Detailed Analysis of HUF With Hindu Succession Act 1956 and Income Tax Act 1961 by K.C

10/29/2016
DetailedAnalysisofHUFwithHinduSuccessionAct1956andIncomeTaxAct1961ByK.C.Singhal
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DetailedAnalysisofHUFwithHinduSuccessionAct1956and
IncomeTaxAct1961ByK.C.Singhal
Tags: HinduLaw HUF
HinduLawhasbeendiscussedbyvariousauthorsinthelightofvariousjudgmentsofcourts.Thesaidlawstandsamendedby
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RequiredAccountantin
SanjayK&Co.,Bangalore
variousenactments.ThisdiscussionwoulddealwiththevariousaspectsofHinduLawwhicharerelevantforthepurpose
RequiredArticlesinSudhir
assessmentofincomeandwealthinthestatusofHinduUndividedFamily(HUF)aswellastheimpactoftheprovisionsof
Sunil&Co,Delhi
HinduSuccessionAct1956asamendedbyHinduSuccession(Amendment)Act2005whicharerelevantforthepurposeof
RequiredArticlesinAshok
assessmentofincomeandwealthinthestatusofHUFunderIncomeTaxAct1961.Firstly,wouldbediscussingthelegal
positionundertheoriginalHindulawandthendiscusstheimpactoftherelevantprovisionsofHinduSuccessionAct1956.
Kumar,Prabhashankar&
Co.,Bangalore
AsperoriginalHinduLaw
ArticlesinDalalDoctor&
Hinduundividedfamily
Associates,Mumbai.
Under the Income Tax Act 1961, Hindu undivided family is one of the taxable entities specified u/s 2(31). Therefore, it is
RequiredArticletraineesinS.
necessarytounderstandthescopeofthesaidexpression.Itwouldbesufficienttorefertothedecisionoftheapexcourtinthe
K.Bajpai&Co.,
caseofSurjitlalChhabra101ITR776SCwhereinthecourtexplainedthescopeofthesaidexpressionasunder:
RequiredArticlesinParveen
Inthefirstplace,jointfamilyandundividedfamilyaresynonymousterms.P780
Theexpression"Hinduundividedfamily"mustbeconstruedinthesense,inwhichitisunderstoodundertheHindu
law.P781
Ajoint Hindu family consists of persons lineally descended from a common ancestor and includes their wives and
unmarried daughters. The daughter, on marriage, ceases to be a member of her father's family and becomes a
memberofherhusband'sfamily.P783
ThatthejointandundividedfamilyisthenormalconditionofHindusociety.Thepresumption,therefore,isthatthe
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membersofaHindufamilyarelivinginastateofunion,unlessthecontraryisestablished(Mayne'sHinduLawand
Candidateslisting...
Usage,eleventhedition,page323;Mulla'sHinduLaw,fourteenthedition,page284).P782
FreelancerTeaching
"Thephrase'Hinduundividedfamily'isusedinthestatutewithreference,nottooneschoolonlyofHindulaw,butto
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allschools
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ThepleathattheremustbeatleasttwomalememberstoformaHinduundividedfamilyasataxableentityalsohas
noforce.Theexpression'Hinduundividedfamily'intheIncometaxActisusedinthesenseinwhichaHindujoint
Registernewcompany,Service
TaxRegistration,VAT
familyisunderstoodunderthepersonallawofHindus.UndertheHindusystemoflawajointfamilymayconsistof
registration,IncomeTax
asinglemalememberandwidowsofdeceasedmalemembers,andapparentlytheIncometaxActdoesnotindicate
Return..
thataHinduundividedfamilyasanassessableentitymustconsistofatleasttwomalemembers.P78384"(Gowli
BuddannavsCIT60ITR293SCat296;NVNarendernathvCWT74ITR190SC).
Amanwhoseparatesfromhisfatherorbrothersmay,nevertheless,continuetobejointwiththemembersofhisown
branch.Hebecomestheheadofanewjointfamily,ifhehasafamily,andifheobtainspropertyonpartitionwith
his father and brothers, that property becomes the ancestral property of his branch qua him and his male issue.
P782.Seealso:BhagwanDayalv.ReotiDeviAIR1962SC287.
Familywithoutmalemembers
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Theremaybefamiliesconsistingoffemalesonly.Forexample,afterthedeathoffather,itmayconsistofwidowofthe
diseased and her daughters. According to Hindu law, a joint Hindu family must have a male member. Normally
disputeshadariseninthepastwheresubsistingjointfamilywasreducedtoafamilywithsinglemalemember.The
questionarosewhetherincomefromtheancestralpropertyshouldcontinuetobeassessedinthestatusofHUF?
Thestandofthedepttwasthattheremustbetwomalemembersinthejointfamilyforassessingtheincomeinthe
handsofHUF.Theapexcourtheldthatinsuchcases,jointfamilycontinuessincethereisnothingunderHindulaw
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tosaythattheremustbetwomalemembersinthejointHindufamily.(GowliBuddannavsCIT60ITR293SCat
296;NVNarendernathvCWT74ITR190SC)
InthecaseofCITvsVerappaChettiar76ITR467SC,afterthedeathofkarta,thepropertyofjointfamilywasheldby
the three widows as members of the Hindu undivided family. The question arose whether income from such
propertycouldbeassessedinthehandsofHUF?Theapexcourt(benchof2judges)heldthatitisnotpredicatedof
aHindujointfamilythattheremustbeamalememberinexistence.Evenafterthedeathofthesolemalemember,
solongasthepropertywhichwasoriginallyofthejointHindufamilyremainsinthehandsofthewidowsofthe
membersofthefamilyandisnotdividedamongthem,thejointfamilycontinues.
