PRESENTATION ON

1
PRESENTATION ON HINDU UNDIVIDED FAMILY
ORGANISED BY CA BRANCH DEHRADUN ON DECEMBER 19,
2014 AT DEHRADUN ICAI BRANCH
Presented by CA Verendra Kalra
2
THE HINDU LAW

• Acts Codified
• Hindu law is basically derived from Srutis,
  Smritis, and customs. In post independent India,
  the following Acts have codified some of these
  aspects of the Hindu Law
• Hindu Marriage Act, 1955
• Hindu Succession Act, 1956 significantly
  amended by The Hindu Succession (Amendment) Act,
  2005
• Hindu Minority and Guardianship Act, 1956
• Hindu Adoptions and Maintenance Act, 1956
• The Hindu Womens Rights to Property Act, 1937

3
AN HUF

• The Meaning
• A joint Hindu family is a group of relatives tied
  together by ties of kinship marriage and
  descended from a common ancestor.
• HUF is automatically constituted on marriage
• It includes children, children's children down
  the line, spouses. HUF is formed by the status of
  person in a family and not through any contract
• Persons belonging to Jain, Sikh and Buddhist
  community can also constitute an HUF

4
SCHOOL OF THOUGHT

• Mitakshara School
• The Mitakshara School exists throughout India
  except in the State of Bengal and Assam.
• Mitakshara is applicable wherever Dayabhaga is
  silent.
• The Inheritance is based on the principle of
  propinquity i.e. the nearest in blood
  relationship will get the property.
• Sa-pinda relationship is of blood. The right to
  Hindu joint family property is by birth. So, a
  son immediately after birth gets a right to the
  property.
• Dayabhaga School
• It exists in Bengal and Assam only.
• Not being discussed being of lesser relevance.

5
SCHOOL OF THOUGHT

• Mitakshara School
• The system of devolution of property is by
  survivorship ( subject to amendments in 2005 in
  Hindu Succession Act).
• The share of coparcener in the joint family
  property is not definite or ascertainable, as
  their shares are fluctuating with births and
  deaths of the coparceners.
• Coparcener has no absolute right to transfer his
  share in the family property, as his share is not
  definite.

6
CORPUS OF AN HUF

• Corpus Formation of an HUF
• Once a member of an HUF receives any ancestral
  property from any ancestor three generations
  above him, an HUFs corpus is automatically
  created.
• Another way to form the corpus of an HUF is by
  receiving an asset or property by way of gift
  from a lineal ascendant/outsider with a specific
  instruction by the donor that the same is being
  gifted to the HUF.
• Existence of nucleus or joint family property is
  not necessary to recognize the claim of status of
  an HUF. This may have relevance only from Income
  Tax point of view.
• It has been established that since the HUF is a
  creature of Hindu Law, it can exist even without
  any nucleus or ancestral joint family property.

7
KARTA

• Who is a Karta
• A joint family is headed by a Karta who is
  normally the eldest living male member of the
  family
• He is the head of the Joint family
• He acts on behalf of the joint family.
• Karta has some peculiar rights and obligations
  under traditional Hindu Law, he has the power and
  duty of superintendence of how the joint family
  is run
• The position of the Karta is "Sui generis". Sui
  generis in the sense that his position is
  not that of the Manager of a Commercial Firm and
  his relationship with the other members is
  not that of the Principal and Agent or Firm and
  Partners.

8
KARTA

• Who can be a Karta
• If Karta passes away, the next heir in line can
  be Karta
• Wife cannot become the Karta until there is a
  surviving son in the family. In case all the sons
  are minors, then the wife can be a Karta in a
  representative and Guardian Capacity.
• After amendment in the Hindu Succession Act,
  daughter of a coparcener has equal right as of a
  son. Therefore, daughter being coparcener and can
  also be a Karta.
• A minor male(coparcener) may also act as a
  Karta through his legal guardian till he becomes
  a major.
• The right to be a Karta can be given up his right
  and the next son or daughter in line can take his
  place.
• The Karta can function in dual capacity and can
  claim remuneration and other benefits as Manager
  from the HUF

9
KARTA

• The Power of Alienation
• "Alienation" means "Transfer of Property from one
  person to another by way of a Sale, Gift, Lease
  or Mortgage.
• The Karta can alienate the joint family property
  with or without the consent of the other
  coparceners. No consent is required in the
  following cases
• For the Purpose of Legal Necessity
• For the benefit of the Estate and
• For the performance of Indispensable Religious
  Duties
• However such an alienation can be challenged by
  the continuing coparceners as not being for legal
  necessity or benefit of estate within 12 years of
  knowledge of transfer.

10
KARTA

• Other Powers
• Managing the affairs of HUF
• Control and become custodian of finances
• Can borrow money for on behalf of HUF
• Spend money for the family not accountable for
  it.
• Not liable to submit account to anyone.
• Can make partition of the family suo moto.
• He can enter into contracts on behalf of HUF and
  may allow others to represent HUF
• Can Gift away the movable properties of HUF for
  natural love affection but within reasonable
  limit.
• Can transfer the immoveable property for pious
  purposes or the legal necessity or for benefit of
  the family.

