(1.) 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, Sudhir, Pankaj and Pradeep and his wife, Ramaben. It appears that a partition of the Hindu undivided family (hereinafter referred to as 'the HUF') of Mathurabhai Mansukhram was effected on April 6, 1950, in the 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 and the two pieces of land belonged to his smaller HUF. It appears further that out of the aforesaid land, a portion of land admeasuring labour 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 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 and Company, which, again in its turn, agreed to sell its rights to Dhanijibhai Bhailalbhai by an agreement of November 19, 1966. It appears further that the said two prices 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 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 convevance 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 t o sell to Shri P.V.Patel, which he sold to the aforesaid three societies. Each one of the members was given an 1/6th shares in the property which was agreed to be divided. It appears that in the course of assessment 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 s. 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 5/6th shares 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 s. 171 of the I.T. Acts, 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, therefore, confirmed the order of the ITO for both the assessment years. The assessee, therefore, carried the matter in further appeal by preferring two appeals in respect of two assessment years involved. The Tribunal allowed the appeals, since, in the opinion of the Tribunal, there was a valid partial partition inasmuch, since the parties did not consider it beneficial to actually divide the land into small pieces, they decided to allot the whole of the land to Govindbhai who agreed to pay Rs. 2,22,950, being the 5/6ths shares of the sale proceeds to the other members of the family. The Tribunal was, therefore,of the opinion that there was one of the modes adopted for partitioning the properties and merely because the whole of the land was allotted to one of the members of the family, it could not be said that there was no valid partition and that there was a sale as contended on behalf of the Department. the Tribunal also found that the amount of Rs. 2,22,950, which Govindbhai had agreed to pay under the said partition deed, was in fact paid to the different members as established from the different investments made by the respective members. The Tribunal, therefore, upheld the claim of the assessee that there was a valid partition effected in respect of the land in question.
(3.) IT should also be simultaneously noted that consequent to the order of the ITO refusing to recognise and record the partition in the aforesaid assessment years 1967 -68 and 1968 -69, the income arising out of the sale for purposes of the capital gains was assessed in the hands of the HUF of Govindbhai. The assessee had preferred an appeal before the AAC, which was rejected. The Tribunal consequent to its order recognise the partial partition held that the capital gains arising out of the sale transaction in question were not taxable in the hands of the HUF. The Revenue, therefore, sought this reference which was accordingly granted by Income -tax Reference No. 93 of 1976, and the following question has been referred to us for our opinion :