However, the above judgment was considered by the apex court in case of Sandhya Rani Dutta 248 ITR 201 SC
whereinitwasobserved(byabenchof3judges):
In the present case, as aforestated, the assessee and her two daughters inherited in their individual
capacityaonethirdshareeachintheestateofthedeceased.Wehavenoauthoritybeforeuswhichcan
leadustotheconclusionthattheassesseeandhertwodaughterswerecapableofformingajointHindu
familyorofthrowingtheinterestofanyoneofthemintheinheritedpropertytherein.Aswehavestated,
theconceptofHindufemalesformingajointHindufamilybyagreementamongstthemselvesappearstous
tobecontrarytoabasictenetoftheHindupersonallaw.
ThedecisioninthecaseofCITvsVerappaChettiar76ITR467SCwasdistinguishedbyobservingasunder:
TheTribunalrightlynotedthatthisCourthadthereheldthatsolongasthepropertywhichwasoriginally
of a joint Hindu family remained in the hands of the widows of the members of the family and was not
divided among them, the joint family continued. The conclusion that the Tribunal drew from this was
erroneous,namely."Thus,accordingtotheSupremeCourtalso,onlyfemalescanalsoformajointHindu
family.
BranchofabiggerHUFisalsoaHUFwhichcanbeconsideredassmallerHUF.BhagwanDayalv.ReotiDeviAIR1962
SC287.AlsoSurjitlalChhabracase(supra)
Otheraspects
Apartfromtheabove,itisalsonecessarytokeepinmindcertainotherdecisionswhicharerelevant.Asisapparentfromthe
saidexpression,thememberofanHUFmustbeHindu.AquestionarosebeforetheSCinthecaseofChampaKumariSinghi
83ITR720SCwhetherjainsareHindusornot.Afterconsideringtheissueindetails,thecourtheldthatJainsareHindusby
observingasunder:
TherealquestionfordeterminationiswhetherthewordHinduprecedingthewordsundividedfamilysignifies
thattheundividedfamilyshouldbeofthose:(i)whoprofessHindureligionor(ii)towhomHindulawappliesor
(iii) who though not professing Hindu religion have come to be regarded as HUF by judicial decisions and
legislativepractice.ItmaybementionedthatforalongtimethecourtsandparticularlythePrivyCouncilseemto
havetakentheviewthatJainsareofHinduorigintheyareHindudissentersandalthoughgenerallyadheringtothe
ordinary Hindu law they do not recognise any divine authority of the Vedas nor do they practice a number of
ceremoniesobservedbytheHindus.
Inviewoftheabovedecision,theconceptofHUFisnotonlyapplicabletoHindusbyreligionbutalsotothoseprofessingSikh,
JainaorBuddhistreligion.
Apartfromtheabovedecision,itwouldbeusefultonoticethedefinitionofthewordHindu in Hindu Succession Act 1956 as
wellasinConstitutionofIndia.
Article25oftheconstitutionofindiawhereinExplanationIIprovidesasunder:
In subclause (b) of clause (2), the reference to Hindus shall be construed as including a reference to persons
professing the Sikh, Jaina or Buddhist religion, and the reference to Hindu religious institutions shall be construed
accordingly.
HinduSuccessionAct1956appliestoanypersonwhoisHindubyreligioninanyofitsformsANDanypersonwhois
Buddhist,JainorSikhbyreligionAndanyotherpersonwhoisnotaMuslim,Christian,ParsiorJewbyreligion.
IthasalsobeenexplainedintheaforesaidActthatanychild,whoseoneofhisparentsisHindu,Buddhist,JainorSikh
byreligionandisbroughtupasmemberofthereligiontowhichhisparentbelongto,shallbetreatedasHindu.
AnypersonwhoisconvertorreconverttoHindu,jain,SikhorBuddhistreligionshallalsobetreatedasHindu.
InthecaseofCWTvsSardarSurjitSingh138ITR186Cal,SikhswereheldtobeHindus.(seealso:223ITR139Pb,103ITR
661Pb.)
InthecaseofCWTvsSridharan104ITR436SC,theassesseewasamemberofHUFandhereceivedcertainpropertieson
partitionofsuchHUF.Atthattimehewasunmarried.Lateron,hemarriedaChristiangirl.Hegotasonfromsuchwedlockand
assesseeclaimedthatheandhissonformedanHUFandestatereceivedonpartitionwasassessableinstatusofHUF.Itwas
foundthatsonwasbroughtupasHindu.Accordingly,theapexcourtheldthatsonshouldbetreatedasHinduconsideringthe
legislativeintentinvariousenactmentsrelatingtoHindus.
InthecaseofAddCITvsVenkataraman109ITR247(Mad), it was a converse situation i.e. where family of Hindu husband,
ChristianwifeanddaughterbroughtupasChristianwasclaimedtobeanHUF.Thecourtheldthatitcouldnotbeassessedas
HUF..
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Conversion:v.Abraham[1863]9MIA195PC).
Familymeaningthereof:Theword'family'alwayssignifiesagroup.Pluralityofpersonsisanessentialattributeofafamily.A
singleperson,maleorfemale,doesnotconstituteafamily.Heorshewouldremain,whatisinherentintheverynatureof
thingsanindividual,alonelywayfarertillperchanceheorshefindsamate.[CKrishnaPrasadCIT97ITR343SC]Itwasa
casewheretheassesseewasunmarriedonthedateofpartition.