11
KARTA

• Spending Powers
• The Karta has no special interest therein.
• The right of a son or nephew in the income is not
  a right to an exact fraction of the income.
• The Karta may well spend more on a son whose
  family is large or who has special aptitude or
  necessity.
• CIT v. Devan Krishna Kishore 9 ITR 695 (PC)

12
COPARCENERS

• Coparceners
• Within the joint family there is a narrower body
  called the Coparcenary.
• Coparcenary is restricted to four levels of
  living order, i.e. consisting of four successive
  generations including the last male holder of the
  property.
• This includes the eldest male member 3
  generations.
• This special group of people are called
  coparceners and have a definitive right in
  ancestral property right since the moment of
  their conception.
• Hindu coparcenaries includes the sons-daughters,
  grandsons-granddaughters and great-grandsons-great
  grand daughters of the holder of the joint
  family property. By virtue of their birth, they
  acquire an interest in the property.

13
CONCEPT OF COPARCENERS

• As long as A is alive, Coparcenary consists of A,
  B1, B2, B3, C1, C2, C3, C4, D1, D2, D3, D4. The
  descendents in the fifth degree E1, E2, E3 and E4
  are members but not coparceners in the HUF
• On As Death, the Coparcenary will then include
  E1, E2, E3 and E4, now being in the fourth degree
  of descent from the Senior Coparcener
• Even if B1, B2 or B3 in the second degree,
  predecease A, E1, E2 and E3 do not become
  coparceners, as they still constitute the Fifth
  Degree in lineage.

14
FOUR DEGREES OF COPARCENERS

• As observed in the Concept of Coparceners in the
  previous slide, on death of the common male
  ancestor, males of another generation will be
  added to the Coparcenary i.e. the Coparcenary
  after his death will consist of his sons, his
  grandsons and his great grandsons.
• After the death of the common ancestor, the
  Coparcenary may consist of collateral brothers
  and their progeny in the male line up to
  descendants of the fourth degree including the
  brothers.
• Coparcenary is not restricted to four degrees
  from the Common ancestor but to four degrees from
  the living holder of the HUF Property, i.e. the
  senior most living coparcener of the family.

15
BIG SMALL HUFs

• The HUF consisting of all the persons in the
  Chart alongside namely, the coparceners A, B1,
  B2, B3, C1, C2, C3, C4, D1, D2, D3, D4 and the
  members E1, E2, E3 and E4 constitutes the bigger
  HUF.
• A smaller HUF would consist of B, C1, C2, D1, D2,
  E1 and E2.
• Gift of property from Bigger HUF to Smaller HUF
  is feasible and will form property of smaller HUF
  and only distribution of property thus takes
  place and not partition. Section 64(2) is not
  applicable in this case.

16
MEMBERS v. COPARCENERS

• Who can be Coparcener
• The system of Coparcenary is a narrower
  institution
• This group of persons, unlike the joint family,
  is related to each other only by blood or through
  a valid adoption.
• While there may be many members of an HUF, only a
  few of the members may be Coparceners of the HUF.
• All coparceners are members of HUF, all members
  are not coparceners. The following persons cannot
  be coparceners
• The Husbands wife
• Fathers wife and lineal descendants wives
• Illegitimate sons and daughters
• An insane member of the family
• Member who renounces his religion
• A minor coparcener, if given in adoption

17
DAUGHTERS AS COPARCENERS

• On 9th September 2005, the Hindu Succession Act,
  1956 was amended to provide that a daughter too
  could be a coparcener i.e. joint heir, like her
  brother to the joint family's assets and she too
  could enforce the partition of the family
  property to claim her individual share. She
  continues to be the coparcener in her father's
  HUF even after she gets married and forms another
  HUF with her husband. Now,
• Daughter of a coparcener shall by birth become
  coparcener in her own right in the same manner as
  son.
• Daughter has the same rights in the coparcener
  property as she would have had if she had been a
  son.
• Daughter is allotted the same share as to the
  son.
• Married women have rights in two HUFs-their
  father's as coparcener and their husband's as
  member.

18
INTEREST OF COPARCENERS

• Extent Transferability of Interest of
  Coparceners
• A Coparcener has a right over the property of the
  family in the case of Partition of the HUF
• A coparcener's interest is not fixed it
  fluctuates by birth and deaths in the family
• A coparcener can sell or gift away his interest
  to another coparcener or even a third party,
  without the consent of other coparceners.
• A third parties right to take possession of
  property along with rest of Coparcenary is
  limited. The family can buy the third party out
  in order to maintain integrity of the house and
  to prevent a stranger from getting in with the
  family. This right is given by Transfer of
  Property Act as well as the Partition Act.

19
RIGHTS OF COPARCENERS

• Extensive Rights to Coparceners
• Any coparcener can at anytime seek a partition of
  his share.
• The continuing coparceners can seek to buy out
  the share of coparcener expressing his intention
  to move out by exercising the right of
  pre-emption.

