COMMISSIONER OF INCOME TAX Vs. ANGIRA DEVI

JUDGEMENT

(1.) At the instance of Revenue following question has been referred for opinion of this Court under Section 256(1) of the Income-tax Act, 1961 (in short the 'Act') by the Income-tax Appellate Tribunal, Delhi Bench 'E' (in short the 'Tribunal'):

(2.) Factual position as set out in the statement of case is as follows: Assessee, Smt. Angira Devi is the only daughter of late Shri Raghumal. Her mother was Smt. Bhagwati Devi. Assessee was married to Shri Hans Raj Gupta and had four sons namely, Desh Raj, Shiv Raj, Rajinder Kumar and Mahender Kumar. Raghumal had several immovable and movable properties. By a Will dated 4/09/1926, he bequeathed certain specified amount to several persons named in the Will and appointed his wife and daughter (assessee) and his two nephews as residuary legatees. Several persons were appointed as executors of the Will including one Shri Gopal Das Modi. Raghumal died on 5/09/1926. Dispute started in respect of administration of the estate of the deceased under the Will. A civil suit for administration of estate under the Will was instituted by Gopal Das Modi in the High Court at Calcutta against his co-executors, the beneficiaries and others. During the pendency of the suit, a Receiver was appointed to manage the estate. The two residuary legatees, the nephews of the deceased were paid off and the estate was finally administered on the basis of the decree passed by the High Court on 4/07/1944. The executors were discharged. The estate was thereafter handed over to residuary legatees ie., the assessee and her mother having equal shares as per the Will, but subject to the over-riding charge of payments to the other beneficiaries under the Will. The estate was jointly managed by the assessee and her mother. Assessee's mother Smt. Bhagwati Devi made a Will other share in the joint properties in favour of her four grandsons i.e; assessee's four sons. Bhagwati Devi died on 16/07/1954. Thus in the joint properties the assessee had share while each of her four sons had 1/8th share. It is to be noted that the Receiver was assessed as A.O.P. since 1939 till he was discharged by the High Court. Income from the properties was divided in four equal shares in the hands of four residuary legatees as per the Will of late Raghumal. Assessments were made in the status of A.O.P. in respect of joint properties till Assessment Year 1972-73. On 9/11/1972 a deed of partition of the joint properties was executed between the assessee and her four sons. The joint properties were valued at Rs. 4,20,000.00 after deducting the value of over-riding charges. One property i.e., one situated at Ajmeri Gate was valued at Rs. 1,69,500.00 and was allotted alongwith certain other properties to the four sons of the assessee in equal shares as per Schedule 'C' to the partition deed. Certain other properties were allotted to the assessee as per Schedule 'B'. Four sons of the assessee constituted at partnership on 9/12/1972 and each of them contributed his share in the Ajmeri Gate property as his capital in the partnership. Value of the whole property was taken at Rs. 48 lakhs for this purpose. In the assessment proceedings for the Assessment Year 1973-74, Income-tax Officer treated the deed of partition between the assessee and her four sons as a deed of settlement. He was of the view that valuation of property at Rs. 1,69,000.00 was a paltry sum and in reality fair market value of the property was Rs. 48 lakhs. Matter was referred for valuation to the Valuation Officer, who valued the property at Rs. 48 lakhs and share of assessee was fixed at Rs. 24 lakhs. Income-tax Officer was of the view that there was transfer of assessee's share to her sons by the deed of 9/11/1972 and therefore. Section 52(2) of the Act was attracted. Assessee was required to explain as to why capital gains should not be charged on the said sum. Assessee took the stand that there was no transfer involved in favour of her sons as after the decree of Calcutta High Court, assessee alongwith her mother had decided to manage the estate jointly by contributing capital for that purpose and the estate was assessed in the hands of A.O.P. of which assessee was a member. By deed dated 9/11/1972, there was distribution of capital assets on dissolution of the A.O.P. and that in any case there was a partition of joint properties amongst the co-owners of the general joint properties including the property in question. It was also submitted that Section 52 had no application as there was no money transfer involved. ITO took the view that the assessee and her four sons held the properties as co-owners after 1954 and not as members of an A.O.P. He held that assessee had share in the property at Ajmeri Gate which was transferred to her four sons and the case was covered by Section 45 of the Act. It was also held that Section 52(2) of the Act was clearly applicable on the basis of fair market value determined. Matter was carried in appeal before the Appellate Assistant Commissioner (for short the 'AAC'). AAC held that an association of persons continued to exist with assessee and her four sons being members thereof and it continued till the execution of deed dated 9/11/1972. Even otherwise assessee and her four sons constituted a body of persons till the deed of partition dated 9/11/1972 was executed and said deed cannot be treated as a deed of settlement. He held that the deed dated 9/11/1972 was a partition deed and there was dissolution of A.O.P. as properties mentioned in Schedule 'D' could not be legally divided and A.O.P. could not remain in existence with respect to those properties and A.O.P. ceased to exist on 9/11/1972. Matter was carried in appeal by the Revenue before the Tribunal. Considering the rival submissions. Tribunal was of the view that it was not necessary to enter into the controversy whether the assessee alongwith her sons constituted association of persons and whether there was dissolution of that association of persons so as to attract Section 47(ii) of the Act. Assessing Officer himself had held that the assessee as a result of decree of Calcutta High Court as well as the Will of assessee's mother held the properties alongwith her four sons as co- owners. Section 45 of the Act applies only when there is a transfer of a capital asset as defined in Section 2(47) of the Act. Noticing the essence of a partition it was held that there was no conveyance involved and also there was no exchange. Each one of the co-sharers who had an antecedent title did not acquire a new title and no conveyance was involved in the process. Accordingly Revenue's appeal was dismissed. On being moved for reference as aforesaid, the question as set out above has been referred.

(3.) We have heard learned Counsel for the Revenue. However, there is no appearance on behalf of the assessee inspite of notice. Learned Counsel for Revenue submitted that Tribunal erroneously proceeded to examine the case as if it was relatable to a case of co-owners. We find that Revenue's case all through was that assessee and her four sons were co-owners. The deed dated 9/11/1972 was treated by the Income-tax Officer as a deed of settlement. In fact the Tribunal on a reading thereof has come to hold that it was a partition deed by which properties which were earlier held as joint (tenants in common) by the parties to the deed were partitioned between the assessee on the one hand and her four sons on the other. The true character of a partition is that it converts joint enjoyment into enjoyment in severality. Partition is not an exchange of undivided share of a co- sharer over the whole common property in exchange of the whole share in definite portion thereof, namely the portion that was allotted to him in exchange thereof. By partition co-sharer gets a separate allotment by virtue of his antecedent title as co- sharer. There is thus no acquisition of property in another independent right. That being the position the Tribunal was correct in holding that there was no transfer involved. Our answer to the question, therefore, is in the affirmative, in favour of assessee and against the Revenue. The reference stands disposed of.