DANDOO MADANMOHAN RAO Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) By the Court. - At the instance of the assessee, the ITAT referred the following question of the High Court :

(2.) The assessee Dandoo Madanmohan Rao is the second son of Lata Dandoo Pentaiah. The assessee was allotted some joint family properties towards his share in the family partition which took place from time to time between himself, his brothers and his father. The assessee's wife is one Padmavathi. As the assessee had no children, he adopted one Narsamma, the daughter of one of his brothers, by a registered deed of adoption dt. 4-8-1971. The Joint family thereafter consisted of the assessee. His wife Padmavathi adopted daughter Narsamma. The assessee was being assessed in the status of an HUF upto and inclusive of the asst. yr. 19671-72 the accounting period ending with 19th October of each previous year. The year of assessment in question is 1972-73, the accounting period being the year ending with 19-10-1971. An oral partition of the family properties as between the assessee, his wife and adopted daughter was made on 5-8-1971 and a record of lists of properties partitioned or kept joint was prepared on 16-8-1971. The 'A', 'B/' and 'C' schedule properties were respectively allotted to the assessee, his wife and adopted daughter. The 'D' schedule properties were however, kept joint. There was no physical partition made of premises No. 5-2-174/2, Rashtrapathi Road, Secunderabad in which the assessee and his wife were each allotted a half share. Likewise, the adopted daughter was allotted the 1/6th share belonging to the HUF of the assessee, the remaining 5/6 share, however, belonging to the divided members of the bigger HUF. For the asst. yr. 1972-73, the assessee claimed that a partial partition took place among the members of HUF on 5-8-1971. The ITO by his order dt. 28-3-1973 accepted the claim made u/s 17(3) of the Act. He accordingly finalised the assessment for that year by his assessment order dt. 28-3-1973. The Addl. CIT in exercise of his powers u/s 263 of the Act, issued a notice dt. 14-2-1974 calling upon the assessee to show-cause as to why the order dt. 28-3-1973 should not be cancelled with a direction to the ITO to re-do the assessment in accordance with law. The assessee showed cause after considering which the Addl. CIT set aside the two orders passed by the ITO as being prejudicial to the interest of revenue and directed the ITO to re-do the assessment in accordance with law. The Addl. CIT held that neither Padmavathi nor Narsamma could be considered as coparceners entitled to claim a share in the family properties. The assessee then preferred two appeals before the ITAT, one against the order cancelling the acceptance by the ITO of the claim made u/s 171 (3) of the Act and the other against the direction of the Addl. Commissioner to re-do the assessment in accordance with law. The Tribunal dismissed both the appeals. The assessee, in his reference application made to the Tribunal u/s 256 (1) of the Act, required the Tribunal to refer the first two questions set out above for the opinion of the High Court. In making the reference, however the Tribunal also framed the third of the questions referred to above for the opinion of the High Court.

(3.) The provisions of s. 171 of the IT Act prior to Finance (No. 2) Act, 1980, became material. In terms material provisions of that section :