20
LIABILITY OF COPARCENERS

• Privileges not without liability
• It is generally presumed that money required for
  carrying on family business is a family necessity
  and that the business is carried on with the
  consent or acquiescence of all the members of the
  family.
• Thus, if debts are incurred by the Manager in the
  ordinary course of the family business, all
  the Coparceners become liable. However, their
  liability is limited to the extent of their
  interest in the family property and not beyond
  that.
• In case of an act contrary to the interest of the
  HUF is done by the Karta, the adult coparceners
  become personally liable if they themselves are
  actually contracting parties along with the
  Karta, or if they ratify the contract entered
  into by the Karta

21
MINOR AS COPARCENERS

• Can a Minor be a Coparcener?
• Yes, a minor can be a Coparcener.
• The moment a male child takes birth in the joint
  Hindu family, he gets the birth right in the
  Coparcenary property.
• Hindu law makes no sort of distinction between
  major and minor coparceners in respect of their
  rights in the joint family estate However, the
  same is a debatable issue in view of the demerits
  of a Minor Coparcener discussed later
• A minor coparcener is not a major coparcener
  until he attains the age of 18 years.
• A minor coparcener, who does not become
  personally liable for any debt or contract unless
  the same is ratified by him after attaining
  majority

22
MINOR AS COPARCENERS

• Minor Coparcener-Demerits
• Whereas a major coparcener can effect a severance
  or partition at his will, the minor coparcener
  cannot of his own will cause himself to be
  separated nor can he authorize anyone on his
  behalf to separate him.
• He can institute a suit for partition through a
  next friend in a court of law. The court will
  take cognizance of the situation and would
  enforce partition only when it is satisfied that
  the partition would be beneficial to or promote
  the interests of the minor.
• A minor after becoming of age can reopen the
  partition if he can prove that the partition was
  not for his benefit or it was unfair with regard
  to him.

23
MEMBERS

• Rights of Members
• The wife of a coparcener cannot force a claim for
  partition.
• The members of the HUF which include male and
  female members, daughters and children of the
  male members are entitled to maintenance.
• Maintenance includes food, shelter, clothing,
  education, medical aid and marriage.
• A members of the HUF is entitled to own and
  possess his separate property besides his
  interest in the HUF property.
• The widow and children of a deceased coparcener
  have the right to be maintained out of the HUF
  property.

24
ANCESTRAL PROPERTY

• As per Hindu law, ancestral property means
  property acquired by forefathers. Therefore, any
  property which is received by the coparcener on
  partition is always considered as ancestral
  property.
• However, it is to be noted that if the coparcener
  is unmarried on the date of partition then income
  from such property would be assessed in his hands
  in individual capacity till he gets married,
  reason being that single person cannot constitute
  family. Till he gets married, he is the absolute
  owner and can dispose it in any manner he likes.
  Therefore, in the absence of family, the income
  from such property is liable to be assessed in
  individual capacity.
• (C Krishna Prasad-CIT 97 ITR 343 SC.)

25
COPARCENARY PROPERTY

• Coparcenary property is wider than the expression
  ancestral Property. It would include the
  following
• Ancestral property i.e. the property inherited
  from father, grandfather or great grandfather
  share allotted on partition
• Property acquired by the coparceners with joint
  efforts. In Madanlal v. Yogabai AIR 2003 SC 1880,
  it has been held that property raised and
  developed by joint efforts of father and sons
  would be joint family property
• Property acquired with the aid of or on account
  of coparcenary property.
• Property of the coparcener thrown into common
  hotchpots of family funds.
• The property received by HUF having ancestral
  property as gift or under a will. Intention of
  the donor is relevant while considering the
  character of the gifted property.
• (M.P.Periakaruppan Chettiar-vs-CIT 99 ITR 1 SC.)

26
HUF PROPERTY

• Whether property inherited from father can be
  treated as HUF property?
• As per the old Hindu law, the property inherited
  by a coparcener was considered as ancestral
  property.
• But after the amendment in 2005 in Hindu
  Succession Act, the property of father devolves
  by testamentary or intestate succession and not
  by survivorship. The father has absolute right
  over the property acquired by him on account of
  personal efforts or through borrowed funds. He
  can dispose of such property as he wishes. Hence,
  property inherited from father cannot be treated
  as ancestral property.
• CWT-vs-Chander Sen 161 ITR 370 SC)

27
PRPERTY INHERITED BY SON

• The son inherits the individual property of his
  father as an individual under the Hindu
  Succession Act and not in the status of HUF
• Property devolving under section 8 of the Hindu
  Succession Act on the legal heirs should be
  treated as individual property and the income
  arising from the said property should be assessed
  in the status of an individual.
• CIT v. A.P.S. Parameshwaran Pillai(2000) 241
  ITR 748 (Mad)
• In Prabhashchandra Jha v. CWT (2007) 291 ITR 335
  (MP) it was held that since the property
  inherited by the assessee as an individual from
  his individual father was not thrown into the
  common stock of the family before 31-12-1969, it
  was taxable as a separate property and not as
  property of the HUF.

