Holding

Section 171(9) of the Income Tax Act, 1961 is constitutionally valid and does not violate Article 14 or exceed Parliament’s legislative competence.

Summary

The respondent, a Hindu Undivided Family (HUF) that was a partner in a firm, effected a partial partition on 13‑April‑1979 and the Income Tax Officer (ITO) recognised it under Section 171(2) of the Income Tax Act, 1961. For AY 1980‑81 the HUF filed a return excluding income from the partitioned assets. The Finance Bill (No. 2) 1980 inserted Section 171(9), which de‑recognises any partial partition effected after 31‑December‑1978, and the ITO reopened the assessment under Section 148, adding the omitted income. The HUF challenged the reassessment, and the Madras, Karnataka and Gujarat High Courts held Section 171(9) unconstitutional, violating Article 14 and Parliament’s legislative competence. The Supreme Court examined whether Parliament could amend the Act under List I entry 82, whether the cut‑off date was arbitrary, and whether the provision enlarged the scope of Sections 4 and 5. The Court held that the amendment was within legislative competence, the cut‑off date was not arbitrary, and the provision did not infringe Article 14 or the charging provisions. Consequently, the High Court judgments were set aside and the writ petitions dismissed.

Issues considered

The amendment inserting Section 171(9) of the Income Tax Act, 1961, is within Parliament’s legislative competence under List I entry 82.
The cut‑off date of 31‑December‑1978 in Section 171(9) is arbitrary or violative of Article 14.
Section 171(9) enlarges the scope of the charging provisions in Sections 4 and 5 of the Income Tax Act.
The validity of the reassessment under Section 148 in view of Section 171(9).

Legislation cited

Constitution of Indias. Article 14
Income Tax Act, 1922s. 25-A
Income Tax Act, 1961s. 148, s. 171(2), s. 171(9), s. 2(31), s. 256(2), s. 4, s. 5
Wealth Tax Act, 1957s. 20-A

Subjects

Hindu Undivided Familypartial partitionSection 171(9)legislative competenceArticle 14tax avoidancecut‑off datereassessmentconstitutional validity

Judgment

A UNION OF INDIA AND ORS.
v.
M.V. VALLIAPPAN AND ORS.

JULY 27, 1999

B [S.P. BHARUCHA, B.N. KIRPAL, S. RAJENDRA BABU,
S.S.M. QUADRI AND M.B. SHAH, JJ.]

Income Tt4 Act, 1961: Section 171(9) (inserted in 1980).

c Hindu Undivided Family-Partial partition-S.171 (9) de-recognised
partial partition effected after the cut off date-Legislative competence-
Held; Within legislative competence of Parliament-Further, S.171 (9) merely
restored the status quo ante prevailed prior to the 1961 Act-Constitution
of India, 1950, Sch. VII List I Entry 82.::_Income Tax Act, 1922, S.25-A.

D HUF-Partial partition-S.171 (9) de-recognised partial partition
effected after the cut offdate-Validity-Held: Although the benefits conferred
up'on those assessees who had partially partitioned prior to the cut off date ·
not withdrawn, yet S.171 (9) neither discriminatory nor arbitrary.
..
E Section 171 (9)-0bject of-Explained.

Section 171(9)-Validity-Not ultra vires Ss. 4 and 5.

HUF-Partial partition-S.171 (9) de-recognised partial partition-
F. Validity of-Held: S.171(9) is not an unnecessary provision-It is for the
Legislature to decide whether only non bona fide partial petition should be
de-recognised or not to recognise all partial partition hardship and inequities
have no role to play in taxation.

HUF-Partial partition-S.171 (9) de-recognised partial partition
G effected after the cut off date-Partial partitions effected prior to introduction
of Finance Bill (No. 2) 1980 were also rendered null and void-Effect of-
Held: Jn the circumstances of the case, mere conferring of benefit of such ....
partial partition on the assessee is of no significance-HUF concerned has
to be assessed as if no partial partition has taken place-Hence, assessee 's
objection to re-open the completed assessment, rejected.
H 1146
U.0.1. v. M.V. VALLIAPPAN 1147
--, Section 256(2)-/ncome tax-Reference-Question-Whether /TAT was A
right in holding that share income from the firm to the smaller HUFs could
not he clubbed in the hands of bigger HUFs-Held: Constitutionality of
S.171 (9) derecognising partial partition effected after the cut off date having
.been upheld by Supreme Court, order of High Court refusing to call for
reference of the said question, set aside--'/TAT directed to refer the question B
to High Court. ·

Constitution of India, 1950:

Article 14-Cut off date-Validity-Test-Held: Unless the cut off date
is shown to he capricious or whimsical in the circumstances, it cannot be C
dubbed as arbitrary even if there is no reason for its choice.

Wealth Tax Act, 1957:

Section 20-A-Constitutionality of-,Upheld.

