What the courts have decided on section 171(3), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Union of India v. M.V. Valliappan — a five-Judge Bench upholds s.171(9), and holds that a partial partition after the cut-off has no significance even if an earlier assessment recognised it
Supreme CourtHelps department
The department is ignoring a partial partition my client's family made in April 1979, even though the Income-tax Officer recognised it and gave the family the benefit of it in that very assessment year. Is there any authority that the recognition once given must stand?
No — the Supreme Court has held the opposite, and by a Constitution Bench. In Union of India v. M.V. Valliappan the Court allowed the Revenue's appeals, set aside the judgments of the Madras and Karnataka High Courts which had struck down s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957, and dismissed the writ petitions challenging the sub-section. Dealing directly with the argument that a partial partition of 13 April 1979 had been recognised in the assessment year and the benefit given to the assessee, the Court held that this "has no significance in view of crystal clear language used in the sub-section that partial partition taking place after the cut off date is not to be inquired into and if inquired the findings would be null and void."
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Statutory position — s.171(9): a partial partition effected after 31 December 1978 is not recognised, and the family goes on being assessed as if it had never happened
CBDT Circulars & InstructionsCuts both ways
Our family made a partial partition in the early 1980s — we divided some of the properties but stayed joint as to the rest — and the Assessing Officer has recognised it in past assessments. He is now assessing the whole income in the HUF's hands and says the partial partition never counted. Is he right?
He is right. Section 171(9) provides that where a partial partition has taken place after the 31st day of December, 1978 among the members of a Hindu undivided family hitherto assessed as undivided, no claim that it took place shall be inquired into under s.171(2), no finding shall be recorded under s.171(3), and any finding recorded to that effect — whether before or after 18 June 1980, the date of introduction of the Finance (No. 2) Bill, 1980 — shall be null and void. The family continues to be liable to be assessed under the Act as if no such partial partition had taken place. Sub-section (9) was inserted by the Finance (No. 2) Act, 1980 with effect from 1 April 1980.
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Statutory position — s.171: the fiction that a family assessed as undivided continues until a finding of partition is recorded, the s.171(3) order, and what the Explanation means by "partition"
CBDT Circulars & InstructionsCuts both ways
Our family divided years ago and each of us has been showing his own income since. The Assessing Officer has issued a notice to the HUF for those very years and says the HUF is still alive. Can he do that when we have actually separated?
Yes, unless and until a finding of partition has been recorded under s.171. Section 171(1) creates a fiction: a Hindu family hitherto assessed as undivided is deemed for the purposes of the Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under the section. The machinery is s.171(2) and (3) — a claim made at the time of an assessment under s.143 or s.144, an inquiry after notice to all the members, and a finding recorded by the Assessing Officer as to whether there has been a total or partial partition and the date on which it took place. Severance of status is not enough: the Explanation defines "partition" as a physical division of the property where the property admits of a physical division, and expressly provides that a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.