28
SURVIVORSHIP

• Post the recent amendment in Hindu succession Act
  in 2005, Under Section 6(3) and Explanation to
  section 6(3) on the death of a Hindu his interest
  in family property shall devolve by succession
  and not by survivorship.
• The succession can be testamentary (by will) or
  intestate (without a will)
• Therefore the coparcener may make a will
  bequeathing his interest in the HUF property to
  any person, a coparcener or a member.
• If he does not leave a will, the intestate
  succession will be as per the rules of succession
  as laid does in section 8 for males and general
  rules of succession under section 15 for females
• The Interest of a deceased which was there in the
  original explanation to Section 6 provides that
  shares would be allocated as if a notional
  partition had taken place before his death.
• This would apply also to the death of a
  coparcener like wife who was not entitled to
  claim partition in her own right.

29
HUF PROPERTY

• The expression Joint family/HUF property is still
  widerA property may not be either ancestral or
  Coparcenary property yet may be considered as HUF
  property in certain cases.
• There may be a family with a single male member
  without having ancestral/Coparcenary property.
  Such family may receive gift from relatives or
  friends of members of family.
• Further, the single male member of such family
  may blend his self acquired property into joint
  family property. Such property would neither be
  ancestral nor Coparcenary property but certainly
  be HUF property.
• To buttress this view, reference may be made to
  the decision of the apex court in the case of
  Surjit Lal Chhabra 101 ITR 776 SC. However, in
  such case, it was held that income from such
  property would be assessable as personal income
  of the male person till the birth of a son.

30
CREATION OF PROPERTY

• How an HUF can create property?
• Properties of HUF can be acquired by joint
  labour.
• Vesting of self acquired property in family
  hotchpotch can create family nucleus. Clubbing
  provision u/s 64(2) to be noted.
• A newly created HUF as a unit may receive gifts
  from outsiders or from father or brother or
  sister of the karta who are not members of the
  donee HUF. All such gifts will result in
  accretion to the family fund without attracting
  the provisions of Section 64(2).
• A father can gift his self acquired property to
  his sonss newly created HUF. It is essential
  that the gift deed should specifically mention
  the gift to the HUF not to individual son.
• HUF through will A new family nucleus can also
  be created by a will but the intention of the
  bequest being for the family has to be made
  absolutely clear in the will.

31
CONSTITUENTS OF AN HUF

• Can Single Unmarried Person form an HUF?
• No, a single unmarried person cannot constitute
  an HUF
• Can there be an all-Female HUF?
• Yes, in view of the decided case laws, an
  all-female HUF has been given due recognition in
  the eyes of the law.
• Can a female be a Karta?
• Yes, after amendment in the Hindu Succession Act,
  daughter of a coparcener has equal right as of a
  son. Therefore, daughter being coparcener and can
  also be a Karta.

32
CONSTITUENTS OF AN HUF

• Son is not necessary to constitute HUF under
  Mitakshara law
• - Gowali Buddanna v. CIT (1966) 60 ITR 293 (SC).
• HUF can be formed with one husband and wife only
• - Prem Kumar v. CIT 121 ITR 347 (Allahabad H.C.).
• Remuneration to Karta of HUF can be followed
• - J. K. Baldeo Sahai v. CIT 63 ITR 238 (SC).
• The term HUF is much wider than Hindu
  Coparcenary. The Direct Tax Laws deal with the
  HUF and not with the Hindu Coparcenary. It is not
  correct to say that no female can be a member of
  HUF and an HUF does not necessarily consist of
  only male members
• - Kalyani Vithaldas v. CIT 5 ITR 90 (PC)

33
HUF BY A WIDOW
Can the widow succeed to estate of husband? A
Hindu widow by virtue of section 14 of the Hindu
Succession Act, 1956 may become a fresh stock of
descent, but as she has become full owner of her
husband's properties, her children, if any, by
her first husband, her adopted son if she cares
to adopt and her children if she gets married
again, will all be her heirs an in that sense,
she and her children may form one joint family
but non of them can have any right by birth in
her property, and hence the Hindu joint family as
ordinarily understood in Hindu Law cannot be
brought into existence. Rukmani Bai Rathor v.
CWT 54 itr 430
34
HUF BY A WIDOW
Can HUF continue by adoption by a widow? Held,
yes. The facts in the present case is brought
out earlier go to show that the Karta had died
leaving his widow and she had adopted the
assessee and by virtue of the adoption by a
Hindu, the adopted son is treated as adopted by
the deceased father too and thereby he acquires
the Coparcenary rights in the HUF property as if
it existed all the time. The fact that at the
time of adoption the spouse of the widow was not
alive in accordance with the above decisions does
not alter his rights as a coparcener ITO v.
R.N. Dalichand Jain 2002 80 ITR 474 Bang
35
BUSINESS ASPECTS

• Interest paid by HUF to Coparceners
• The ruling came from the Honble Supreme Court of
  India in the case of CIT v. Venugopal Inani
  (1999) wherein the Interest paid on amounts lent
  by them to the HUF was held not deductible as a
  business expenditure u/s 37(1)
• Income earned with aid of HUF funds
• The same is assessable in the hands of the HUF
  when funds of family have been invested in
  business

