Section 171 of ITA, 1961 : Section 171: Assessment After Partition Of A Hindu Undivided Family

Explanation using Example

Imagine a joint Hindu family that owns a business and various properties, and files taxes as a Hindu Undivided Family (HUF). One day, two of the family members decide to separate their shares and live independently. They approach the Income Tax Department to recognize this partition.

The Assessing Officer, upon receiving the claim for partition, issues notices to all family members to investigate the matter. After the inquiry, the officer confirms that a partial partition has occurred and records the date of partition.

For tax purposes, the family's income up to the date of partition is assessed as if the family was still undivided. Each member, now separated, is also held jointly and severally liable for the tax due on the income assessed for the period before the partition.

If the partition had occurred after the end of the financial year, the entire year's income would be taxed as if no partition had taken place. However, the tax liability would still be joint and several among the members as per their share received in the partition.

Later, if the Assessing Officer discovers that the family had already partitioned before the assessment was completed, the tax will be recovered from each member who was part of the HUF before the partition, with each person responsible for the tax proportionate to their share of the property.

This section also applies to penalties, interest, or other sums related to the period up to the date of partition, ensuring that the family's tax liabilities are settled according to the pre-partition status.

In case of any partial partitions after December 31, 1978, the law regards them as if they never happened for tax purposes, and the family is assessed as an undivided unit. This is to prevent abuse of the tax benefits available to HUFs.