The respondent-assessee was the karta of a Hindu Undivided Family D
(HUF) which was a partner in a partnership firm in which its funds were
invested. On 13-4-1979 a partial partition of the said HUF was effected which
was recognised by the Income Tax Officer (ITO) under Section 171(2) of the
Income Tax Act, 1961. Thereafter, the said HUF filed a return for the
assessment year 1980-81 which did not include the income from the partially E
partitioned properties. The ITO finalised the assessment in accordance with
the said return and also accepted the wealth tax return for the said assessment
year.

In the meanwhile, by Finance Bill (No.2) Section 171(9) was inserted
in 1980 which provided that partial partition was not to be recognised if it F
had taken place after 31-12-1978 and was given effect to from the assessment
year 1980-81.

Thereafter, the ITO reopened the completed assessment of the
respondent under Section 148 of the Act and a fresh assessment order was ·
made for the respondent-assessee, which included the income from the partially G
partitioned properties. The respondent filed a writ petition before the Madras
High Court challenging the aforesaid reassessmeht order.

The Madras High Court allowed the petition on the grounds that
addition of Section 171(9) was beyond legislative competence; that Section
171(9) was violative of Article 14 of the Constitution; that the cut off date H
1148 SUPREME COURT REPORTS [1999) 3 S.C.R.

A of31-12-1978 was arbitrary; and that by charging to tax in the hands of the
HUF, the income which did not belong to the HUF, Section 171(9) had enlarged
the scope of Sections 4 and 5 of the Act. The Karnataka High Court had
declared Section 20-A of the Wealth Tax Act, 1957 as void being violative
of Article14 of the Constitution. The Gujarat High Court refused to call for
B reference the question whether the ITAT was right in holding that the share
income from the firm to the two smaller HUFs could not be clubbed in the
hands of the bigger HUFs. Hence this appeal.

On behalf of the appellant-Revenue it was contended that those who had
partially partitioned HUF properties prior to the cut off date and those who
C had done it subsequently were both distinct and different classes and,
therefore, the cut off date is neither arbitrary nor discriminatory.

On behalf of the respondent-assessee it was contended that Section
171(9) was an unnecessary provision; that it prevented even genuine and
bona fide partial partition; that it had the effect of taxing the HUF at a higher
D rate of tax; that it made HUF liable to tax on assets over which it had no.
control; and that it resulted in hardships and inequity.

Allowing the appeal, this Court

HELD: 1.1. It cannot be held that insertion of Section 171(9) in the
E Income Tax Act, 1961 is beyond legislative competence. Parliament has the
authority to delete or amend any provis.ion of the Income Tax Act. The
legislative competence is to be decided on the basis of the Constitution that
empowers the Legislature to levy taxes on income. The relevant item 82 of
List I of the Seventh Schedule to the Constitution empowers the Parliament
F to enact the legislation for imposition of taxes on income other than
agricultural income. It is settled law that entries in the Lists are not powers
but are only fields of legislation and Entry 82 can sustain law made to
prevent evasion of tax. Further, the concept of partial partition of HUF was
not recognised under the Income Tax Act, 1922 and was recognised only
under the Income Tax Act, 1961. All th~t is done by the 1980 amendment
G is to restore the status quo ante that prevailed prior to the 1961 Act. It is
for the· legislation to decide whether the recognition of partial petition
introduced in the Income Tax Act, 1961 should continue or not.(1156-D-E]

Balaji v. ITO, (1961) 63 ITR 393, relied on.

H Sardar Baldev Singh v. CIT, (1960) 40 ITR 605, referred to.
U.0.1. v. M.V. VALLIAPPAN 1149
1.2. As per the object and reasons of the Amending Act, it was introduced A
because multiple Hindu undivided families were created by effecting partial
partitions as regards persons constituting the joint family or as regards the
properties belonging to the Joint family or both, which resulted in tax
reduction or evasion and with a view to curbing this creation of multiple
Hindu undivided families by making partial partitions, it was proposed to de- B
recognise partial partitions of HUF effected after 31-12-1978. [1156-G]

2.1. It is true that two distinct classes are created. Benefit which is
conferred upon those assesses who have partially partitioned their property
prior to the cut off date is not withdrawn and other who partitioned their
property after the cut off date would not get the benefit but that would hardly C
be a ground for holding it as violative of Article 14. It is settled law that
differentiation is not always discriminatory. If there is a rational nexus on
the basis of which differentiation has been made with the object sought to
be achieved by particular provision, then such differentiation is not
discriminatory and does not violate the principles of Article 14 of the
Constitution. In the present case, there is intelligible basis for differentiation D
and the classification is having rational nexus of achieving the object of
preventing the creation of further multiple Hindu undivided families for
reduction of tax liabilities. Further, for the validity of the Section, it is not
necessary for the Legislature to withdraw the benefit, which is already
conferred. [1158-B-E)
E
2.2. Also, the cut off date viz., 31-12-1978 cannot be said to be arbitrary.
The Amending Bill was introduced in June, 1980 and is given effect to from
the assessment year 1980-81. It is settled law that the choice of a date as
a basis for classification cannot always be dubbed as arbitrary even if no
particular reason is forthcoming for the choice unless it is shown to b.e p
capricious or whimsical in the circumstances. [1158-F-G)

University Grants Commission v. Sadhana Chaudhary, [1996)10 SCC
536, relied on.