Though Hindu law is governed by the thoughts of various schools, almost whole of India is governed by two schools i.e.
Mitakshra Law and Dayabhaga law. Dayabhaga law mainly applies to Bengal and Assam while Mitakshra Law applies almost
restofIndia.Thedistinctionbetweenthetwoisexplainedbelow.
AllmembersofHUFhaverightofmaintenanceoutofHUFproperties.
Thereisalsonolimittothenumberofmembersinajointfamily.
Note:jointHindufamilysystemhasbeenabolishedinKerelawef1.12.76andtherefore,nopersoncanclaimthestatusofHUF
afterthat.222ITR765SC.
MitakshravsDayabhagaLaw
TherearevariousschoolsofHindulawbutmainlytherearetwoschoolsi.e.MitaksharalawandDayabhagaLaw.Mitakshara
law applies to almost whole of India except Bengal and Assam areas where Dayabhaga law is applicable. The distinction
betweenthetwoisexplainedbelow:
Under Mitakshara law, the foundation of a coparcenary is laid when son is born to Mitakshra father while under
Dayabhagalaw,foundationofacoparcenaryislaidonthedeathoffatherleavingmorethanoneson.However,under
Dayabhaga law, the sons inherit the property as their personal property but by mutual agreement can form the
coparcenary.
UnderMitaksharalaw,thejointfamilyisbyoperationoflawandeveryfamilyispresumedtobejointfamilyunlessproved
otherwisebutunderDayabhagalaw,heirsofthedeceaseddonotbecomemembersofHUFbyoperationoflaw.They
remaincoownersofthepropertyinheritedbutbymutualconsenttheycanformjointfamily.IncaseofSandhyaRani
Dutta,248ITR201SC,thecourtheldthatwherepropertywasinheritedbyladiesonly,theycouldnotformjointfamily
intheabsenceofmale
UnderMitaksharalaw,songetsarightinthefamilypropertybybirthbutunderDayabhagalaw,songetsrighttoproperty
ondeathoffather.
Under Mitakshara law, the coparcener has undefined right in the family property since share of coparceners goes on
changingbecauseofbirth/deathofcoparcenerbecauseshareinthecoparcenarydevolvesbyruleofsurvivorshipwhile
underDayabhagalaw,thecoparceneracquiresadefiniteshareonthedeathoffatherbyofinheritance..
UnderMitaksharalaw,thecoparcenarycontinuessolongascoparcenersexist.ButunderDayabhagalaw,thereisnosuch
continuanceautomatically.However,thebrothersmayagreetocontinuethecoparcenarywithmutualconsent.
UnderMitaksharalaw,sonascoparcenercandemandpartitionoffamilypropertywhileunderDayabhagalaw,nosuch
rightisavailabletocoparcener.
Under Mitakshara law, the test is unity of ownership while under Dayabhaga law, it is unity of possession. In CWTvs
Biswanthchattergee103ITR536SC,itwasheldthatonfathersdeath,thesonsbecameownersofthepropertyintheir
ownrightandthereforethewealthofdeceasedcouldnotbeassessedinhandsofHUF.
CreationofHinduundividedfamily
ThereisamyththatHUFcanbecreatedbytheactofparties.AccordingtoMitaksharaHindulaw,itisacreatureoflaw
except in the case of adoption or reunion where HUF can come into existence by act of parties. In the case of Bhagwan
Dayalv.ReotiDeviAIR 1962 SC 287, it has been held that HUF coparcenary is a creation of law and cannot created by
agreementofpartiesexceptinthecaseofreunion.
The apex court in the case of Surjit Lal Chhabra 101 ITR 776 has clearly observed: The joint Hindu family, with all its
incidents,isthusacreatureoflawandcannotbecreatedbyactofparties,excepttotheextenttowhichastrangermaybe
affiliatedtothefamilybyadoption.ThuseveryHindufamilyisanHUFunlessprovedotherwise.(seealso248ITR201SC)
However,underDayabhagalaw, the position is slightly different since heirs of the deceased do not become members of
HUFbyoperationoflaw.InthecaseofCITvsSandhyaRaniDutta248ITR201SC,thecourtwasconsideringacaseunder
Dayabhaga law where a family consisted of father, mother and two daughters. On the death of father, all three ladies
inheritedpropertiesinequalshares.Thereafter,byanagreement,theyexpressedtolivejointlyandtheinheritedproperties
weredeclaredtobepropertiesofjointfamily.TheapexcourtheldthattheycouldnotformaHUFintheabsenceofmale
member.ItistobenotedthatunderDayabhagalaw,twomalememberscanformHUFbyagreement.
DonorcannotcreateanHUF.
