COMMISSIONER OF INCOME TAX Vs. DARA SESHAVATARAM

JUDGEMENT

(1.) AT the instance of the Commissioner of Income-tax, Andhra Pradesh-II, Hyderabad, the Income-tax Appellate Tribunal has referred the following question of law to this court:

(2.) THE assessee in this case is an HUF carrying on business in liquors. THE family consists of the father and three sons. One of the sons, Mr. Venkatratnam, executed a registered relinquishment deed on July 21, 1969, relinquishing his right in the joint family properties. To his share he took Lakshmi Medical Stores run by the family. On the basis of the relinquishment deed, for the assessment year 1970-71, the income from the medical stores was not returned as the income of the family but it was returned by Mr. Venkatratnam as an individual. THE assessment was also made in that fashion. For the assessment year 1971-72, which is the year under reference, Venkataratnam returned the income from the medical stores and it was assessed in his hands. But when it came to the assessment of the family, the ITO took a different approach and held that the income from Lakshmi Medical Stores cannot be excluded from the income of the family, as there was no order regarding the partition under Section 171 of the I.T. Act. THE ITO was also of the view that the relinquishment deed operates as a partial partition and since no claim for partial partition had been made and no finding had been recorded, the family should be assessed as joint family and the income from Lakshmi Medical Stores also should be included in the hands of the family. THE AAC upheld the finding of the ITO. THE assessee preferred an appeal to the Income-tax Appellate Tribunal. THE Appellate Tribunal held that it was a partial partition and having looked into the record it found that there is an endorsement wherein the karta of the HUF in his return has mentioned that his son, Venkataratnam, has gone out of the family. It was contended on behalf of the karta of the HUF, i. e., the assessee, that this constituted a claim for partial partition. THE Appellate Tribunal accepted the claim. With regard to the contention of the revenue that unless there is an order under Section 171 the income from that source should be included in the joint family, the Tribunal observed that normally they would have sent back the case to the ITO for passing a proper order under Section 171, but it was unnecessary to do so as the assessee succeeded on the basis of the contention that the property ceased to belong to the family and the income therefrom cannot be included, and accordingly allowed the appeal. On an application by the Commissioner, the Tribunal has referred the question for our opinion.

(3.) EXPLANATION.---In this section,--