3. Charging Sections 4 and 5 are to be read with the definition of the G
word 'person' given in the Act, that is, the tax is to be charged in respect
of the total income of the previous year of every person. The word 'person'
is given the meaning in Section 2(31), which, inter-alia, includes a Hindu
undivided family. It is open to the Legislature to give different meanings to
the word 'person' for the purpose of the Act which may or may not include
~UF to take the benefit of the Act as available or to partition the HUF as a H
rl

.1150 SUPREME COURT REPORTS [1999] 3 S.C.R.

A whole. Even prior to the amendment, all partial partitions were not recognised i
under the Act.· Partial partition, which was only in accordance with the ' I
Explanation, was recognised. Further, prior to the Income Tax Act, 1961,
there was no question of recognising partial partition. Even with regard to
total partition, it was required to satisfy all the conditions prescribed in
B Section 25-A of the Income Tax Act, 1922. After the new Act, partial partition
was not recognised unless it satisfied the conditions laid down in the
Explanation. Therefore, the contention that Section 171(9) entrenches upon
the charging provisions in Sections 4 and 5 of the Act is without any basis.
(1159-B-D]

C Kal/oomal Tapeswari Prasad (HUF) v. CIT, (1982) 133 ITR 690; Joint
Family of Udayan Chinubhai v. CIT, (1967) 63 ITR 416 SC and ITO v. N.K.
Sarac/a Thampatty, (1991) 187 ITR 696, relied on.

Kalwa Devadattam v. Union, of India, (1963) 49 ITR SC 165 and ITO
v. A. Thimmayya, (1965) 55 ITR 666 SC, referred to.
D 4. It is for the Legislature to recognise or riot to recognise partial
partition or HUF propertjr for the purpose of levy and collection of tax, it is
also for the Legislature to decide whether only non bona fide partial partition .
undertaken for reducing the tax liability should not be recognised or not to
recognise all partial partitions of HUF properties. Further, consideration of
E hardship is totally irrelevant for deciding the question of legislative
competence. In the case of taxation, it is settled law that hardship or equity
has no role to play in determining eligibility to tax and it is for the Legislature
to determine the same. Lastly, once the partial partition is not recognised,
tax is to be calculated as if the assets are held by the HUF. Hence, the
question whether the HUF is required to recover tax from the person to whom
F the properties are allotted, is not required to be considered by the Taxing
authority as for the purpose of income tax the properties belong to the HUF.
If the HUF finds any hardship, it is for the members of the HUF to have the
partition of the entire estate and not to have parital partition. (1161-E-G]
.....-
Sardar Baldev Singh v. C.I.T., (1960) 40 ITR 605 and Balaji v. ITO
G Special Investigation Circle Ako/a & Ors., (1961)63 lTR 393, relied on.

5. The mere fact that parital partition was recognised and benefit was
given to the assessee has no significance and the concerned HUF is to be
assessed under the Act as if no partial partition has taken place. [1161-G]

H 6. The judgment of the Karnataka High Court holding Section 20-A
U.0.1. v. M.V. VALLIAPPAN [SHAH, J.] 1151
of the Wealth Tax Act, 1957 as unconstitutional is quashed and set aside. A
The order of the Gujarat High Court rejecting applications under Section
256(2) of the Income Tax Act, 1961 is set aside and the Income Tax Appellate
Tribunal shall refer the question to the High Court for determination.
[1162-A-B]

CIVIL APPELLATE JURISDICITON: Civil Appeal Nos. 1612-23 B
of 1998 Etc.

From the Judgment and Order dated 13.1.88 of the Madras High Court
in W.P. Nos. 992-93/81, 162 and 6036/83,904-05, 906,994-95,5430, 6162 and 9283
of 1984.
c
S.S. Vaidyanathan, Additional Solicitor General, S.K. Dwivedi, Ranbir
Chandra, S.D. Sharma, Hemant Sharma, S.Wasim A. Quadri, Shivram, Jayant
Tripathi, B.K. Prasad and P. Parmeswaran for the Appellants.

S. Ganesh, Pratap Venugopal, K.J. John (Ms. Radha Rangawamy and
Ms.Janaki Ramachandran) (NP) Ms. Asha G. Nair and Ms. Prasanthi Prasad D
for the Respondents.