Inthisconnection,itisimportanttoseethedecisionofMPHCincaseofSatyanarayanKanhaiyalalGagranivsCIT[2008]
215CTR521(MP)whereinithasbeenheldthatdonorcouldnotcreateanHUF.Inthatcasefactswerethese:OneSwasthe
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Karta of the assesseeHUF. This HUF consisted of his wife B and three sons namely K, H and C. On 9111981, one RB
executedaWillinrespectofhermovableandimmovablepropertieswherebyshebequeathedherRs.2lakhsandjewellery
tothreesmallerHUFsconsistingofmembersofaforementionedbiggerHUFinequalshares,i.e.,1/3rdtoeachHUF.These
HUFsconsistedofS,B&K,S,B&HandS,BandCrespectively.ThequestionaroseastowhethersuchHUFscouldbecreated
byactofparties.ThetaxauthoritiesaswellastheTribunalheldinnegativeandconsequentlyheldthatsuchgiftscouldonly
beconsideredasgiftsinthehandsofexistingassessee.ThehonbleHCheldasunder:
HeldthatinviewoftheprincipleslaiddownintheSupremeCourtdecisioninBhagwanDayalv.ReotiDeviAIR 1962 SC
287,theviewtakenbytheTribunalthatcreationof3smallerHUFsforbequeathingthepropertiesbyWillallegedtohave
beenexecutedbyRBwasnotinaccordancewiththeprincipleapplicabletoformationofHUFundertheHinduLawwasthe
correctviewbeinginaccordwiththelawlaiddownbyCourtsonthesubject.
Hinducoparcenery:
ItistobenotedthatHUFistaxableinrespectofincomearising/accruingfromancestralpropertieswhichisalsoknownas
coparceneryproperty.Otherincomesearnedbythemembersareassessableastheirindividualincome.Itwouldtherefore
beappropriatetoknowaboutthecoparcenary.
AHinducoparcenaryisamuchnarrowerbodythanthejointfamily.Itincludesonlythosepersonswhoacquirebybirthan
interestinthejointorcoparcenarypropertyandthesearethesons,grandsonsandgreatgrandsonsoftheholderofthe
jointpropertyforthetimebeing,thatistosay,thethreegenerationsnexttotheholderinunbrokenmaledescent.Since
undertheMitaksharalaw,therighttojointfamilypropertybybirthisvestedinthemaleissueonly,femaleswhocomein
onlyasheirstoobstructedheritage(sapratibandhadaya),cannotbecoparceners.(SurjitLalChhabra101ITR776;Stateof
Maharashtravs Narayan Rao Shamrao Deshmukh 163 ITR 31 SC.) This aspect of matter is important to understand
whethertheincomeearnedistobeassessedinthestatusofHUFornot.
Incidentsofcoparcenery
Thelinealdescendantsofapersonuptothethirdgenerationacquirebybirthownershipintheancestralpropertiesof
suchperson.
Thatsuchdescendantcan,atanytime,demandpartitionofancestralproperty.
Thattillpartitioneachmemberofcoparcenaryhasownershipextendingovertheentirepropertyconjointlywiththe
restcoparceners.
Thatasaresultofsuchownership,thepossessionandenjoymentiscommon.
Thatnoalienationofpropertyispossiblewithouttheconcurrenceofcoparcenersunlessitisfornecessity.
Theinterestofadeceasedcoparcenerlapsesonhisdeathbysurvivorship.So,interestofacoparcenerincoparcenary
propertygoesonchangingbybirth/deathofacoparcener.
(See:CEDvAlladiKuppuswami108ITR439SCatPage449)
Whatismeantbyancestral/coparcenary/jointfamilypropertywithreferencetoHUF?
AsperHindulaw,ancestralpropertymeanspropertyacquiredbyforefathers.Therefore,anypropertywhichisreceivedby
thecoparceneronpartitionisalwaysconsideredasancestralproperty.However,itistobenotedthatifthecoparceneris
unmarriedonthedateofpartitionthenincomefromsuchpropertywouldbeassessedinhishandsinindividualcapacity till
he gets married, reason being that single person cannot constitute family.(C Krishna PrasadCIT 97 ITR 343 SC.) It was
held by the apex court that once a property gets the character of HUF/ancestral property, it continues to have such
charactereventhoughholderofestatemaybesingle.Tillhegetsmarried,heistheabsoluteownerandcandisposeitin
any manner he likes. Therefore, in the absence of family, the income from such property is liable to be assessed in
individualcapacity.Incase,hegetsmarriedbeforetheendoftheyearthen,suchincomewouldbeassessedinhandsof
HUFconsistingofhimselfandhiswife.
TheexpressionCoparcenarypropertyiswiderthantheexpressionancestralproperty.Itwouldincludethefollowing:
Ancestralpropertyi.e.thepropertyinheritedfromfather,grandfatherorgreatgrandfathershareallottedonpartition
Propertyacquiredbythecoparcenerswithjointefforts.InMadanlalvYogabaiAIR2003SC1880,ithasbeenheld
thatpropertyraisedanddevelopedbyjointeffortsoffatherandsonswouldbejointfamilyproperty
Propertyacquiredwiththeaidoforonaccountofcoparcenaryproperty.
Property of the coparcener thrown into common hotchpot of family funds. So, a female member could not throw her
selfacquiredpropertyincommonhotchpotofjointfamily.PushpadevivsCIT109ITR730SC.
ThepropertyreceivedbyHUFhavingancestralpropertyasgiftorunderawill.Intentionofthedonorisrelevant
whileconsideringthecharacterofthegiftedproperty.(M.P.PeriakaruppanChettiarvsCIT99ITR1SC.)
The expression Joint family/HUF property is, in my opinion, 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/coparcenery 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
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property would neither be ancestral nor coparcenary property but certainly be HUF property. To buttress this view, reference
maybemadetothedecisionoftheapexcourtinthecaseofSurjitlalchhara(supra).However,insuchcase,itwasheldthat
incomefromsuchpropertywouldbeassessableaspersonalincomeofthemalepersontillthebirthofason.
