M.V. Valliappan And Ors. Vs Income-Tax Officer And Ors.,1988

INTRODUCTION

In the present case the current writ petitions, which revolve around issues concerning the legitimacy, extent, and explanation of section 171(9) of the Income-tax Act, 1961 (referred to as the Act hereafter), a provision introduced through the Finance (No. 2) Act, 1980. These petitions are hereby settled through this shared judgment. To comprehend the arguments presented by various counsels in these petitions, it is sufficient to look into the undisputed facts in W.Ps. Nos. 994 and 995 of 1984.

FACTS OF THE CASE

The petitioner in W.P. No. 994 of 1984 acted as the head of a Hindu undivided family, which included himself, his wife, his minor son, and his minor daughter. The petitioner has filed the petition on behalf of the Hindu undivided family, which was assessed as a unified entity. The Hindu undivided family had investments in various partnership firms. On April 13, 1979, a partial partition of specific assets belonging to the Hindu undivided family was carried out, with the partition taking effect from that date. A partition deed was also executed to document this partial partition. Subsequently, an application was submitted to the Income-tax Officer under section 171(2) of the Act, seeking recognition of the partial partition. On December 28, 1979, during the assessment proceedings for the year 1979-80, the Income-tax Officer issued an order acknowledging the said partial partition. The order stated:

“During the course of assessment proceedings, it is claimed that a partial partition in the family in respect of the credit balance in the three firms (sic). Account copies were filed. Necessary questionnaire have also been filed. These were verified and found correct. The claim of partial partition is, therefore, accepted.”

ISSUES RAISED

The main contention in all of these cases is that if, following a partial partition, the income generated from the divided property no longer belongs to the Hindu undivided family, then such income should not be subject to taxation under the Hindu undivided family’s name. If the provision of section 171(9) is used to tax this income, it must be deemed invalid and unconstitutional.

The constitutional validity of section 171(9) is concerned, it is challenged on the ground of violation of article 14 of the Constitution of India.

ARGUMENTS

Mrs. Nalini Chidambaram, representing the Revenue, argues that the derecognition of partial partitions under section 171(9) is only for income tax purposes. She believes that such partitions remain legally valid for inheritance and other laws. From April 1, 1980, the family is considered the owner of partitioned properties, and assessments should disregard the partitions after December 31, 1978. Mrs. Chidambaram states that the non-obstante clause in section 171(9) overrides earlier provisions, and it is not retrospective. She rejects the argument that the amendment misfired by not deeming the family as fictional owners. She explains that the provision guides tax collection, and the Income-tax Officer already designates the recipient as the Hindu undivided family.

JUDGMENT

• Writ petitions numbered 992 and 993 of 1981 have been approved, and the notice of demand issued under section 156 of the Income-tax Act, 1961, based on the argument that the claim for partial partition is not valid due to it occurring after December 31, 1978, has been invalidated. Additionally, the assessment under the Wealth-tax Act for the year 1979-80 has been nullified. It is worth mentioning that the counsel representing the Revenue has acknowledged that these writ petitions should be granted.
• Writ petition number 162 of 1983 has been allowed, leading to the cancellation of the notices and reassessments conducted under section 147(b) of the Income-tax Act, 1961. This decision also nullifies the subsequent notices of demand for the assessment years 1980-81 and 1981-82, which were issued on October 29, 1982, after the partial partition was disregarded.
• Writ petition number 6036 of 1983 has been approved, resulting in the annulment of the Income-tax Officer’s order that rejected the taxpayer’s claim for recognition of the partial partition due to the provisions of section 171(9) of the Act.
• Writ petitions numbered 904 to 906 of 1984 have been granted, leading to the cancellation of the rectification notices issued under section 154 of the Income-tax Act, 1961.
• Writ petitions numbered 994, 995, and 5430 of 1984 have been approved, resulting in the nullification of the notices issued under section 147(b) of the Income-tax Act, 1961, which were challenged in writ petitions 994 and 995 of 1984. Furthermore, the assessment proceedings for the year 1981-82 have been invalidated.
• Writ petition number 6162 of 1984 has been allowed, and the challenged assessment order has been nullified.
• Writ petition number 9283 of 1984 has been granted, and the petitioner has been given a declaration that the provisions of section 171(9) of the Income-tax Act, 1961, are unconstitutional.

This article is written by Mudragada Iswarya Lakshmi, a student of ICFAI Law School, Hyderabad, 6^th semester, an Intern under Legal Vidhya.