil Court had appointed
A
a commissioner to divide the property by metes and bounds in
accordance to the shares of individual members. The respondent
further claimed that since the status of HUF was disrupted on account
of the decree of partition the HUF could .not be assessed to income
tax, instead the income derived by individual members could be con-
sidered for assessment. B

The Income Tax Officer rejected the respondent's claim and
assessed the respondent as the head of the Tavazhi for the assessment
years 1967-68, 1968-69 and 1969-70 by his order dated 16.3.1970/
27.3.1970. The Income Tax Officer held that the decree of the Civil
Court merely conferred right on the members of the family for sepa-
rate possession of the land falling to their .share after the physical c
partition, and the final partition could be made on application made by
individual members after depositing Commissioner's fee. Since the
Civil Court decree was a preliminary decree and no final decree had
been passed and no actual partition had been effected and no physical
partition by metes and bounds had taken· place in pursuance of the D
decree of partition, the status of HUF continued for purposes of
assessment. The Income Tax Officer observed that earlier the assessce
was . assessed having the status of HUF, and since no other evidence
except the decree of the Civil Court had been produced by her to show
that there has been a real partition, therefore, the assessee's claim for
partition could not be accepted. The respondent filed a writ petition in E
the High Court under Article 226 of the Constitution for quashing the
orders of the Income Tax Officer on the ground that he failed to
recognise the disruption of HUF in making the assessment. A learned
single Judge of the High Court allowed the writ petition and quashed
the assessment orders. On appeal at the instance of the Revenue. a
Division Bench of the High Court affirmed the order of the single F
Judge. On an application made on behalf of the Revenue the High
Court granted certificate under Article 133 of the Constitution. Hence
these appeals.

The learned single Judge held that Section 171 of the Income Tax
Act does not apply to a case where the division was effected before the G

-· commencement of the accounting period, and the HUF having recei-
ved no income during the accounting period it could not be assessed to
tax notwithstanding the fiction introduced by Section 171. In appeal
the Division Bench held that there was no express provision in Section
171 nor was there any necessary implication arising from the provi-
sions of the Section that the income of the family after its division must H

•
f
';

478 SUPREME COURT REPORTS I1990] Supp. 1 S.C.R. y
'
be trea'ted or deemed to be the income of the HUF inspite of disrup-
A tion of joint ·status·. The Bench held that a HUF is a separate and
H distinct entity from the members constituting it and if that entity does
not receive any income, the members' income could not be assessed 3.s
~;
income of the HUF. The Division Bench further held that since there
had been partition in the family and Tavazhi had ceased to be HUF
B long before the accounting periods, the provisions of the Act could not
be pressed into service for the purpose of taxing the income of the
individual members of the family treating them having the status of
HUF with the aid of Section 171 of the Act.

The main question which falls for consideration is as to whether
the partition as effected by the agreement dated 21.2.1963 and also the
c decree of the Civil Court amount to "partition" under the explanation
to Section 171 of the Act and further whether the Income Tax Officer
acted contrary to law in holding that inspite of the partition as alleged
by the respondent, the status of HUF was not disrupted and that status
continued for the purposes of assessment during the relevant assess-
D ment years. Under Section 171 a Hindu Family assessed as HUF, is
d.eemed for the purposes of the Act to continue as HUF except where
partition is proved to have been effected in accordance with the sec-
ti on. The section further provides that if any person at the time of
making of assessment claims that partition total or partial has taken
place among the members of the HUF. the Income Tax Officer is
E required to make an inquiry after giving notice to all the members of
the family, and to record findings on the question of partition. If on
inquiry he comes to the finding that there has been partition, indi-
victual liability of_Illembers is to be computed according to the portion
of the joint family property allotted to them. What would amount to
partition for the purposes of the Section is contained in the Explana-
F ti on to tl.e Section which defines partition as under:

"Explanation-In this Section-

(a) 'partition' means-

G (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 division of the property pro-
ducing the income shall not be deemed to be a partition; or

(ii) where the property does not admit of a physical divi- ........
H sion, then such division as the property admits of, but a
1.T.O. v. N.K. SARADA !SINGH. J.] 47~

mere severance of status shall not be deemed to be a A
partition."

The above definition of the partition does not recognise a partition
even if it is effected by a decree of court unless there is a physical
division of the property and if the property is not capable of being 8
physically divided then there should be division of the property to the
extent it is possible otherwise the severance of status will not amount
to partition. Jn considering the factum of partition for the purposes of
assessment it is not permissible to ignore the special meaning assigned
to partition under the explanation, even if the partition is effected
through a decree of the court. Ordinarily decree of a Civil Court in a
partition suit is good eviden~e in _rroof of partition but under Section C
l71 a legal fiction has been introduced according to which a preli-
minary decree of partition is not enough, instead there should be
actual physical division of the property pursuant to final decree, by
metes and bounds. The Legislat:ire- has assigned special meaning to
partition under the aforesaid Explanation with a view to safeguard the D
interest of the Revenue. Any assessee claimi11g partition of HUF must
prove the disruption of the status of HUF in accordance with the
provisions of Section 171 having special regard to the Explanation.
;he assessee must prove that a partition effected by agreement or
through court's decree, was followed by actual physical division of the
property. In tlie absence of such proof partition is not sufficient to E
disrupt the status of Hindu Undivided Family for the purpose of
assessment of tax. Under the Hindu Law members of a joint family
may agree to partition of the joint family property by private settle-
ment, agreement, arbitration or through court's decree. Members of
the family may also agree to· share the income from the property
according to their respective share. In all such eventualities joint status F
of family may be disrupted but such disruption of family status is not
recognised by the Legislature for purposes of Income Tax. Section 171
of the Act and the Explanation to it, prescribes a special meaning to
partition which is different from the general principles of Hindu Law.
It contain.s a deeming provision under which partition of the property
of HUF is accepted only if there has been actual physical division of G
the property, in the absence of any such proof, the HUF shall be
deemed to continue for the purpose of assessment of tax. Any agree-
ment between the members of the joint family effecting partition, or a
decree of the Court for partition cannot terminate the status of HUF
unless it is shown that the joint family property was physically divided
in accordance with the agreement or decree of the Court. H
480 SUPREME COURT REPORTS [ 1990] Supp. 1 S.C.R.