So,distinctionmustbekeptinmindbetweenthecasesfallingwithintheratiolaiddownbytheapexcourtinthecases(Gowli
BuddannavsCIT60ITR293SCat296NVNarendernathvCWT74ITR190SC)andC.KrishanPrasad97ITR343SC)on
onehandandthecasesfallingwithintheratioofthedecisioninSurjitLalChhabra101ITR776SC.
WhetherpropertyinheritedfromfathercanbetreatedasHUFproperty?
As per the old Hindu law, the property inherited by a coparcener was considered as ancestral property but after the
commencementofHSA1956,thepropertyoffatherdevolvesbytestamentaryorintestatesuccession.Thefatherhasabsolute
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. (CWTvsChander Sen
161ITR370SC)
KartaofHUF:
UndertheHindulaw,theseniormostmalememberisconsideredasKartaofsuchfamily.Heisunderobligationtomanage
theaffairsofsuchfamily.Ifundergivencircumstances,suchpersonisnotinapositiontodischargehisobligationthenthe
nextseniormembercanbethekartaofHUFwiththemutualconsent.Anymembercanalsobeappointedasmanager.
InthecaseNarenderKumarModi105ITR109SC,theapexcourtapprovedthislegalpositionbyholdingthatKartamay
giveuphisrighttomanageandthejuniormalememberoffamilycanbeappointedasKartaofHUF.
PowersofKarta:
1.ManagingtheaffairsofHUF.forthispurpose,theKartaisentitledforreasonable
amountofsalary,seeJugalkishoreBaldevSahaivCIT63ITR238SC
2.controlandbecomecustodianoffinances
3.Canborrowmoneyfor&onbehalfofHUF
4.Spendmoneyforthefamily&notaccountableforit.
5.NOTliabletosubmitaccounttoanybody.
6.Canmakepartitionofthefamilysuomoto.
7.quantumofpartitionshallbewithKartasliking.
8.HecanenterintocontractsonbehalfofHUFandmayallowotherstorepresentHUF.HUFas
suchcannotenterintopartnershipandtherefore,kartaoranyothercoparcenerauthorised
canenterintoagreementofpartnership.
9.CanGiftawaythemovablepropertiesofHUFfornaturallove&affectionbut
withinreasonablelimit.
10.cantransfertheimmoveablepropertyforpiouspurposesorthelegalnecessityorforbenefit
ofthefamily.
GiftundertheHindulaw
Karta of family can make a gift of ancestral immoveable property within a reasonable limit keeping in view the total
extant of property. The powers of the Karta or the manager of the Joint Hindu Family visavis coparcenary property
havebeensummarisedinparagraphs225,226and258ofMullasHinduLawwhichreads:
"225. Although sons acquire by birth rights equal to those of a father in ancestral property both movable and
immovable,thefatherhasthepowerofmakingwithinreasonablelimitsgiftsofancestralmovablepropertywithout
the consent of his sons for the purpose of performing indispensable acts of duty, and for purposes prescribed by
textsoflaw,asgiftsthroughaffection,supportofthefamily,relieffromdistressandsoforth.******
226. A Hindu father or other managing member has power to make a gift within reasonable limits of ancestral
immovablepropertyforpiouspurposes.However,thealienationmustbebyanactintervivos,andnot by will. A
memberofajointfamilycannotdisposeofbywillaportionofthepropertyevenforcharitablepurposesandevenif
theportionbearsasmallproportiontotheentireestate.However,nowseesection30oftheHinduSuccessionAct,
1956.
258.AccordingtoMitaksharalawasappliedinalltheStates,nocoparcenercandisposeofhisundividedinterestin
coparcenarypropertybygift.Suchtransactionbeingvoidaltogetherthereisnoestoppelorotherkindofpersonalbar
whichprecludesthedonorfromassertinghisrighttorecoverthetransferredproperty.Hemay,however,makeagift
ofhisinterestwiththeconsentoftheothercoparceners.
However,theapexcourthasgivenextendedmeaningtothepowersofKarta/managingmemberbyholdingthathecan
gifttheancestralpropertyofreasonableamounttodaughter.InGurammaBhratarChanbasappaDeshmukhv.Malappa
[1964]4SCR497anditwasheld:
"Thefatherorhisrepresentativecanmakeavalidgift,bywayofreasonableprovisionforthemaintenanceofthe
daughter, regard being had to the financial and other relevant circumstances of the family. By custom or by
convenience,suchgiftsaremadeatthetimeofmarriage,buttherightofthefather or his representative tomake
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convenience,suchgiftsaremadeatthetimeofmarriage,buttherightofthefather or his representative tomake
such a gift is not confined to the marriage occasion. It is a moral obligation and it continues to subsist till it is
discharged.Marriageisonlyacustomaryoccasionforsuchagift.Buttheobligationcanbedischargedatanytime,
eitherduringthelifetimeofthefatherorthereafter.Itisnotpossibletolaydownahardandfastrule,prescribingthe
quantitativelimitsofsuchagiftasthatwoulddependonthefactsofeachcase
InKuppayeevsRajaGounder265ITR551at559SC,itisheld:
whereasthefatherhasthepowertogiftancestralmovableswithinreasonablelimits,hehasnosuchpowerwith
regard to the ancestral immoveable property or coparcenary property. He can, however make a gift within
reasonablelimitsofancestralimmovablepropertyfor"piouspurposes".However,thealienationmustbebyanact
inter vivos, and not by will. This Court has extended the rule in paragraph 226 and held that the father was
competent to make a gift of immovable property to a daughter, if the gift is of reasonable extent having regard to
thepropertiesheldbythefamily.
