Commissioner of Income Tax, Tamil Nadu-IV vs M.R.M.M.M.M. Manickam Chettiar

Ramaswami, J.—The assessee is an HUF consisting of the karta, Manickam Chettiar, his wife and two major unmarried sons, Muthia and

Thiagarajan. The family carried on business in money-lending. It was also a partner in the firm of M/s. M. K. Bankers at Salem, through its karta.

The properties of the HUF consisted of some lands in the village and the amount invested in M. K. Bankers at Salem. For the assessment year

1969-70, the assessee claimed that there was a partial partition with reference to the sum of Rs. 50,000 available in the capital account of the

family in the partnership and that the said sum of Rs. 50,000 was paid to Muthia on December 10, 1968. By an order dated October 18, 1969,

the ITO accepted this claim of partial partition. During the assessment year 1971-72, a sum of Rs. 26,000 was paid in cash to Muthia an Rs.

82,100 was paid in cash to Thiagarajan on various dates. On the January 2, 1971, the family lands in the village were allotted to the two sons and

their value of Rs. 4,141.10 was debited to the capital account of the family in the books of the HUF. The above payments were entered with a

narration as ""paid"" on account of ""partial partition."" As on April 1, 1970, the opening cash balance to the credit of the joint family was Rs.

4,91,599.44. The details of the repayments made Muthia and Thiagarajan during the accounting year ending March 31, 1971, as entered in the

capital account of the family were as follows :

During the accounting year ending March 31, 1972, also each of the two sons was paid Rs. 52,000 in cash on various dates as in the earlier

year with the same recitation that the payments were made ""on account of partial partition"". The assessee field a return disclosing a loss of Rs.

1,248 in its money-lending business and share income of Rs. 37,548 from M. K. Bankers firm for the assessment year 19-7273. The assessee

claimed on the basis of partial partition with reference to the amount paid to the sons in these two assessment years, an order under s. 171. It may

be mentioned that the two major sons, Muthia and Thiagarajan, also field individual returns disclosing an income of Rs. 4,609 and Rs. 2,025,

respectively, for the assessment year 1971-72 and Rs. 2,375 and Rs. 7,845, respectively, for the assessment year 1972-73. The assessee also

claimed that there was a partial partition in the family by and under which the two major sons were allotted agricultural lands in addition to the

partial partition in respect of the cash above mentioned. The ITO did not accept the claim of partial portion could not be accepted. He held that

since the entire cash available with the family was an asset and had not been divided, the claim for partial partition could not be construed as

drawings. He did not accept the partial partition with regard to the family lands. In that view, he treated the income returned by the major sons as

the income of the family out of the funds invested in their names. The AAC took the view that there could not be any partial partition of a portion of

the cash belonging to the assessee. Even in regard to the lands, the AAC did not accept the claim of partial partition on the ground that for a partial

partition to be recognised, all the members or handed over to the few members towards their full share. It was argued on behalf of the assessee

that, under similar circumstances, partial partition was accepted with regard to the payment of Rs. 50,000 in 1969-70 and such a claim should be

accepted in respect of these years, viz., 1971-72 and 1972-73 also. But in the view that there was no valid partial partition, the AAC rejected this

contention and confirmed the order of the ITO. The Tribunal, however, on further appeal, held that it was not correct to say that the entire cash

must be construed as one item of asset, that any portion of such cash, even a rupee, could be made the subject of partial partition between the

members of the family and that, on the facts and circumstances of this case, there was partial with respect to the cash paid to the two major sons

as also in respect of the lands allotted to them.

At the instance of the following question has been referred :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the partial partition claimed by the

assessee was valid in law ?

The learned counsel for the revenue contended that the entire cash belonging to the family must be construed as one item of asset and if only a

portion of it was subjected to partition, such partition cannot be treated as partial partition. He also referred to the entries in the capital account of

the family where the amounts were credited to the major sons on various dates. He further stated that the cash as such was not partitioned, but as

and when there were drawings by the sons, they debited with corresponding amount.

General principles of Hindu law recognise a partial partition between the coparceners and such partial partition may be either in respect of the

property or in respect of the persons making it. It is open to the members of a joint family to make a division on severance of interest in respect of

a joint estate while retaining their status as a joint family and holding the rest as properties of a joint and undivided family. The I.T. Act also

recognises such partial partition. In the Explanation to s. 171, partial partition is defined to mean ""a partition which partial as regards the persons

constituting the HUF, or the properties belonging to the HUF or both."" There is no restriction as to the properties that could be the subject-matter

of partial partition. It is not necessary, therefore, that a partial partition should be with reference to the whole of an asset. If the asset could be

made the subject of more than one partial partition on the ground that the partition did not cover the entirety of the asset, it cannot be held that

there was no partial partition. In the case of cash belonging to the joint family, therefore, it is not necessary that the entire cash balance or the

amount available to the credit of the family should be divided. But there should be a definiteness of the amount that is the subject-matter of a partial

partition. Almost on similar facts, in the decision in Brij Mohan Lal Rameshwar Lal v. CIT [1971] ITR 82 consisting of one Rameshwarlal, his wife

and his son had to its credit in the capital account of a partnership firm a sum of Rs. 1,60,242. The family divided a sum of Rs. 60,000 out of Rs.