The Judgment of the Court was delivered by

SHAH, J. These appeals by special leave are filed against the judgments
and orders passed by the High Court of Madras dated 13.1.1988 in Writ E
Petition Nos. 992 and 993 of 1981, l 62&6036 of 1983, 904-905,994, 995, 5430,
6162 and 9283 of 1984, by the High Court ofKarnataka dated 9. l l.1993 in Writ
Petition Nos. 12312 to 12317of1987 anddated25.l l.1992 in W.P. No. 23708
of 1992, and by the High court of Gujarat dated 29.6.1993 in Income Tax
Application Nos. 164 and 165 of 1993.
F
By a common judgment and order passed in various writ petitions filed
before the Madras High Court MY. Valliappan & Ors. v. lncome-Tax Officer
& Others, 170 ITR 238, the High Court struck down the provisions of Section
171(9) of the Income Tax Act, 1961 as violative of Article 14 of the Constitution
of India and that it suffers from the vice of legislative incompetence. In the G
High Court, number of writ petitions were filed involving questions relating
to the validity; scope and interpretation of the provisions of Section 171 (9).
For our purpose, it would suffice to mention facts of Writ Petition No. 994
of l.984 for deciding the question involved in these appeals. In the said
petition, ft was the case of the petitioner that he was a Katra of a Hindu
undivided fam1~y consisting. of himself, his wife, his minor son and minor H
1152 SUPREME COURT REPORTS [1999) 3 S.C.R.

.
A daughter. It was. his contention that the Hindu undivided family was a partner
in a partnership firm in which its funds were invested. On 13th April, 1979,
a partial partition of certain assets belonging to the Hindu undivided family
was effected with effect from that date by executing a deed of partition. An
application under Section 171(2) of the Income Tax Act, 1961 for recognition
of the said partial partition came to be filed before the Income Tax Officer. The
B Income Tax Officer passed an order dated 28th December, 1979 recognizing
the partial partition·. Thereafter for the assessment year 1980-81, a return was
submitted on behalf of the Hindu undivided family on April 12, 1980 which
did not include the income from the property which was the subject matter
of partial partition. The income derived from the assets that were the subject
C matter of partial partition were declared by the respective individuals in their
respective returns. In accordance with the said return, assessment was finalised.
Similarly, wealth tax return for the assessment year 1980-81 was also filed and
accepted by the Income Tax Officer. Thereafter, a notice dated March 4, 1983
under Section 148 of the Act was received by the petitioner stating that
income of the petitioner had escaped assessment and the Income Tax Officer
D proposed to reopen the completed assessment for the year 1980-81. The
assessee objected to the reopening of the assessment on the ground that
order under section 171 of the Act rcecognising the partition not having been
cancelled or revoked, continued to be effective and, thereafter, no income
from the partitioned properties could be assessed in the hands of the Hindu
E undivided family. These objections were rejected by the l.T.O. by order dated
30th November, 1983. Fresh assessment order for H.U.F. was made by including
the income relating to the assets which were partially partitioned and allotted
to the individual members of the Hindu undivided family. That re-assessment
order was challenged by filing writ petition. Facts in the other writ petitions
were also similar to the facts as stated above.
F
The High Court after considering the various contentions and decisions
relied upon by the parties arrived at and summarised its conclusion as under:-

"(I) Section 171(9) of the Income-Tax Act, 1951, cannot be sustained
on the ground that it is a measure to counteract the tendency to tax
G avoidance and it suffers from the vice of legislative incompetence.

(2) Section 171(9) of the Income-Tax Act, 1961, is also void on
the ground of violation of Article 14 of the Constitution of India.

(3) Section 171(9) of the Income-Tax Act, 1961, entremc'hes upon
H the charging provisions in section 4 of the Income-Tay,, Act, 1961, and

,
U.0.1. v. M.V. VALLIAPPAN [SHAH, J.] 1153
purports to bring to charge the income which does not belong tothe A
Hindu undivided family to be assessed in the hands of the Hindu
undivided family. The provision thus enlarges the scope of sections
4 and 5 of the Act and is therefore invalid.

(4) Section 171(9) of the Income Tax Act 1961 has the effect of
fastening a penal liability on the Hindu undivided family when in fact, B
in the case of a partial partition. The liabjlity for concealment of
income is that of the member of the Hindu undivided family who
earned the income in his own right and not of the Hindu undivided
family.

(5) The effect of Section 171(9) of the Income-Tax Act, 1961, is C
that it virtually negatives the right of partition under the personal law
only in certain cases of partition after December 31, 1978, and there
is no valid basis of justification for treating Hindu undivided families
separately in a hostile manner with reference to the date December 31,
1978, the choice or the date being clearly arbitrary.
D
(6) The operation of Section 171(9) of the Income-Tax Act, 1961,
is restricted only to cases where a claim in respect of a partial partition
which is effected after December 31, 1978, is made for the first time
in the assessment year 1980-81.

