COMMISSIONER OF WEALTH-TAX Vs. HARBHAGWAN AND SONS

JUDGEMENT

(1.) THIS judgment shall dispose of Wealth-tax References Nos. 13 to 15 of 1981. The Income-tax Appellate Tribunal, Chandigarh, at the instance of the Commissioner of Wealth-tax, Ludhiana, has referred the following questions of law to this court for its opinion, which is the subject-matter of Wealth-tax References Nos. 13 to 15 of 1981, relating to the assessment years 1972-73, 1973-74 and 1974-75. The questions of law in all the three references are the same :

(2.) HARBHAGWAN, karta of a Hindu undivided family known as Messrs. Harbhagwan and Sons, Chandigarh, purchased two plots bearing Nos. 7 and 8 situated at Mall Road, Karnal, measuring 5,616 sq. ft. and 6,251 sq. ft. for Rs. 6,000 and Rs. 10,000, respectively, on August 4, 1962, with funds belonging to him as individual. He also purchased a plot of land at Railway Road, Karnal. These three plots were impressed with the character of Hindu undivided family property by throwing them into the common hotchpotch of the joint family consisting of himself, his wife and three sons with effect from October 10, 1968, and October 6: 1968, as recorded by the Income-tax Officer in his order dated September 25, 1975, made under Section 171 of the Income-tax Act, 1961 (hereinafter referred to as "the Act" ). The plots at Mall Road, Karnal, were sold on August 13, 1971, for a consideration of Rs. 94,050. After deducting a sum of Rs. 18,065 being the cost of the plots, the balance of the amount of Rs. 75,965 was divided amongst the members and credited to their accounts in the books of the firm of Messrs. Harbhagwan Harbhajan Lal at Chandigarh, in which the family had a share. When the cases were taken up for assessment, the Income-tax Officer considered the sale of the above plots and in the process was required to consider the claim of partial partition and the date of its effect with respect to the plots under Section 171 of the Act. The Income-tax Officer in his order held that the assessee-Hindu undivided family admits that the plot at Railway Road admits of physical division but the plots at Mall Road were indivisible. It was held that the plot at Mall Road was also capable of physical division and in fact it consisted of two pieces purchased from two different parties and it could be converted easily into smaller pieces. Since this had not been done in the process of partition, he held that partial partition, qua this plot, had not taken place. With regard to the plots at Mall Road, he considered the claim of the assessee as to the date from which the partial partition with respect to that could be accepted. In his opinion, the partial partition could be considered either from the date of oral partition made on October 22, 1970, or with effect from November 16, 1970, when this oral partition was confirmed by the memorandum of partial partition or from the date when actually the sale proceeds of the plots were credited to the respective accounts of the coparceners or actually divided amongst the members of the family. According to the Income-tax Officer, the case of partial partition as per oral agreement on October 22, 1987, could not be accepted as there was no physical division of the property. On the same grounds, the partition could not be accepted with effect from November 16, 1970, when the memorandum of partial partition was executed. He however, held that partial partition with respect to the plots at Mall Road, Karnal, took place on August 13, 1971, when the sale proceeds were credited in the accounts of the members of the family in the books of Messrs. Harbhagwan Harbhajan Lal, a firm at Chandigarh. Accordingly, he made an order under Section 171 of the Act recognising partial partition with respect to the two plots situated at Mall Road with effect from August 13, 1971, but partial partition with regard to the plot at Railway Road, Karnal, was not accepted.

(3.) AN appeal was carried to the Appellate Assistant Commissioner against the order of the Income-tax Officer. In appeal, the order of the Income-tax Officer was reversed and the Department carried a second appeal before the Tribunal. In appeal, the Tribunal set aside the order of the Appellate Assistant Commissioner and restored the order of the Income-tax Officer and it was held that there was no partial partition with regard to the plot at Railway Road, Karnal, and further that partial partition regarding the plot situated at Mall Road took place on August 13, 1971, when the sale proceeds were credited in the accounts of the members of the family in the books of account of Messrs. Harbhagwan Harbhajan Lal and Sons, a firm at Chandigarh, and not from the date of the oral agreement dated October 22, 1970, or from the date of the memorandum of partial partition accepted on November 16, 1970. The assessee being aggrieved, claimed the following two questions of law, which were answered by this court in the judgment reported as Harbhagwan and Sons v. CIT [1989] 178 ITR 205, 206 :