Section 171

Section 171 — the law in short

What the courts have decided on section 171, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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."
• ITO v Smt N.K. Sarada Thampatty Supreme CourtHelps department
  Our family partitioned by agreement and a civil court passed a partition decree. Can the department still assess us as a Hindu undivided family?
  Yes, unless the property was actually divided. The Supreme Court held that the Explanation to section 171 gives partition a special meaning: where property admits of physical division there must be a physical division, and where it does not there must be such division as it admits of, a mere severance of status not being enough. A partition by agreement or by a court's decree therefore does not disrupt the family's status for tax unless it was followed by actual division by metes and bounds. The appeals were allowed and the writ petition dismissed.
• Apoorva Shantilal Shah v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  As karta and father I divided some family shares between myself and my minor sons. Can the officer refuse to record the partial partition because the shares are unequal?
  No. The Supreme Court held that a father may effect a partial partition of joint family property between himself and his minor sons, in exercise of his superior right as father or as patria potestas, and that such a partition is valid under Hindu law. It does not become invalid because the shares are unequal; an aggrieved son may challenge it, and until a competent court holds it invalid it stands. The officer may enquire whether the partition is genuine and refuse recognition if it is sham, but cannot refuse it for unequal division. The appeal was allowed.
• Kalloomal Tapeswari Prasad (HUF) v CIT Supreme CourtHelps department
  Our family divided the income but not the properties. Is that a partition the department must accept?
  No. Where the property admits of physical division, dividing the income while leaving the property undivided is not a partition for tax purposes, and mere severance of status under Hindu law is not enough. Until a finding recognising the partition is recorded under s.171, the family is deemed to continue undivided and the income remains assessable in its hands.
• Kapurchand Shrimal v CIT Supreme CourtCuts both ways
  The assessing officer ignored my partition claim and assessed the family anyway. If the Tribunal finds that illegal, can it simply cancel the assessment and stop there?
  No. The Supreme Court held that although an assessment made on a Hindu undivided family without the enquiry the statute requires into a partition claim made in time must be set aside, the Tribunal's duty does not end with declaring the assessment illegal. An appellate authority has the jurisdiction and the duty to correct all errors in the proceedings under appeal and to issue appropriate directions to the authority below to dispose of the matter afresh, unless the statute forbids it. The Tribunal erred in cancelling the assessments without directing fresh ones, and the High Court erred in upholding them.
• Gowli Buddanna v CIT Supreme CourtHelps department
  My father died and I am now the only male member of our family, with my mother and unmarried sisters. Must the family income be assessed on me as an individual?
  No. The Supreme Court held that the income continued to be assessable in the status of a Hindu undivided family. What section 3 of the 1922 Act makes an assessable entity is a Hindu undivided family, not a coparcenary, and a joint family may consist of a single male member together with widows and other female members of deceased coparceners. Property of a joint family does not cease to belong to the family merely because it is represented for the time being by a single coparcener. The property here had belonged to the family in the father's lifetime and continued to do so.
• Charandas Haridas v. CIT — where an asset admits of no other mode of division, dividing the income divided the asset; and why s.171 would decide the same facts differently today Supreme CourtHelps taxpayerSuperseded by amendment
  The family's only income-producing right is the karta's share in a managing agency, which cannot be split among the members. They divided the commission between themselves. Is that a partition the department must accept?
  In 1960 the Supreme Court said yes, on facts where no other mode of division existed. The Court held that there is nothing in the Indian Income-tax law or the law of Partnership which prevents the members of a Hindu joint family from dividing any asset; that Hindu law does not require the property to be partitioned by metes and bounds in every case if separate enjoyment can otherwise be secured according to the members' shares; that for an asset of this kind there was no other mode of partition open to the parties and the law does not contemplate that a person should do the impossible; and that on a genuine document, not a sham, which effectively divided the income and in the circumstances the assets, there was factually no Hindu undivided family in respect of those assets. The appeal was allowed with costs. READ THE ENTRY'S VALIDITY NOTE BEFORE ACTING ON IT: the assessment years were 1947-48 and 1948-49 under the Indian Income-tax Act, 1922, and the arrangement was a PARTIAL partition.
• Statutory position — s.170: the predecessor is assessed to the date of succession, s.170(2) where the predecessor cannot be found, and s.170(3) recovery of his tax from the successor CBDT Circulars & InstructionsCuts both ways
  I bought a running business in October. The Assessing Officer has issued a notice to me for the whole year, and a separate demand for the seller's tax for the year before I arrived. Who is supposed to be assessed on a succession, and when can the department recover the seller's tax from me?
  Section 170(1) splits the previous year at the date of succession: the predecessor is assessed on the income of the previous year in which the succession took place up to the date of succession, and the successor is assessed on the income of that previous year after the date of succession. Two provisions displace that split and both are narrow — s.170(2) allows the assessment to be made on the successor, but only where the predecessor cannot be found and only for the year of succession up to the date of succession and the previous year preceding that year; and s.170(3) allows tax assessed on the predecessor for those same two periods, and only that tax, to be recovered from the successor once the Assessing Officer has recorded a finding that it cannot be recovered from the predecessor.
• 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.
• Statutory position — s.64(2): converting self-acquired property into HUF property does not move the income, and on a partition the spouse's share is clubbed too CBDT Circulars & InstructionsCuts both ways
  A client wants to transfer a rental property he owns personally into his family HUF so that the rent is taxed in the HUF's lower slab. He says the HUF will be a separate assessee with its own basic exemption. Does that work?
  No. Section 64(2) applies where an individual who is a member of a Hindu undivided family converts property that was his separate property into property belonging to the family — by impressing it with the character of family property, or by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration. From the assessment year beginning 1 April 1971, and notwithstanding anything in any other provision of the Act or in any other law, the income derived from the converted property is deemed to arise to the INDIVIDUAL and not to the family. And the clubbing survives a partition: where the converted property has been the subject-matter of a partition, whether partial or total, the income from so much of it as is received by the SPOUSE on partition is deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse, and s.64(1) then applies so as to bring it back into the individual's hands.
• 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.