(7) The provisions of Section 171 (9) of the Income Tax Act. l 961, E
will not fasten any liability in respect of a partial partition which has
already been recognised in the assessment year 1979-80 and a finding
recorded in respect of such a claim for the assessment year 1979-80
will not be affected by the invalidating provision in clause (a) of sub-
section. (9) of Section 171 of the Act." p
In Civil Appeal Nos. 12590/95 & 5743-48 of 1995, a similar view has been
taken by the Kamataka High Court following the decision rendered by the
Madras High Court. The Kamataka High Court has held Section 171 (9) of the
Income tax Act, 1961 as unconstitutional and also declared Section 20A if The
Wealth Tax Act 1957 which is substantially similar to Section 171(9) of the G
Income Tax Act as void being violative of Article 14 of the Constitution. The
Gujarat High Court has rejected the Income Tax Applications filed before it
for raising and referring the following question:-

"whether on the facts and in the circumstances of the case and in law,
the Tribunal was right in coming to the conclusion that share income H
1154 SUPREME COURT REPORTS (1999] 3 S.C.R.

A from the firm to the two smaller HUFs cannot be clubbed in the hands
of the bigger HUFs.

In the said cases also, l.T.O. refused to recognise partial partition in
view of the provisions of Section 171 (9) of the Act and added the share
income of two smaller HUF's in the hands of the assessee bigger HUF.
B
Since the question involved in all these cases is of constitutional
validity of Section 171 (9) of the Income Tax Act, 1961, all these matters· were
directed to be placed together before the Constitution Bench. Hence, these
appeals are disposed of by this common judgment and order.

C Learned counsel appearing on behalf of the appellant-Revenue submitted
that the findings given by the High Court are, on the face of it erroneous.
He contended that there is no reasons for holding that Section 171(9) suffers
from the vice of legislative incompetence or that the prescribed cut off date
as 31st December, 1978 is violative of Article 14 of the Constitution of India.
D The cut off date is prescribed after taking into consideration the assessment
year and is given effect from the assessment year 1980-8L It is his further
submission that those who have partially partitioned HUF's properties prior
to cut off date and those who have done it subsequently are both distinct
and different classes. As against this, learned Counsel for the respondents
·,
submitted that the reasons recorded by the High Court for holding sub-
E section (9) to be invalid do not call for any interference.

Before appreciating the contentions raised by the learned Counsel for
the parties, it will be necessary to refer to the relev~t part of Section 171 of
the Act which is as under:

F "171 (I) A Hindu family hitherto assessed as undivided shall be
deemed for the purpose 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.

(2) Where at the time of making an assessment under Section 143
G or Section 144, it is claimed by or on behalf of any member of Hindu
family assessed as undivided that a partition, where 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.

H (3) On the completion of the inquiry the (Assessing) Officer shall
U.0.1. v. M.V. VALLIAPPAN [SHAH, J.] 1155 /
record a finding as to whether there has been a total or partial partition A
of the joint family property and if there has been such a partition, the
date on which it has taken place.

(4) to (8) xx xx

(9) Notwithstanding anything contained in the foregoing provision of B
this section, where a partial partition has taken place after the 31" day
of December, 1978, among the other members of a Hindu undivided
family hitherto assessed as undivided,--

(a) no claim that such partial partition has taken place shall be
inquired into under sub-Section· (2) and no finding shall be C
recorded under sub-Section (3) that such partial partition had
taken place and any finding recorded under sub-section (3) to
that effect whether before or after the 18th day of June, 1980,
being the date of introduction of the Finance (No.2) Bill, 1980,
shall be null and void;
(b) Such family shall continue to be liable to be assessed under this
D
Act if no such partial partition had taken place;
(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 E
payable under this Act by the family in respect of any period,
whether before or after such partial partition;
(d) The several liability of any member or group of members aforesaid
shall be computed according to the portion of the joint family
property allotted to him or it at such partial partition,
F
And the provisions of this Act shall apply accordingly.

Explanation_ _ _"

From the aforesaid section, it is clear that for the purposes of income
tax, the concept of partial partition of HUF was recognised, but is done away G
with by the amendment which specifically provides that where a partial
-~
partition has taken place after 31" December, 1978 no claim of such partial
partition having taken place shall be inquired into under sub-section (2) and
no finding shall be recorded under sub-section (3) that such partial partition
has taken place. If any such finding is recorded under sub-Section (3) whether
before or after 18th June, 1980 being the date of introduction of Finance Bill H
1156 SUPREME COURT REPORTS [1999] 3 S.C.R.

