7.—Partition

Assessment after partition of Hindu undivided family

315(1)

A Hindu family, hitherto assessed as undivided, shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family.

315(2)

Where, at the time of making an assessment under section 270 or section 271, it is claimed by or on behalf of any member of a Hindu family assessed as undivided that a partition, whether total or partial, has taken place among the members of such family, the Assessing Officer shall make an inquiry thereinto after giving notice of the inquiry to all the members of the family.

315(3)

On the completion of the inquiry, the Assessing Officer shall record a finding as to whether there has been a total or partial partition of the joint family property, and, if there has been such a partition, the date on which it has taken place.

315(4)

Where a finding of total or partial partition has been recorded by the Assessing Officer under this section, and the partition took place during the tax year,—

• (a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place; and
• (b) each member or group of members shall, in addition to any tax for which he or it may be separately liable and irrespective of anything contained against Schedule III (Table: Sl. No. 2), be jointly and severally liable for the tax on the income so assessed.

315(5)

Where a finding of total or partial partition has been recorded by the Assessing Officer under this section, and the partition took place after the expiry of the tax year, the total income of the tax year of the joint family shall be assessed as if no partition had taken place, and the provisions of sub-section (4)(b), so far as may be, apply to the case.

315(6)

Irrespective of anything contained in this section, if the Assessing Officer finds after completion of the assessment of a Hindu undivided family that the family has already effected a partition, whether total or partial, the Assessing Officer shall proceed to recover the tax from every person who was a member of the family before the partition, and every such person shall be jointly and severally liable for the tax on the income so assessed.

315(7)

The provisions of this section shall, so far as may be, apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to the date of the partition, whether total or partial, of a Hindu undivided family as they apply in relation to the levy and collection of tax in respect of any such period.

315(8)

Irrespective of anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided,—

• (a) a claim that such partial partition has taken place shall not be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition had taken place and any finding recorded under sub-section (3) to that effect at any time, shall be null and void;
• (b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place; and
• (c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition.

315(9)

For the purposes of this section, the several liability of any member or group of members thereunder shall be computed according to the portion of the joint family property allotted to him or it at the partition, whether total or partial and the provisions of this Act shall apply accordingly.

315(10)

In this section,—

• (a) “partition” means,— (i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition; or (ii) where the property does not admit of a physical division, then such division as the property admits of, but a mere severance of status shall not be deemed to be a partition;
• (b) “partial partition” means a partition which is partial as regards the persons constituting the Hindu undivided family, or the properties belonging to the Hindu undivided family, or both.

Explanation

Section Summary:

Section 315 of the Income Tax Act deals with the assessment of a Hindu Undivided Family (HUF) after a partition, whether total or partial. It outlines the process for determining whether a partition has occurred, the tax implications of such a partition, and the liability of family members for taxes assessed on the HUF's income. The section ensures that the HUF continues to be treated as a single taxable entity until a partition is officially recognized by the Assessing Officer.

Key Changes:

1. Recognition of Partition: The section clarifies that a partition (total or partial) must be formally recognized by the Assessing Officer through an inquiry. Without such recognition, the HUF continues to be assessed as undivided.
2. Partial Partition Restrictions: Partial partitions occurring after December 31, 1978, are not recognized for tax purposes. The HUF continues to be taxed as if no partial partition occurred, and members remain jointly and severally liable for taxes.
3. Joint and Several Liability: Members of the HUF are jointly and severally liable for taxes, penalties, interest, or other sums payable by the HUF, even after a partition.

Practical Implications:

1. For HUFs: If a partition is claimed, the HUF must notify the Assessing Officer, who will conduct an inquiry. Until the partition is officially recognized, the HUF remains liable for taxes as a single entity.
2. For Members: After a partition, members are jointly and severally liable for the HUF's tax liabilities up to the date of partition. This means each member can be held responsible for the entire tax amount, not just their share.
3. Partial Partitions: Partial partitions after December 31, 1978, are ignored for tax purposes. The HUF continues to be taxed as a single entity, and members remain liable for its tax obligations.

Critical Concepts:

1. Partition: Defined as either a physical division of property or a division as the property admits (if physical division is not possible). Mere severance of status (e.g., declaring separation without dividing property) is not considered a partition.
2. Partial Partition: A division that is partial regarding either the members or the properties of the HUF. Such partitions are not recognized for tax purposes if they occur after December 31, 1978.
3. Joint and Several Liability: Each member of the HUF can be held fully responsible for the tax liabilities of the HUF, regardless of their share in the property.

Compliance Steps:

1. Notify Assessing Officer: If a partition is claimed, members must inform the Assessing Officer during the assessment process.
2. Provide Evidence: Members must provide evidence of the partition, including details of the division of property.
3. Await Inquiry: The Assessing Officer will conduct an inquiry and record a finding on whether a partition has occurred.
4. Tax Payment: If a partition is recognized, taxes for the period up to the partition date must be paid by the HUF or its members, as applicable.

Examples:

1. Total Partition: An HUF with four members divides all its properties equally among them on June 30, 2023. The Assessing Officer recognizes the partition. The HUF’s income up to June 30, 2023, is taxed as a single entity, and the members are jointly liable for the tax.
2. Partial Partition (Post-1978): An HUF divides some properties among its members but retains others. Since this is a partial partition after December 31, 1978, it is ignored for tax purposes. The HUF continues to be taxed as a single entity, and all members remain liable for its tax obligations.
3. Mere Severance of Status: Members of an HUF declare they are no longer part of the family but do not divide the property. This is not considered a partition, and the HUF continues to be taxed as undivided.