(i) In the case of total or complete partition, the Hindu Undivided Family ceases to exist as such and therefore, where there is a proper claim for partition and where the same is accepted by the AO, the Hindu Undivided Family ceases to be assessed as an HUF after the date of total partition. However, in the case of a partial partition, the Hindu Undivided Family does not cease to exist as such and hence the HUF continues to exist. For income of the assets which are partitioned and in respect of vhich the partial partition is accepted, no assessment can be made in respect of the income of those assets in the hands of that HUF, after the date of partition. Partial partition of an HUF after 31 December 1978, cannot be recognised by the AO and will be ignored.
(ii) Where, at the time of making an assessment under Section 143 or 144, it is claimed by or on behalf of any member of a Hindu Undivided Family that a total partition has taken place amongst the members of such family, the AO shall make an inquiry thereon after giving notice of the inquiry to all the members of the family.
(iii) On the completion of the inquiry, the AO shall record a finding as to whether there has been a total partition of the joint family property, and if there has been such a partition, the date on which it has taken place.
(iv) The term ‘Partition’ means:
(a) where the property admits of a physical division, 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
(b) 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. “Partial partition” means a partition which is partial as regards the persons constituting the Hindu Undivided Family or the properties belonging to the HUF or both. As stated earlier, partial partition after 31 December 1978 is not recognised by the AO.
(v) Where a finding of total partition has been recorded by the AO under Section 171 of the IT Act, and the partition has taken place during the previous 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, be jointly and severally liable for the tax on the income so assessed.
(vi) If the partition has taken place after the expiry of the previous year, the income of the joint family shall be assessed as if no partition has taken place.
(vii) After the completion of the assessment of the HUF, if the AO finds that the family has already effected a total partition, the AO shall proceed to recover the tax return 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. The several liability of any member or any group of members thereunder shall be computed according to the portion of the joint family property allotted to him or it at the partition.
(viii) An order under Section 171 of the Income Tax Act remains effective for, and should be followed by the AO for the relevant year for which the order is passed as well as all subsequent years. If the property has been physically divided in definite portions, the AO cannot refuse to recognise the partition merely because the shares allotted to the various members are not in accordance with the parties’ legal rights or because the interests of minor coparceners are prejudiced by inequality in the division of property. An unequal partition of the family properties amongst the Karta and his sons does not give rise to any disposition made by the Karta in favour of his relatives. In a partition of an HUF there could be disparities for a variety of reasons.
Thus, where a genuine complete partition takes place and some property is divided among the persons entitled to the share on partition, the income from the partitioned assets is liable to be assessed in the hands of the smaller branches of the HUF formed by the coparceners of a bigger Hindu Undivided Family. Where certain income is assessed in the hands of a bigger Hindu Undivided Family which has some coparceners who are the Kartas of their respective branches of the HUFs, the complete partition of the bigger HUF can enable the smaller HUFs to have their own separate income tax files if they did not exist before. The total partition of a Hindu Undivided Family can be taken advantage of by an HUF for effecting tax saving by proper tax planning. In the case of partition of an HUF, the important condition that must be remembered by the HUF is that an application under Section 171 of the Income Tax Act must be made to the AO assessing the bigger HUF.