A (No. 2) 1980, the same shall be null and void. The effect of the aforesaid sub-
section is that for the purposes of income-tax partial partitions taking place
on or after 1-1-79 are not to be recognised. If a partial partition has taken
place after the cut off date no inquiry as contemplated under sub-section (2)
by the Income-Tax Officer shall be held. Even ifthe inquiry is completed and
B finding is given, it would be treated as null and void. In this view of the
matter, contention raised in some of the petitions by the learned Counsel for
the respondents that partial partition took place on l 31h April, 1979 and that
in the assessment year it was recognised and benefit was given to the
assessee, 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
C be inquired into and if inquired the findings would be null and void. Such a
family is to be assessed under the Act as if no partial partition has taken
place.

The next question is whether the amendment to the aforesaid section
can be said to be in any way beyond the legislative competence. In our view,
D it is difficult to comprehend that the said amendment can be termed as beyond
legislative competence. The Parliament has the authority to delete or amend
any provision of the Income Tax Act and it cannot be said that it is beyond
legislative competence. The legislative competence is to be decided on the
basis of the Constitution that empowers the Legislature to levy taxes on
E income. The relevant item 82 of List I of the Seventh Schedule to the
Constitution empowers the Parliament to enact the legislation for imposition
of taxes on income other than agricultural income. Further, the concept of
partial partition of HUF was not recognised under the Income Tax Act, 1992
and was recognised only under the Income Tax Act, 1961. All that is done
by the amendment is to restore the status quo ante that prevailed prior to
F 1961 Act. It is fqr the legislature to decide whether the recognition of partial
partition introduced in the Income-Tax Act should continue or not. If it
considers that it has led to abuses or inconvenience, it is entitled ·to amend
or delete. As per the object and reasons of the Amending Act, it was
introduced because multiple Hindu undivided families were created by effecting ·
G partial partitions as regards persons constituting thejoint family or as regards
the properties belonging to the joint family or both, which resulted in tax
reduction or evasion and with a view to curbing this creation of multiple
Hindu undivided families by making partial partitions, it was proposed to de-
recognise partial partitions of HUF effected after 3 1st December, 197 8 for tax
purposes. By having multiple partial partitions qua the properties or the
H members, it is possible to manipulate the affairs of the HUF for reduction of
U.0.1.v. M.V. VALLIAPPAN[SHAH,J.] 1157
tax liability and to prevent such manipulation, sub-section (9) is added. A
Hence, it would be difficult to hold that addition of sub-Section 171(9) is
beyond the legislative competence.

Further in the case of Balaji v. Income Tax Officer, Special Investigation
Circle, Ako/a and Others, (196 l) 63 ITR 393, similar contention was considered
by this Court and it was held that it is settled Jaw that entries in the lists are B
not powers but are only fields of legislation and Entry 82 can sustain law
made to prevent the evasion of tax. The Court dealt with the validity of
Section 16(3) (a) (i) & (ii) of the Income Tax Act, 1922 which provided that
for computing the total income of any individual for the purpose of assessment,
the shares in the profits of the firm received by the wife and/or minor children C
shall be included in the total income of the individual if he is the partner of
the said firm. The Court held that sub-section 3(a)(i) and (ii) was enacted for
preventing evasion of tax and was well within the competence to Federal
Legislature. On the question of legislative competence, the Court referred to
earlier decision in the case of Sardar Baldev Singh v. C.I.T, (1960) 40 ITR 605
and held as under :- D
"So entry 54 (Government oflndia Act, 1935) should be read not
only as authorising the imposition of a tax but also as authorising an
enactment which prevents the tax imposed being evaded. If it were not
to be so read then the admitted power to tax a person on his own
incom:, might often be made infructuous by ingenious contrivances.'' E
The decision holds that the said entry can sustain a law made to
prevent the evasion of tax."

The Court also dealt with the question of constitutional validity on the
ground of violation of the doctrine of equality and negatived the contention F
that the legislature ought to have classified genuine and non-genuine cases

- of partnership by holding that demarcating a group any further, by sub
classification as genuine and non-genuine partnerships, might defeat the
purpose of the Act. The Court observed as under:-

"This mode of taxation may be a little hard on a husband or a father
G
in the case of genuine partnership with wife or minor children, but
that is offset, to a large extent, by the beneficent results that flow
therefrom to the public, namely, the prevention of evasion of income-
tax, and also by the fact that, by and large, the additional payment of
tax made on the income of the wife or the minor children will ultimately H
1158 SUPREME COURT REPORTS (1999] 3 S.C.R.