36
BUSINESS ASPECTS

• Loan from HUF
• Taking a loan from an HUF for personal use does
  not amount to use of family funds.
• The income from utilization of such loan funds is
  assessable in the hands of the Individual Member
  of the HUF
• Can there be a Partnership between the Karta and
  the Karta as representative of the HUF?
• As a settled law, there cannot be a partnership
  between a coparcener as individual and the same
  coparcener in representative capacity for the
  HUF
• If there is at least one more partner, then in
  the partnership the same person can represent the
  HUF and also himself as the individual

37
BUSINESS ASPECTS

• HUF as Partner of Firm
• Under sec. 2(31) of the IT Act, 1961, a HUF is a
  person for the purpose of the Income-tax Act
• However, a HUF is not a juristic person for all
  purposes (viz., for the purposes of other laws)
  including the partnership law.
• Accordingly, under the Indian Partnership Act,
  1932, a HUF is not a juristic person and it
  cannot enter into a valid partnership with any
  other person.
• The Karta of the HUF may enter into partnership
  with outsiders on behalf and for the benefit of
  his joint family.
• It is competent to the manager or Karta acting on
  behalf of the HUF to enter into a valid
  partnership with a stranger or with the Karta of
  another family

38
RESIDENTIAL STATUS OF AN HUF
If A B Satisfied- OR If none satisfied - NOR
39
TAX BENEFITS OF AN HUF
TAX SAVINGS A DEMONSTRATION
Income Divided with HUF Income Divided with HUF Taxed as Individual
Individual HUF Individual
Gross Total Income 8,00,000 8,00,000 16,00,000
Less Deductions 80C 1,00,000 1,00,000 1,00,000
Less Deductions 80TTA 10,000 10,000 10,000
Taxable Income 6,90,000 6,90,000 14,90,000
Basic Exemption 2,00,000 2,00,000 2,00,000
Rebate u/s 87A 2,000 - 2,000
Tax Payable 67,980 70,040 2,85,310
By setting up an HUF an individual can divide his
taxable income between two separate income tax
entities, this decreases his net taxable income
as HUF gets 80C, 80CCF, 80D deduction separately
and the basic exemption and cuts his annual tax
payment by Rs. 1,47,290/-
40
ASPECTS OF TAXATION

• Remuneration paid to Karta
• The admissibility or otherwise of the
  remuneration paid to the Karta/member of the
  family for running the affairs of the HUF depends
  on the facts of the case.
• The amount paid would be a justified deduction if
  it is for specific services rendered
• It should be bona fide and in the interest of the
  business of the family. Further, the payment
  should be genuine.
• The courts have held that before a Karta is paid
  remuneration, there should be a valid agreement.
• It is to be noted, that where salary is allowed
  as a deduction in the hands of the HUF, it would
  become individual income of the Karta. Recourse
  to section 10(2) is unavailable in this regard.

41
ASPECTS OF TAXATION

• However, the income of a joint Hindu family can
  be assessed as the income of a HUF, only if the
  following two conditions are satisfied
• There should be a Coparcenary.
• There should be joint family ancestral property.
• Five basic heads of income -Salary, House
  Property, Capital Gains, Profit from business,
  and Income from other sources. Except for salary,
  HUF can earn from all of these sources.

42
TAX BENEFITS OF AN HUF

• ASPECTS OF TAXATION
• A Karta can file three Types of Returns
• In his individual capacity
• In the capacity of Karta of the HUF which had
  come into existence after partition of his
  fathers HUF.
• In the capacity of Karta of his own HUF.
• Though the HUF is taxed as separate entity, the
  tax slab which is applicable to an individual is
  applicable here too.
• Provisions of section 56(2)(vi) applicable even
  to HUF if any sum of money is received by the HUF
  exceeding Rs. 50,000 p.a. from non members.
• Items received in kind subjected to the
  provisions of sec. 56(2)(vi).

43
TAX BENEFITS OF AN HUF

• STOCK MARKET AND MUTUAL FUNDS
• HUF can have a separate Demat Account.
• It can invest in the shares of the Companies in-
• (a) The Primary Market
• (b) The Secondary Market
• Enjoy Tax Free Income for Long-term Capital Gains
  by holding shares for more than one year (STT
  Paid).
• HUF has 2 benefits in investing in IPOs i.e. the
  2 lakhs limit for the investment to be
  categorized as retail is not breached and there
  is a greater probability of more shares being
  allotted.
• Enjoy lower tax rate of 15 on Short-term Capital
  Gains(STT Paid).

44
TAX BENEFITS OF AN HUF

• TAX STRATEGIES
• Distribution of Income to Coparceners
• Karta can gift money to the coparceners from the
  income earned by the HUF. This income is tax-free
  in the hands of the coparceners u/s 10(2). This
  way, person with a high income will be able to
  get tax-free income.
• Funding for Loans
• HUF can give loans to the Karta or coparceners
  for setting up business can charge interest on
  the loan. Interest paid on any business loan is
  fully deductible.

45
TAX BENEFITS OF AN HUF

• TAX STRATEGIES
• Helps in tax planning for service tax
• If business turnover is split by setting up HUF,
  the service provider can avoid the hassle of
  charging service tax and become small scale
  service provider.
• Salary to Karta is deductible
• This salary is taxed as income in hands of the
  Karta and will be fully deductible from the HUF
  income.
• Use of income from HUF for expenses
• The income earned by the HUF can be used for the
  household expenses of the family.

