thecommissioner of income tax,mum city-21 Vs shri mohanlal k. shah (huf)

	i)	Whether on	the	facts	and	circumstan	ces	of the
case	and	in law,	the	par	tition	of the		assessee
HUF	has	taken	place	in	ac	cordance	with	the
provisions		of the		Inc	ome	Tax		Act,1961?
	ii)	Whether	on	the	facts	and circum	stance	s of
the cas	e	and in	law,	the	ar	bitration	award	dated
24.9.1994		can be	treated	as	a	partition	or	a

¶16

:2:

¶17

partition deed in respect

of

the assessee

HUF?

The brief facts of the case are as follows:

¶22

a) One	Mohanlal	Kish	ore	Shah, Karta	of Moha	nlal	K.	Shah
(HUF)	had acqui	red	a	plot of land	bearing	Plot	No.	298
admeasuring	947	sq	.yards	on 12th	road Khar		Mumbai	on
lease from	the	then	Gov	ernment of	Bombay	by	an	agreement
dated	20.10.1926.		H	e constructed	a two		storey	building

¶23

thereon, the total constructed area being 1/3rd of the

¶24

total area of the plot.

¶25

b)	Shri.	Mohanlal K. Shah expired	on 4.10.1954 after
which	Shri.	Bachubhai M. Shah became	the Karta of the
said	Mohanlal	K. Shah-HUF. His widow	Smt. Taraben and
two	married	daughters and younger son	Ramesh Mohanlal
Shah	were	the legal heirs. Since the	inception, the
property	was	shown as being the propert	y of Mohanlal
Kishore	Shah	(HUF). In 1985 an agre	ement was entered
into	for	family partition between Bachub	hai M.Shah Karta
of	Mohanlal	K. Shah (HUF) and Ramesh	M. Shah in
respect	of	the Khar property and two	other properties in
Gujarat.		This deed of partition was	however, not acted
upon.		Subsequently, Mr.Ramesh M.Shah file	d a suit for
partition	in	the Bombay City Civil Cou	rt against the
other	coparc	eners and after settlement	between the
coparcen	ers,	consent terms were filed in	the suit on

¶26

:3:

¶27

5.9.1985.		In	the	consent	terms,	it wa	s declared	and
agreed	upon	by	the	parties	that	the	immovable	properties
described		in	the	partiti	on agre	ement	dated	7.8.1985
would	be	divided	amon	gst co	parceners	by	metes and	bounds

¶28

and each coparcener should hold his share in an independent capacity.

¶29

c)	However, even the consent terms were not acted	upon
and the	property continued to be held by the HUF an	d was
not	divided by metes and bounds or in any other	manner.
As	the dispute remained between the parties, the	entire
family	dispute was referred for arbitration	to
Arbitrator	Shri. S.K.Desai, retired Judge of the	High
Court.	In this Arbitration proceeding an Award	was
passed	by the sole Arbitrator on 24.9.1994. Under	the
award	it was provided that the right, title and	interest
of a	ll the coparceners in the said property would	be
released	to one Mr. Harish B.Shah for the con	sideration
payable	to each coparcener as set out in the said	award
and	till such payment was made, a charge would	remain
created	on the property for securing such payment.	It
was	provided that on the payment being received by	each
coparceners,	the charge created in their favour	would
automatically	stand extinguished. Mr. Harish	B.Shah,
after	obtaining permission of the Income Tax D	epartment
U/s.269	UL(3) of the Income Tax Act on	15.5.1995,
ultimately	sold the said property to M/s.	Narad
Builders	vide conveyance dated 17.4.1996 and	payments

¶30

:4:

¶31

were	made,	as	per	the directions	given	in	the	awar	d, to
all	the	copartners	.	The	total	conside	ration	di	stributed
by	Ms.	Farad	Build	ers was R	PS.9.00	Crores	and	the	same
was	distributed	as	per	the awa	rded	shares.		Subs	equently
in	response	to	the	notice	und	er	Section	-148,	the
appellant-	HUF	filed	a	return of	Income	Ta	x	for	the
Assessme	nt	year	199	7-98, claiming	shel	ter	of		Section
47(i)	on	the	footing	that there	was	total	partit	ion	of
property	vi	de	Arbitr	ation award	passed		on	2	4.9.1994.
They	also	filed	an	application	under	Section	171	of	the

¶32

Income Tax Act on 19.4.2002 seeking a declaration that

¶33

there was a partition in the family.