A be borne by them in the final accounting between them.''
Next ground is with regard to violation of Article 14. The amendment
is brought with effect from 151 April, 1980 and ·is to apply in relation to
assessment years 1980-81 and thereafter. It is true that two distinct classes ...
are created-one of families having partial partition which has taken place prior '
B to the. cut off date and other of partial partition taking place after the cut off
date. Benefit which is conferred upon those assessees who have partially
·partitioned their property prior to the cut off date is not withdr.awn and others
who partitioned their property after the cut off date would not get the same,
but that would hardly be a ground for holding it as violative of Article 14.
C It is settled law that differentiation is not always discriminatory. If there-is a
rational nexus on the basis of which differentiation has been made with the
object sought to be achieved by particular provision, then such differentiation
is not discriminatory and does not violate the principles of Article 14 of t~e
Constitution. This principle is too well-settled now to be reiterated J>y referenqe
to cases. Further, whether the same result or better result could-.have been
D achieved and better basis of differentiation could have been evolved is within
the domain of Legislature and must be left to its wisdom. In the present ca5e,
there is intelligible basis for differentiation and the classification is having
rational nexus of achieving the object of preventing the creation of further
multiple Hindu undivided families for reduction of tax liabilities. Further, for
the validity of the Section, it is not necessary for the legislature to withdraw
E the benefit which is already conferred.
"
Secondly, cut off date 31st December, 1978 cannot said to be arbitrary.
The Amending Bill was introduced in June, 1980 and is given effect to from
the assessment year 1980-81. It is settled law that the choice of a date as a
basis for classification cannot always be dubbed as arbitrary even if no
F particular reason is forthcoming for the choice unless it is shown to be
capricious or whimsical in the circumstances; while fixing a line, a point is
necessary and there is no mathematical or logical way of fixing it; Precisely,
the decision of the Legislature or its delegate must be accepted unless it is
very wide off the reasonable mark. [Re : University Grants Commission, etc;.
G v. Sadhana Chaudhary and Others, etc., [1996] 10. S.C.C. 536. The learned
Counsel for the Respondent was not in a position to point out any ground
for holding' that the said date is capricious or whimsical in the circumstances
of the case. In this view of the matter, the finding given by the High Court
that there is no valid basis of justification for treating Hindu undivided family
separately in a hostile manner with reference to the date, i.e., 31st December,
H 1978, is on the face of it erroneous.
U.O.I. v. M.V. VALLIAPPAN [SHAH, J.] 1159
The next reason given by the High Court is that it entrenches upon the A
charging provisions in Sections 4 & 5 of the Income Tax Act and purports
to charge the income which does not belong to HUF to be assessed in the
hands of HUF. Hence it enlarges the scope of Sections 4 & 5 of the Act. In
our view, this reason is ulso devoid of any substance because charging
Sections 4 & 5 are to be read with the definition of the word 'person' given
in the Act, that is, the tax is to be charged in respect of the total income of B
the previous year of every person. Word 'person' is given the meaning in
Section 2(31) which, inter-alia, includes a Hindu undivided family. It is open
to the Legislature to give different meaning to the word 'person' for the
purpose of the Act which may or may not include HUF or such other legal
entities. In such a situation, it is open to the HUF to take the benefit of the C
Act as available or to partition the HUF as a whole. It is to be stated that
even prior to the amendment, all partial partitions were not recognised under
the Act. Partial partition which was only in accordance with the Explanation
was recognised. Further, prior to Income Tax Act 1961, there was no question
of recognising partial partition and the relevant provision under the Income
Tax Act, 1922 was Section 25A. After considering the various decisions, this D
Court in the case of Mis. Kalloomal Tapeswari Prasad (HUF), Kanpur v.
C.l T., Kanpur, (1982) 133 I. T.R. 690 held that the substance of decisions in
Kalwa Devadattam v. Union of India, (1963) 49 ITR (SC) 165, in Add. ITO
v. A. Thimmayya, (1965) 55 ITR 666 SC, and in Joint Family of Udayan
Chinubhai v. C.l T., (1967) 63 ITR 416 SC was that under Section 25-A of the E
1922 Act a Hindu undivided family which had been assessed to tax could be
treated as undivided and subjected to tax under the Act in that status unless
and until an order was made under Section 25-A(I); if in the course of the
assessment proceedings it is claimed by any of the members of the Hindu
undivided family that there has been total partition of the family property
resulting in physical division thereof as it was capable of, the assessing F
authority should hold an inquiry and decide whether there had been such a
partition or not; If he held that such a partition had taken place, he should
' ... proceed to make an assessment of the total income of the family as if no
partition had taken place and then proceed to apportion the liability as stated
in Section 25-A amongst the individual members of the family. If no cle&im was G
made or ifthe claim where it was made was disallowed after inquiry, the Hindu
undivided family would continue to be liable to the assessed as such. This
was the legal position under the 1922 Act. The Court further held as under:-

"Hindu law does not require that the property must in every case be
petitioned by metes and bounds or physically into different portions H
1160 SUPREME COURT REPORTS [1999] 3 S.C.R.