46
INCOMES EXEMPT

• Section 10(2) Sums received by members exempt
• This section provides that no liability to Income
  Tax shall be attracted or imposed on any member
  of an HUF in respect of any sum received by him
  as member and paid out of the income of the
  family.

• 10. In computing the total income of a previous
  year of any person, any income falling within any
  of the following clauses shall not be included
• ..
• any sum received by an individual as  a member of
  a Hindu undivided family, where  such sum has
  been paid out of the income of the  family, or,
  in the case of any impartible estate, where such
  sum has been paid out of the income of the estate
  belonging to the family

..
47
GIFT TO AN HUF BY MEMBER

• The provisions of Section 56 of the Income Tax
  Act are reproduced as under
• Therefore, gift to an HUF by member is exempt

56 (vii) where an individual or a Hindu
undivided family receives, in any previous year,
from any person or persons on or after the 1st
day of October, 2009,(a) any sum of money,
without consideration, the aggregate value of
which exceeds fifty thousand rupees, the whole of
the aggregate value of such sum(b) any
immovable property .. (c) any property, other
than immovable property .. Provided that this
clause shall not apply to any sum of money
received (a) from any relative Explanation.Fo
r the purposes of this clause, (e) relative
means, (ii) in case of a Hindu undivided
family, any member thereof
48
GIFT TO AN HUF BY OTHERS

• As per the applicability of provisions of section
  56 of the Income Tax Act, 1961, the gift received
  by an HUF from a stranger is taxable.
• As per the provisions of Section 56 of the Income
  Tax Act, 1961, if aggregate amount received
  during the year is more than Rs. 50,000/- the
  same will be chargeable to tax
• There is no restriction for a HUF to accept gifts
  from any source.
• However, the intention of the donor should be
  clear and the gift should be genuine.
• Gift declaration detailing complete
  information relating to the donor should be drawn
  and recorded.
• Gift by cheque should go in a bank account in the
  name of the donee HUF for realization and
  subsequent realization.

49
IMPLICATIONS IN INCOME TAX

• On the combined reading of Section 56(2) and
  Section 10(2) and literally interpreting the
  provisions of the Act and specific amendments
  thereto, following scenario emerges
• Any sum given by HUF to its members, subject to
  the conditions prescribed under Section 10(2) is
  exempt from tax in the hands of recipients.
• Gift received by HUF from its members would be
  excluded from taxable income

50
GIFTS-ISSUES

• Can an HUF give away its property by way of gift?
• Although children acquire by birth rights equal
  to those of a father (Karta) in an ancestral
  property, both movable and immovable, the father
  has the power of making, within reasonable
  limits, gifts of ancestral movable property
  without the consent of coparceners.
• Combined reading of the Hindu Law and various
  judicial precedents show that whereas, the Karta
  has the power to gift ancestral movables within
  reasonable limits, he has restricted power with
  regard to ancestral immovable property. 
• He can however, make a gift within reasonable
  limits of ancestral immovable property for pious
  purpose. However, the alienation must be by an
  act inter vivos, and not by will.
• Kuppayee vs. Raja Gounder (265 ITR 551 at 559)
  SC

51
GIFTS-ISSUES

• Gift in Violation of Provisions?
• The alienation by a Karta of joint Hindu Family
  is not necessarily void but is only voidable if
  objections are taken to it by the other members
  of joint Hindu Family.
• The Lahore High Court in Imperial Bank of India
  vs. Maya Devi, AIR 1935 Lahore 367 observed,

Where, however, the gift is not for religious
purposes, or consists of the whole or large
portion of the joint family property (i.e., above
reasonable limit or disproportionate
distribution), the transaction is voidable, but
only at the instance of the other coparceners..
52
GIFTS-CASE LAWS

• The assessee in the capacity of HUF, received a
  sum of Rs 7 lakh as gift from his uncle. Whether
  the same was exempt?
• Held, Yes. Harshadbhai D. Vaidhya (HUF) vs. ITO
  2013
• Whereas, the decision of the Honble ITAT in
  Harshadbhai D. Vaidhya-HUF (supra), by adopting a
  purposive interpretation, went a step further and
  held that gift received by HUF from relative of
  Karta (or member of HUF) is also exempt within
  the meaning of Section 56(2)(v)/(vi)/(vii)
• In our opinion, the term 'relative' in case of
  HUF cannot be stretched so as to include within
  its ambit, relatives of members of HUF, in view
  of clear and unambiguous wordings of amended
  clause (e) of the explanation to Section
  56(2)(vii).

53
CLUBBING PROVISIONS-HUF

• BLENDING INDIVIDUAL PROPERTY WITH HUF
• A Coparcener can blend his self acquired property
  with that of the HUF by merging it with the
  family properties or by impressing such property
  with the character of HUF property.
• Such act of blending does not require consent of
  other members of family. The act is a unilateral
  act and is a matter of individual volition.
• Once blending is done, it is not revocable. There
  is no provision for retransfer, directly or
  indirectly.
• A Coparcener can have two HUF. The blending is at
  his option. He may blend his property in either
  of the HUFs.