On behalf of the respondent it was urged that the High Court has
A
placed reliance on a Full Bench· decision of Kerala High Court in
Parameswaran Nambudiripad v. Inspecting Assistant Commissioner of
Agricultural Income-tax, 72 I.T.R. 664 where it was held that if the
HUF was in fact not in existence during any part of an accounting
period, and the HUF as such had not received any income, the family
B could not be assessed to tax as HUF. The view taken by the Full Bench
has been approved by this Court in Inspecting Assistant Con11nissioner
of Agricultural Income Tax and Sales Tax (Special), Kozhikode v.
Poomuli Manekkal Parameswaran Namboodiripad, 33 I.T.R. 108. On
a careful scrutiny of the judgment of this Court we find that in that case
interpretation of Section 29 of the Kerala Agricultural Income Tax Act
1950 as amended in 1964 was involved. Section 29 after its amendment
c in 1964 made provision for assessment of Agricultural tax after parti-
.tion of a Hindu Undivided Family. Under that Section there was no
provision in the nature of Explanation to Section 171 of the Income
Tax Act. This Court had no occasion to interpret Section 171 instead
the Court interpreted Section 29 of that Act which is guite different
D from Section 171, therefore the appellant cannot draw any support from
that decision. In Kaloomal Tapeshwar Prasad v. C.l. T., Kanpur, 133
l.T.R. 690 this Court interpreted Section 171 of the Act in detail. On
an elaborate discussion the Court held that under the Hindu Law it is
not necessary that the property must in every case be partitid1ed by
metes and bounds or physically into different portions to complete a
E partition. Di~ruption of status can be brought about by any of the
modes permissible under the Hindu Law and it is open to the parties to
·enjoy their share of property in any manner known to law according to
their desire but the Income Tax Law does not accept any such partition
for the purposes of assessment of tax instead it has introduced certain
conditions of its own to give effect to the partition under Section 171 of
p the Act. The Court held that in order to claim disruption of HUF on
the basis of partition it is necessary to show that the partition had been
effected physically by metes and bounds, and in the absence of any
such proof, the property would continue to be treated as belonging to
the HUF and its income would continue to be included in its total
income treating the assesse as Hl:JF.
G
Th.e High Court referred to Section 25A of the Income Tax Act.
I 922 and placed reliance on a number of decisions in holding that in
view of the decree of Civil Court for partition, the HUF status had
been disrupted and since there was no evidence on record to show that
the HUF had received any income in the accounting year, the income
H received by individual members of the joint family could not be
l.T.O. v. N.K; SARADA [SINGH, J.[ 481

treated to be the income of HUF. The High Court placed reliance on A
the Privy Council decision in Sunder Singh Majithia v. ·Commissioner
of Income Tax, [1942] IO I.T.R. 457 and a number of other decisions
also in holding that the legal· fiction introduced under Section 171 of
the Act could not be extended to create tax liability on the HUF even
after disruption of its status, pursuant to the Civil Court's decree for
partition. We do not consider it necessary to discuss those decisions, as B
the purpose and object of Section 171 and the extent of the legal
fiction introduced ·by it has ah'eady been considered by this Court in
Kaloomal's case. The view taken hy the High Court under the
impugned judgment is not sustainable in law as it is contrary to that
decision. In Shankar Narayanan v. Income Tax Officer, 153 l.T.R. 562
a learned Judge of the Kerala High Court while considering the c
interpretation of Section 171 held that the view taken ·by the High
Court in the Judgment under. appeal Income Tax Officer, Assessment
V, Calicut v. Smt. N.K. Sarada Thampatty, 150 I.T.R. 67 ceased to be
good law in view of the decision of this Court in Kaloomal's case.

In the instant case since there was no dispute that prior to the D
assessment year 1967-68 the assessment was made ·against the HUF of
which the respondent was a member. The respondent for the first time
raised the plea of partition and disruption of HUF in the proceedings
for the assessment years 1967-68, 1968-69 and 1969-70. There was no
dispute before the Income Tax Officer that there had been no physical
division of the properties by metes and bounds, therefore the Income E
Tax Officer was justified in holding that the status of HUF had not
been disrupted, and the income ·derived from the properties for the
purposes of assessment continuecl to be impressed with the HUF
character. The High Court in our opinion committed error in quashing
the order of the Income Tax Officer. In the result, we allow the ap-
peals and set aside the order of the High Court and dismiss the writ F
petition filed by the respondent. There will be no order as to costs.

V.P. Appeals allowed.