Extendedmeaninggiventothewords"piouspurposes"enablingthefathertomakeagiftofancestralimmovable
property within reasonable limits to a daughter has not been extended to the gifts made in favour of other female
membersofthefamily.Ratherithasbeenheldthathusbandcouldnotmakeanysuchgiftofancestralpropertyto
hiswifeoutofaffectionontheprincipleof"piouspurposes.
PartitionofHUFproperty
AsperHindulaw.
Partitionisaprocessbywhichajointenjoymentistransformedintoanenjoymentinseveralty.Eachoneofsharers
hadanantecedenttitleandthereforenoconveyanceisrequired.CEDvsKantilalTrikamlal105ITR92SCatp101.
Oncesharesofeachshareraredefined,thepartitioniscomplete.Itisnotnecessarythatitshouldbebymetesand
bounds.
Evenasinglecoparcenercanseparatehimselffromrestofthefamily.
Even partial partition is permissible. For example, joint family business could be divided while retaining other
propertiesasjointproperty.
Wherethereispartitionbetweendifferentbranches,therespectivebranchescontinuetoremainjoint.
Sincepartitioncanbeeffectedbetweencoparcenersonly,afamilywithsolecoparcenerisnotamenabletopartition.
111ITR539Mad,CITvSatpalBansal162ITR582(PH)(FB),74ITR271Guj.
Partitionundersection171ofITAct1961:
Section 171 raises a legal fiction that an HUF, once assessed shall be deemed to continue unless a finding of
partition has been given under this section. Consequently, unless a finding is recorded under section 171 that a
partition has taken place, the income from the properties would be included in the total income of the family by
virtueofsubsection(1)ofsection171.(KaloomalTapeshwariPrasadvsCIT133ITR690SC)
Section 171, as originally enacted, applied to total as well as partial partition. However, sub section (9) inserted by
Finance (No 2)Act 1980 recognises only complete partition. The cut of date is 31.12.1978. Thus partial partition
effectedafterthisdateisnotgiveneffecttobytheAOeventhoughsuchpartitionmaybelegalasperHinduLaw.
Hence,forthepurposeofincometaxassessment,theHUFshallbedeemedtocontinuenotwithstandingthepartial
partitionandtheincomefromallpropertiesshallcontinuetobeassessedinthehandsoferstwhileHUF.
It is to be noted that section 171 applies to those HUFs which have been assessed under the Act. So, in my
opinion, partial partition can still take place where HUF has not been assessed without invoking this
section. Such partition is not required to be recorded under this section. This is fortified by the decision of SC in
caseoAThimmayya55ITR666SCwhereinitwasobserved:Anorderundersubsection(1)canonlybemadeif
certainconditionscoexistthefamilyinquestionhasbeenhithertoassessedasundividedandaclaimismadeat
the time of making an assessment that partition of the family property has been made between the members or
groupsindefiniteportions.Subsection(2)ofsection25Abecomeseffectiveonlyifanorderundersection25A(1)
is made and not otherwise. See alsoTrilochan SinghvCIT 180 Taxman 640 PH,CITvHari Kishan Gupta 117
Taxman214Del.
Section 171, as applicable from A.Y. 198081, recognises only complete partition. Explanation to this section
recognizesonlypartitionbymetesandboundsi.e.thephysicaldivisionofpropertyisconditionprecedent.So,
thereisadeparturefromHindulaw.Even a decree of court would not be sufficient or binding on AO unless
physicaldivisiontakesplace.ITOvsNKSaradaThamptty187ITR696SCNarenderModivsCIT105ITR
109SC
Partitioncanbeeffectedondemandofcoparcenersorsuomotobythefatherinhissuperiorpowerevenwithout
theconsentofsons.Suchrightcanalsobeexercisedevenwheresonsareminors.ApoorvaShantilalShah(Huf)
SethGopaldas(Huf)vsCIT141ITR558SC.
AlthoughmereseveranceofthestatusofthefamilymaytantamounttopartitionundertheHindulawofJointfamily,
therequirementoftheIncometaxActisalittlemore.A partition to be recognised under the Act must lead to
physicaldivision of the joint properties. If the properties belonging to a HUF are not partitioned at all by dividing
themamongthemembers,eventhoughcapableofdivision,thenthemembersofthefamilycannotsaythatso
far as those properties are concerned they stand divided.(CITvsVenugopal Inani 239 ITR 514). In this case,
partialpartitiontookplacewithrespecttocertainpartitionwithoutmakingaphysicaldivision.TheAOwasheldto
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bejustifiedinrejectingtheclaim.
If the property is not capable of being divided physically then it should be divided to the extent possible
(Explanationtosection171).Apportionmentonanequitablebasis,havingregardtoallrelevantfactors,isalso
akindofphysicaldivisionofthepropertiescontemplatedintheExplanationtosection171.Anyotherviewwill
beonedivorcedfromtherealitiesoflife.(KallomalTapeshwariPrasad133ITR690SC).