54
CLUBBING PROVISIONS-HUF

• TAX IMPLICATIONS OF BLENDING OF PROPERTY
• Clubbing provisions under section 64(2) of the
  Income Tax Act, 1961 as well as section 4(1A) of
  the Wealth tax Act are specifically introduced to
  tax income and wealth arising from such blending.
• The income arising from such converted property
  will be deemed to be the income of the transferor
  individual and clubbed with the income of the
  Individual (donor).
• The property is assessable as individual property
  of assessee even though is subsequent partition
  of HUF such property is treated as HUF property.
• CIT v. CG. Venkatasubben (1999) 150 Taxman 352
  (Mad)
• Section 4(1A) of Wealth Tax Act, 1957 assets so
  converted shall be deemed to be the assets of the
  Individual transferor.

55
CLUBBING PROVISIONS-HUF

• BLENDING OF PROPERTY-ADVANCE ISSUES
• If an individual transfers a sum of Rs. 50,000 to
  his smaller HUF and the same is deposited on
  interest, then section 64(2) would be invoked to
  include the interest income on Rs. 50,000/- say
  Rs. 10,000/- in the assessment of the individual
  who gifted or threw the amount into the common
  hotchpot
• However, the section does not apply to the income
  subsequently generated by the utilization of the
  income of Rs. 10,000. If thus amount is utilized
  for setting up a business, the income yielded
  would belong to the HUF and also be assessable as
  such.

56
PARTITION OF AN HUF

• WHAT IS A PARTITION?
• Partition of an HUF is governed under section 171
  of the Act
• Under the Hindu law, an HUF may be ended by
  portioning the property or assets of the HUF
• There is effected a change in ownership of the
  property as a result of partition but does not
  involve a transfer of property.
• The following have shares in assets of HUF
• All coparceners
• Mother(in case of death of father), which is
  equal to the share of the son.
• Child in womb of mother at time of partition

57
PARTITION OF AN HUF

• DUTIES POWERS OF AO IN PARTITION
• At the time of making assessment u/s 143 or 144,
  if it is claimed by any member that any partition
  has taken place AO shall make an enquiry after
  giving notice to all members.
• After inquiry AO shall record finding as to
  whether there has been a partition, the effective
  date of such partition.
• By the use of words total or partial in section
  171 the duty has been cast on an assessee to
  claim before the ITO that a partition has taken
  place
• Then the ITO shall proceed and make an enquiry to
  pass an order under section 171 if he is
  satisfied

58
SHARE OF ALLOTMENT ON PARTITION

• Joint family with brothers-Equal Share for each
  brother
• HUF which includes father, mother and sons-Share
  will go to each except that the mother cannot
  force the partition.
• Partition between father sons (mother not
  living)- Each son will receive share equal to the
  fathers share
• Before 09-09-2005, none of the Unmarried
  Daughters had any right to partition. The only
  right available was against providing for their
  education, maintenance till marriage marriage
  expenses.
• However, from 09.09.2005, the situation has been
  altered and now both married and unmarried
  daughter have equal shares like a son.

59
PARTITION OF AN HUF

• TAX IMPLICATIONS OF PARTIAL PARTITION
• As per section 171(9) of the Income-tax Act, 1961
  the Partial Partition after 31-12-1978 is not
  recognized.
• The Income Tax Officer will not take any notice
  of such a partial partition, no assessment is
  required.
• No order under section 171(1) will be passed
• Thus the Income or Wealth excluded as a result of
  the partial partition will continue to belong to
  HUF and tax recovery will be made from the
  persons receiving it
• For recovery of tax, section 171(9)(c) becomes
  applicable. Each member shall be jointly and
  severally liable for tax
• As per section 171(9)(d), separate liability of
  any member shall be computed as per the portion
  of property allotted.

60
TAX BENEFITS OF AN HUF

• TAX IMPLICATIONS OF FULL PARTITION
• As per explanation to section 171 of the Income
  Tax Act, a full partition occurs when assets of
  an HUF are physically divided by metes and
  bounds.
• A member gets his/her share whenever there is
  full partition of HUF or on request for partition
  made by one or more coparceners
• After the Partition, the assessment of HUF shall
  be made as per the provisions of Section 171 of
  the Income Tax Act and order to be passed by the
  Assessing Officer.