¶34

d) After due enquiry by his order dated 27.12.2002, the Assessing Officer rejected the respondent’s application

¶35

under Section 171 of the Income Tax Act.

¶36

e)	The	respondent	carried	the ma	tter in	appeal and	by
his	order dat	ed 4.3.20	03, for	the	reasons	, stated in	the
orders,	the	Commis	sioner of	Income	Tax	(Appeals)	was
pleased	to	dismiss	the	respon	dent’s	appeal.	The
responden	t then	carried	the	matter	further	to the	Income
Tax	Appellate	Tribuna	l and	their	appeal	came to	be
allowed.	It is in these c	ircumstances,	the present
appeal ca	me to be filed.
4)	It is	contended	on beh	alf of	the	appellant that	the
Assessing	Off	icer as	well	as	CHIT	(Appeals)	had

¶37

:5:

¶38

correctly		proceeded on	the fo	oting that under	Section
171	of	the Income Tax	Act, w	here the property adm	its of
a	physical	division, wh	at wa	s required was	actual
physical	div	ision of th	e property	. That without	a
physical	div	ision of t	he propert	y there would be	no
partition	for	the purpose	of	Section 171. It	was
contende	d	that the propert	y in	question had been	held,
by	the	Assessing Officer	as well	as CIT (Appeals)	to be
capable	of	physical division	. It	was pointed out	that
they	had	placed reliance	on th	e partition agreement	of
the	year	1975 which	conte	mplated such a	physical
division.		It was	contended	that the requirement	of
physical	division co	ntemplated by Section 171	of the
Income T	ax Act was	lost sight by the Tribunal.

¶39

5)	On perusing	the record,	we fi	nd	that	the	entire
dispute	relating	to the house	prope	rty	at	Char	was
referred	to arbit	ration precisely	beca	use	there	could	be
no	amicable	partition between	the	family		members	in
spite	of a	consent decree.	T	he	solut	ion	ultimately
found	by the	Arbitrator in the	awar	d was	to	direct	all
the c	opartners to	transfer their	rights	to	a	third	party
in	return for	compensation.	It	appears	that	when	the
family	partition	was arrived a	t in	the	year	1985	then
family	partition	agreement was	entered	into.		The	said
partition	agreement	not only	perta	ined t	o	property	at
Char	but also	to property	in	Gujrath		State.	The
explanatio	n (is)	to Section	171(1)		conte	mplates	that

¶40

:6:

¶41

where	the	propert	y does	not		admit	of	physical		division
then	such	divisio	n as	the		property	ad	mits	of	would
amount	to	partiti	on. In	our		view,	the	record	of	the
case	do	not	indicates	that		the pr	operty	admitted	of	a
physical	divisi	on	and	in	th	e	circumst	ances,	it	was
required	to	be	sold to	an		outsider	wit	h the	divisi	on of
the	proceeds	as	per	t	he	arb	itration	award	.	This
situation,	in	our	view,	wou	ld	be	cov	ered	under	the

¶42

definition of partition as contemplated by explanation

¶43

(is) of Section 171(1) of the Income Tax Act.

¶44

In this view of the matter, in our opinion, the

¶45

substantial question of law as raised would not arise.

¶46

Hence, appeal is summarily rejected.

¶47

(R.S. MODISTE, J.) (F.I. REBELLED, J.)

thecommissioner of income tax,mum city-21 v. shri mohanlal k. shah (huf)

Case brief

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What did the court decide?

thecommissioner of income tax,mum city-21 v. shri mohanlal k. shah (huf)

Case brief

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What did the court decide?

What the court decided

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