1,60,242 among themselves in equal shares. The Tribunal held that the sum of Rs. 60,000 was incapable of division on the ground that it formed

part of capital owned by Rameshwar Lal''s branch in the partnership firm. It was held in that decision thus (p. 176) :

The basis of the decision of the Tribunal is that if a Hindu undivided family owns a certain asset, that unit of asset has to be divided as a whole.

This proposition of law is not quite accurate. Whether a particular asset is capable of partial division or not will depend upon the nature of the

asset. It may be that a business or a share cannot be divided partially. But it does not follow that no single item can be divided partially. If a

building has got two defined sections, there should be no difficulty in dividing one section of the building, keeping the second section as joint family

property. The matter is still easier, when one deals with case. It appears that upon the dissolution of the former partnership, a sum of Rs. 1,60,242

came to the share of Rameshwar Lal as representing his Hindu undivided family. The family decided to divide Rs. 60,000 out of that sum among

the members of the family. There was no legal difficulty in taking out this specified sum of Rs. 60,000 out of the original sum of Rs. 1,60,242 for

purposes of partial partition. The Tribunal was not right in holding that the specific sum of Rs. 60,000 was incapable of division simply on the

ground that it formed a part of the capital owned by Rameshwar Lal''s branch. Apparently, the family decided to take out this specific portion

amounting to Rs. 60,000 for purposes of capital partition. Partial partition and such partial partition is permissible in law, the Tribunal was bound to

recognise it.

There could, therefore, be no doubt that even with respect to a portion of the cash available, there could be a partial partition.

The learned counsel for the assessee contended that there is intrinsic evidence in the contemporaneous records prepared at the time of payment

of moneys to the sons and the assessee had also taken a definite stand in its returns that in the assessment year 1971-72, there was a partial

partition with reference to an amount of Rs. 1,08,100 and in the assessment year 1972-73, with reference to a sum of Rs. 1,04,000. We have

already noticed the description of the entries of payment in the capital account of the family. In the earliest of the entries made on June 11, 1970, it

is recited that the amount was paid to Thiagarajan ""on account of partial partition."" That shows that there was a partial partition either on that date

or earlier than that date but after April 1, 1970, because there is no dispute about the correctness of the entries. The learned counsel for the

assessee further contended that once there was an agreement to divide a portion of the cash, the payment actually could be made to the shares as

and when the amount could be found or realised. Though there is no specific evidence relating to the agreement to make a partial partition with

reference to Rs. 1,08,100 in 1971-72 an Rs. 1,04,000 in 1972-73, we are satisfied that there should have been agreement to divide these

amounts as otherwise the entries cannot be explained. In fact, only on such basis the returns were submitted both by the assessee as also the major

sons separately. In their returns the major sons have included the income derived from the cash allotted to them on such partial partition as their

individual income. Though the assessee had adopted a peculiar method of making a partial partition in that it was going on crediting the major

making a partial partition in that it was going on crediting the major sons'' accounts with specific amounts as allotted to them on partition, the

novelty or peculiarity of such a procedure cannot, in any way, affect the legality of he partial partition itself. The learned counsel for the revenue

may not be quite correct in contending that in the instant case there seems to have been a number of partial partitions. As already stated, the case

of the assessee was though not specifically mentioned before the AAc or the Tribunal, that the total amount that was debited to the two major sons

was the subject-matter of partial partition in each of the years.

So far as the family lands in the village which were allotted to the two brothers, the contention of the learned counsel for the revenue was that it

cannot be treated as partial partition because the father was not given any share. Similar argument was also raised in raised in respect of cash as

the father had not been given any share in respect of the amount that was the subject-matter of partition in 1971-72 and 1972-73. But the validity

of a partial partition could not be dependent on the allotment of shares to each of the members of the joint family or coparcenary. If any particular

member had given up his right to share with respect to any particular asset among the other shares will not become invalid (sic). In fact, the

department itself has accepted the allotment of Rs. 50,000 to Muthia alone in the assessment yea 1969-70 as amounting to a partial partition.

Neither the Hindu law nor the Income Tax requires that in order that a partition may be valid each of the shares must be allotted a share. Whatever

consequences that may follow by reason of one shares relinquishing or disclaiming his share with reference to the assessment, the partition itself will

not be affected. There could also be no restriction as to the number of times partial partition may take place in a family.

For the foregoing reasons, we are of the view that the Tribunal was right in holding that a partial partition claimed by the assessee was valid in

law. We, accordingly, answer the reference in the affirmative and against the revenue. The assessee will be entitled to its cost. Counsel''s fee Rs.

500.