Title: PRESENTATION ON
1PRESENTATION ON HINDU UNDIVIDED FAMILY
ORGANISED BY CA BRANCH DEHRADUN ON DECEMBER 19,
2014 AT DEHRADUN ICAI BRANCH
Presented by CA Verendra Kalra
2THE 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
3AN 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
4SCHOOL 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.
5SCHOOL 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.
6CORPUS 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.
7KARTA
- 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.
8KARTA
- 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
9KARTA
- 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.
10KARTA
- 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.
11KARTA
- 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)
12COPARCENERS
- 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.
13CONCEPT 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.
14FOUR 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.
15BIG 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.
16MEMBERS 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
17DAUGHTERS 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.
18INTEREST 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.
19RIGHTS 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.
20LIABILITY 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
21MINOR 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
22MINOR 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.
23MEMBERS
- 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.
24ANCESTRAL 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.)
25COPARCENARY 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.)
26HUF 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)
27PRPERTY 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.
28SURVIVORSHIP
- 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.
29HUF 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.
30CREATION 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.
31CONSTITUENTS 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.
32CONSTITUENTS 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)
33HUF 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
34HUF 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
35BUSINESS 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
36BUSINESS 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
37BUSINESS 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
38RESIDENTIAL STATUS OF AN HUF
If A B Satisfied- OR If none satisfied - NOR
39TAX 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/-
40ASPECTS 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.
41ASPECTS 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.
42TAX 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).
43TAX 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).
44TAX 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.
45TAX 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.
46INCOMES 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
..
47GIFT 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
48GIFT 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.
49IMPLICATIONS 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
50GIFTS-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
51GIFTS-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..
52GIFTS-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).
53CLUBBING 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.
54CLUBBING 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.
55CLUBBING 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.
56PARTITION 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
57PARTITION 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
58SHARE 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.
59PARTITION 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.
60TAX 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.
61PARTITION 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
62PARTITION 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
63PARTITION 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
64PARTITION 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.
65WEALTH 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
66PRACTICAL 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.
67PRACTICAL 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
68OTHER 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.
69OTHER 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)
70OTHER 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)
71OTHER 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
72THANK YOU