Intheabovecase,therewerealargenumberofitemsofproperty.Assesseedividedtheseamong10members
havingsharesthereini.ewithoutmakingphysicaldivision.Itwascontendedthatthesewereincapableofbeing
dividedamongthemembers.TheSCheldthatinsuchcases,theyareusuallyapportionedonanequitablebasis
havingregardtoallrelevantfactorstoequalisetheshares.Suchapportionmentisalsoakindofphysicaldivision
ofthepropertiescontemplatedintheExplanationtosection171.Anyotherviewwillbeonedivorcedfromthe
realitiesoflife.Theinstantcasewasnotacasewhereitwasimpossibletomakesuchadivision.Nor was it
shownthatthememberswerenotcapableofmakingpaymentofanyamountforequalisationofshares.Infact,
therewasnomaterialintheinstantcaseshowingthattheassesseeeverseriouslyattemptedtomakeaphysical
division of the property as required by law. All that was attempted was to rely upon the arbitrator's award
whichwereinsufficienttoupholdtheclaimoftheassessee.Accordinglytheimpugnedpropertieswerecapable
ofphysicaldivision.KallomalTapeshwariPrasad133ITR690SC
IncaseofCITvsMaharaniRajlaxmiDevi224ITR582SC,thecourthasheldthatrecordingofpartitionu/s171is
necessaryevenincasefallingu/s6oftheHSA.Itobserved:itmustbeheldthatthoughforthepurposeof
HUF,section6oftheHinduSuccessionAct,wouldgoverntherightsofthepartiesbutinsofarasincometaxlaw
isconcerned,thematterhastobegovernedbysection171(1).
Itismandatorythatassesseemustmakeaclaimatthetimeofmakingassessmentu/s143/144.Ifsuchclaimis
made, the AO is required to make an enquiry into such claim after giving notice to all the members. After
makingenquiry,AOisrequiredtorecordafindingaccepting/rejectingtheclaim.
FailuretomakeanorderontheclaimmadedoesnotaffectthejurisdictionoftheITOtomakeanassessmentof
the Hindu family which had hitherto been assessed as undivided. The ITO may assess the income of the Hindu
familyhithertoassessedasundividednotwithstandingpartition,ifnoclaiminthatbehalfhasbeenmadetohim
orifheisnotsatisfiedaboutthetruthoftheclaimthatthejointfamilypropertyhasbeenpartitionedindefinite
portions,orifonaccountofsomeerrororinadvertencehefailstodisposeoftheclaim.Inallthesecaseshis
jurisdiction to assess the income of the family hitherto assessed as undivided remains unaffected, for the
procedureformakingassessmentoftaxisstatutory.Anyerrororirregularityintheassessmentmayberectifiedin
the manner provided by the statute alone, and the assessment is not liable to be challenged collaterally. ITOvA
Thimmayya55ITR666SC.
Unless an inquiryis undertaken by the department and a finding is recorded as required by subsection (3) of
section171readwiththedefinitionoftheexpressions'partition'and'partialpartition'intheExplanationtothat
provision,therecouldforthepurposesoftheIncometaxActbenopartitionandtheHUFwouldcontinuetobe
aHUFassessabletotaxasifthepropertycontinuestobelongtotheHUF;thisisthepositionwhichemergeson
aplainreadingofsection171andthattooforthelimitedpurposesoftheActonly.(RBTunkiSahBaidyanath
PrasadvCIT212ITR632SC)
Beforeconcluding,itwouldbeappropriatecertaindecisionsoftheapexcourtwhicharerelevantinmakingtheassessment
orcomputingtheincomeofHUF.
InthecaseofRamLaxmanSugarMillsvCIT66ITR613SC,ithasbeenheldthatAHinduundividedfamilyisundoubtedlya
"person"withinthemeaningoftheIndianIncometaxAct:Itishowevernotajuristicpersonforallpurposes,andcannot
enter into an agreement of partnership with either another undivided family or individual. It is only
karta/manager/coparcener/memberwhocanenterintosuchagreementonbehalfofHUF.
Invariouscases,wherethekartaispartnerrepresentingtheHUFandsalaryorcommissionispaidtopartner,theissuearises
whethersuchsalaryorcommissionshouldbeassessedinthehandsofHUForaspersonalincomeofthekarta.Thetestlaid
downbythecourtiswhethersuchpaymentbecauseofinvestmentinthefirmorasacompensationfortheservicesrendered.
Incaseofformer,itwillbeassessedasincomeofHUFwhileincaseoflater,itwillbeassessedaspersonalincomeofkarta.
ThistesthasbeenlaiddownincaseRajKumarSinghHukamSinghji78ITR33.SeealsoPremNathvsCIT78ITR319SC
hasbeenfollowedinCITvsLachhmanDassBhatia162Taxmann118Del.
ImpactofHinduSuccession(Amendment)Act2005onaboveissues
Attheoutset,itmaybementionedthatsection4ofHinduSuccessionAct1956overridestheexistingHindulawinrespectof
thematterscoveredbytheprovisionsofthisAct.Inotherwords,thematterscoveredbytheHinduSuccessionAct1956will
holdthelegalpositionandtothatextentHindulawwillceasetoaffect.Keepinginviewthisaspect,letmediscusstheimpact
ofHinduSuccession(Amendment)Act2005.
The first relevant amendment is the amendment of section 6 w.e.f. 9.9.2005. Firstly, it declares that on and from the
commencement of this Act, in the joint family governed by Mitakshra law, daughter of a coparcener shall, by birth become a
coparcener in the same manner as the son. Consequently, she would have the same rights and subject to same liabilities as
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that of a son. Thus, the scope of coparcenary has been enlarged by the Hindu Succession Amendment Act 2005.
However,itistobenotedthatitnotextendedfurthertonextgenerationsofsuchdaughter.
