SHANTILAL C SHAH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench, has, under Section 256(1) of the Income-tax Act, 1961, referred the following question for our opinion :

(2.) THE assessment year in question is 1978-79. THE assessee, Shantilal C. Shah, had been assessed as an individual. THE Hindu undivided family of the assessee was a partner in the firm of M/s. Anandji. THE Income-tax Officer included in the income of the assessee a sum of Rs. 3,830 as his share in the income of the Hindu undivided family from the firm, rejecting the contention of the assessee that the income from the firm was assessable only in the hands of the Hindu undivided family. THE Appellate Assistant Commissioner held that in view of the Kerala Joint Hindu Family System (Abolition) Act, 1975, which came into force with effect from December 1, 1976, there was a deemed partition of the Hindu undivided family and, consequently, the share of the assessee in the income of the Hindu undivided family from the firm is liable to be included in his individual assessment. On further appeal, the Tribunal, following its earlier decisions and the decision of this court in the case of WTO v. K. Madhavan Nambiar [1988] 169 ITR 810 (infra), held that the Hindu undivided family should be deemed to have been partitioned with effect from December 1, 1976, and that the assessee's share in the income of the Hindu undivided family from the firm is includible in the income of the assessee.

(3.) WHERE a joint family has ceased to exist by operation of law, the question of recording a partition as envisaged under Section 171 of the Income-tax Act does not arise. That section applies only in cases where a Hindu family has been assessed as Hindu undivided family and a claim of partition is made subsequently. For the purpose of bringing to tax the income earned by the joint family before its disruption on partition, a fiction has been introduced in the section that until the partition is recorded by the Income-tax Officer after enquiries, the joint family shall be deemed to continue. The machinery thus provided under Section 171 is inapplicable in a case where no such partition has taken place, but the family has come to an end under law, the property had devolved on the members as provided under the statute and thereby the rights have been defined and settled. In such a case, if the income earned by the Hindu undivided family before such extinction has escaped assessment, the only course open to the assessing authority is to make a reassessment on the family under Section 147 as provided under Section 283(1) of the Act. That section providing for notice in bringing to tax the income of the joint family after a partition has been recorded under Section 171 should apply in such a case. This view is in accord with the decision in W. A. No. 159 of 1981.