61
PARTITION OF AN HUF

• TAX PLANNING IN PARTITION
• In certain cases, tax liability can be reduced by
  the partition of an HUF.
• Members have no other source of income
• In this case partition can be done by giving one
  business establishment to each coparcener and
  dividing other sources in a manner so as to make
  the partition equitable.
• Such a partition will reduce the tax liability
  considerably
• Where Members have High Individual Incomes
• In such case, it is not advisable to break or
  partition
• It should be allowed to continue as a separate
  taxable unit to alleviate the tax burden

62
PARTITION OF AN HUF

• TAX PLANNING IN PARTITION
• Partial Partition for Tax Planning
• Partial Partition is recognized in Hindu Law
• Any HUF not yet assessed to Tax can be
  partitioned partially and thereafter assessed to
  tax

63
PARTITION OF AN HUF

• TAX PLANNING IN PARTITION
• Following legal aspects should be kept in mind
  while considering the partition of an HUF
• Distribution of the assets of an HUF in the
  course of Partition, would not attract any
  capital gains tax liability as it does not
  involve a transfer
• On the basis of the same reasoning, distribution
  of assets in the course of partition would not
  attract any gift tax liability, and,
• There would be no clubbing of incomes under
  section 64 as it would not involve any direct or
  indirect transfer

64
PARTITION OF AN HUF
In order to be acceptable or recognizable
partition under section 171 the partition should
be complete with respect to all members of HUF
and in respect of all properties of HUF and there
should be actual division of property as per
specified shares allotted to each member.
Mohanlal K. Shah (HUF) v. ITO 1 SOT 316. Setting
apart certain assets of HUF in favour of certain
coparceners on the condition that no further
claim in properties will be made by them is
nothing but a partial partition and not a family
arrangement not recognized in view of s. 171(9)
ITO v. P. Shankaraiah Yadav 91 ITD 228.
65
WEALTH TAX HUF

• Separate exemption of Wealth-tax for HUFs up to
  Rs. 30 lakhs Wealth.
• One House- Wealth Tax Free
• The taxpayer can claim one house in the name
  of the HUF as a wealth tax free asset.
• Productive assets of HUF are fully exempt from
  Wealth-tax

66
PRACTICAL ASPECTS

• Documents required for PAN Application
• Proof of Identity of Karta
• Proof of Address of Karta
• Marriage certificate issued by Registrar of
  Marriages or an Affidavit sworn before a
  magistrate stating the date of marriage or proof
  of date of birth of Karta
• An affidavit made by the Karta of Hindu Undivided
  Family stating name, fathers name and address of
  all the coparceners on the date of application.
• Date of Creation of HUF and for ancestral HUF
  date can be 01-01-0001 where the date of creation
  is not available.

67
PRACTICAL ASPECTS

• Documents required for Bank Account
• Bank account should be in the name of HUF
• Photograph of Karta
• Proof of identity, address of Karta
• Pan number in HUF's name
• HUF Declaration A declaration form in which
  every member signs stating the name of Karta
  declares
• They are the only members of HUF.
• Karta to have sole authority over HUF account
• Every transaction on behalf of HUF account, made
  by each member of the family is governed by karta

68
OTHER ISSUES
Whether property purchased with aid of Joint
Family Funds can be assessed as Income of the
Individual? Property purchased with the aid of
joint family funds, howsoever small that may be,
still the property would be HUF income and cannot
be income of the individual with major portion of
purchase price. S. Periannan v. CIT 191 ITR 278.

69
OTHER ISSUES
Whether deduction is available to partnership
firm u/s 40(b) in respect of salary or commission
paid to a partner who was a partner in
representative capacity of HUF? Salary paid to
working partner even though as Karta of HUF, is
received as individual and as working partner,
hence allowable as deduction while computing
income of firm. CIT vs. Jugal Kishor Sons
2011 10 taxmann.com 82 (All.) Whether the
Salary income of wife of Karta is clubbed in the
Income of HUF? Where a person is a partner in a
partnership firm not in his individual capacity
but as the karta of the Hindu undivided family,
the income accruing to his wife on account of her
being a partner in the same partnership firm
cannot be included in the total income of such
person in an individual assessment or in the
assessment of the Hindu undivided family. CIT
v. Om Prakash 1996 217 ITR 785 (SC)
70
OTHER ISSUES
Whether relief can be claimed on occupancy of one
residential house Properties? The benefit of
relief in respect of a self occupied property
under section 23(2) is available to the owner who
can reside in his own house. AN HUF is nothing
but a group of individuals related to each other
by blood or in a certain manner. The family can
reside in the house which belongs to the HUF. A
family cannot consist of artificial
persons. There is nothing in the words used in
section 23(2) which excludes its application to
an HUF which is a group of individuals related to
each other CIT v. Hriprasad Bhojnagrawala
(2012) 342 ITR 69(Guj)
71
OTHER ISSUES
Whether the benefit u/s 54 can be available on
purchase of more than one residential house
Properties? The expression a residential house
should be understood in a sense that building
should be residential in nature and a should
not be understood to indicate a singular number.
That when an HUFs residential house is sold, the
capital gain should be invested for the purchase
of only one residential house, is an incorrect
proposition. After all, the property of the HUF
is held by the members as joint tenants. If the
members, keeping in view the future needs in
event of separation, purchase more than one
residential building, it cannot be said that the
benefit of exemption is to be denied u/s
54(1) CIT v. D. Ananda Basappa 180 Taxman 4
(Kar.) 2009 Whether the exemption u/s 54B of
the IT Act is available to HUF? Exemption under
Section 54B is also available to HUF subject to
the following condition If HUF transfer a land
which is used for agricultural purposes by a HUF,
the rollover relief u/s 54B is available to the
HUF. The amendment is applicable on transfers
made after 01-04-2013
72
THANK YOU