A to complete a partition. Disruption of status can be brought about by
any of the modes referred to above and it is open to the parties to
. enjoy their share of property as tenants-in-common in any manner
known to law according to their desire. But the income tax law
introduces certain conditions of its own to give effect to the partition
under Section 171 of the Act."
B
The Court also held :

"If a transaction does not satisfy the abov~ additional conditions,
it cannot be treated as a partition under the Act even though under
Hindu law there has been a partition - total or partial. The consequence
c will be that the undivided family will be continued to be assessed as
such by reason of sub-Sec:tion (1) of Section 171 ".

From the aforesaid decisions, it is clear that prior to Income tax Act,
1961, there was no question of recognising partial partition. Even with regard
to total partition, it was required to satisfy all the conditions prescribed in
D Section 25A and an order was to be passed for that purpose under Section
25A(l). If the claim to partition was disallowed after inquiry, the HUF was
liable to be assessed as such. After the new Act, partial partition was not
recognised unless it satisfied the conditions laid down in the Explanation.
Therefore, the contention that sub-Section (9) entrenches upon charging
E provisions in Sections 4 & 5 of the Act is without any basis.

The aforesaid case of Kallooma/ was relied upon in the case of/. T. 0.
v. N.K Sarada Thampatty, (1991) 187 ITR 696, and the Court observed that
in considering the factum of partition for the purpose of amendment, it is not
permissible to ignore the special meaning assigned to 'partition' under the
F Explanation to Section 171 even if the partition is to be effected by a decree
of the Court. The legislature has assigned special meaning to the word
'Partition' under the Explanation which is different from general principles of
-
Hindu law and it contains the deeming provisions under which partition of .... ;

the property of HUF could be accepted.

G In this view of the matter, it cannot held that by addition of sub-Section
(9), scope of Sections 4 and 5 of the Act is enlarged and, therefore, it is
beyond legislative competence.

The learned Counsel for the respondent, inter alia, submitted that : -
-
H (1) Such a drastic and sweeping provision was arbitrary and excessive
U.0.1. v. M.V. VALLIAPPAN [SHAH, J.] 1161
and was not at .all necessary to prevent the abuse of partial A
partition as a tax avoidance tool.
(2) Partial partition can be for absolute, genuine and bona fide need
and if it was not genuine or for bona fide need as per Explanation,
it was not recognised. Therefore, there was no necessity of
amending the Act. B
(3) Once, there is a partial partition and if it is not recognised, the
income received from the partitioned assets would be taxable in
the hands of HUF at a significantly higher rate of tax than the
rate applicable to the separated member.
(4) Under the provisions of the Act, HUF can be liable to pay the C
tax without having control over the assets which are partitioned.
(5) Considering this hardship and inequities resulting from Section
171 (9), the Court has rightly held the provisions to be arbitrary
and violative of Article 14 of the Constitution.
D
In our view, the aforesaid submissions are without any substance and
similar contentions are dealt with and rejected by this Court in the cases
mentioned above. [Sardar Baldev Singh 40 /TR 605 and Balaji 63 /TR 393
(supra)]. It is for the Legislature to recogiiise or not to recognise partial
partition HUF property for the purpose of levy and collection of tax; it is also
for the legislature to decide whether only non bona fide partial partition E
undertaken for reducing the tax liability should not be recognised or not to
recognise all partial partitions of HUF properties. Further, consideration of
hardship is totally irrelevant for deciding the question of legislative
competence.

In the case of taxation, it is settled law that hardship or equity has no
F
role to play in determining eligibility to tax and it is for the legislature to
determine the same. Lastly, once the partial partition is not recognized, tax is
to be calculated as if the assests are held by the HUF. H~nce, the question
whether the HUF is required to recover tax from the person to whom the
properties are allotted, is not required to be considered by the Taxing authority G
as for the purpose of income tax the properties belong to the HUF. If the HUF
finds any hardship, it is for the members of HUF to have the partition of the
entire estate and not to have partial partition. Therefore, there is no substance
in the contentions raised by the learned Counsel for the Respondent.

In this view of the matter, aforesaid appeals are allowed. The judgments H
1162 SUPREME COURT REPORTS (1999] 3 S.C.R.

A . and orders holding Section 171 (9) of the Income Tax Act, 1961 and Section
20A of the Wealth Tax Act, 1957 as unconstitutional are quashed and set
aside. The writ petitions filed by the respondents as mentioned above before
the Madras High Court and Kamataka High Court challenging the validity of
Section 171 (9) of the Income Tax Act and for consequential reliefs are dismissed.
The orders of the Gujarat High Court rejecting applications under Section
B 2S6(2} of the Income Tax Act, 1961 are also set aside 'and in the said matters,
the Income Tax Appellate Tribunal, Ahmedabad shall refer the questions to
the High Court for determination.

Ordered accordingly.
c No order as to costs.

v.s.s. Appeals allowed.

... .