ThisamendmenthasagreatimpactontheconceptofHUFanditstreatmentundertheIncomeTaxAct.UndertheHindu
law, joint Hindu family must have at least one male member.(CITvsSandhya Rani Dutta 248 ITR 201 SC) The court
observed:TheprincipalquestionherewasthecapacityofHindufemalestoformamongthemselvesaHUF.Noauthorities
tosupportthiswerebroughttoCourtsnotice;indeedtheycouldnotbe,fortheconceptappearstobealientotheHindu
personallawwhichrequiresthepresenceofamaleforthepurposesoftheconstitutionofanHUF.
Aftertheamendmentinsection6ofHinduSuccessionAct1956w.e.f.9.9.05,thedaughterofacoparcenerinjointfamilyis
also to be treated as coparcener on the same footing as that of a son. The discrimination between son and daughter
disappears. Therefore, in my opinion, where a family consisting of father, his wife and a daughter existed on 9.9.05 and
thereafterfatherdiesthentheremainingfamilyofwidowanddaughterwouldconstituteHUFandtheprinciplelaiddownin
SandhyaRaniscase(supra)wouldnotapply.Inotherwords,whereHUF,havingancestralpropertyexistsason9.9.2005but
subsequentlyisreduced,onthedeathofmalemember,toafamilyhavingfemalemembersi.e.wifeofthedeceasedand
daughters,theincomefrompropertiesofsuchfamilywould,inmyopinion,willcontinuetobeassessedinthehandsof
HUFinviewofthedecisionsoftheapexcourtinGowliBuddannavsCIT60ITR293SCat296;NVNarendernathvCWT74
ITR190SC;thereasonbeingthatdaughterofcoparcenerisalsobeconsideredascoparcener.
AnimportantquestionariseswhetherdaughtersmarriedbeforeSep9,2005wouldbecomecoparcenersoftheirparental
family in view of the said amendment. In my view, they cannot be considered as coparceners for the reasons given
hereafter.Ifwereadtheamendedsection6carefully,itisclearthatitappliesonlywheninthejointfamilyason9.9.05.,the
femaleisthedaughterofacoparcener.Thatmeansthatboththecoparceneraswellasdaughtersofsuchcoparcenermust
bethemembersofsuchjointfamilyason9.9.05.Themarrieddaughters,asperHindulaw,ceasedtobemembersofjoint
familyonthedateofmarriageitselfandbecamememberofhusbandsfamily.Accordingly,inmyopinion,thedaughters
married before 9.9.05 cannot become coparcener of parental family. For the similar reason, where the coparcener had
expired prior to 9.9.2005, the daughter of such person cannot be treated as coparcener; reason being that member of
coparceneryceasedtobemembersofthecoparceneryonhisdeathasperHindulaw.
Secondly,undertheamendedlaw,ifdaughterhasbecomecoparcenerinthejointfamily,thensuchdaughtercanalsoact
askartaoftheHUFintheabsenceofseniormalemember.UndertheHindulaw,priortoamendment,theseniormember
of coparcenary could act as karta. Consequently, on the death of father, she can act as karta of the family consisting of
widowanddaughtersofthedeceased.
Next major impact is that the daughter of coparcener can demand partition of joint family property where coparcenery
consistsoftwoormorecoparceners.Afamilyhavingsinglecoparcenerisnotamenabletopartition(VVSNatarajanvCIT
111ITR539Mad).Thereasonisthatpartitionpresupposestwopersonsentitledtopartition.
Thenextmajorimpactisthatdaughterofcoparcenerason9.9.2005shallbedeemedtohaveinterestinthecoparcenary
property by birth. However, the legislature has saved all the alienations of properties effected before 20.12.2004 by the
proviso to section 6(1). Consequently, the daughter who has become coparcener cannot challenge the alienation of any
jointfamilypropertywhichhadtakenplacebefore20.12.2004.
However,itistobenoted,theExplanationtothissectionhasdefinedthewordpartitionasapartitionexecutedbyadeed
registered under Registration Act 1908 or a partition effected by a decree of the court. In other words, oral partition or
writtenpartitionbutnotregisteredareoutsidethescopeofsuchprovisoandconsequently,suchfemalecoparcenercan
challengethealienationinacourtoflaw.
Thenextimpactisthatanypropertytowhichadaughterbecomesentitledtobyvirtueofsection6(1)shallbeheldasan
incident of coparcenery ownership and shall be regarded as property capable of being disposed of her by testamentary
disposition.Thisiscontainedinsubsection(2)ofsection6andithasanoverridingeffectoverotherprovisionsoftheAct.
That means that apart from right to demand partition, she can dispose of her interest in joint family interest by
testamentarydispositionwithoutaskingforpartition.Insuchsituation,accordingtome,thequantificationofherinterest
willbedoneonthebasisofvalueofpropertyasonthedateofsuchdisposition.
The next impact is that such female coparcener shall also be entitled to blend her selfacquired property with the HUF
propertybythrowingthesamecommonstock.Thereasonisthatonlythecoparcenerhadarighttoblendhisselfacquired
property with the HUF property by throwing the same common stock. (Mallesappa Bandeppa Desai v. Desai Mallappa
[1961]3SCR779;AIR1961SC1268.)ReferencecanalsobemadetothedecisionoftheapexcourtinthecaseofPushpa
Devi109ITR730whereitwasheldthatfemalemembercouldthrowherselfacquiredpropertyintocommonstockofjoint
familyproperty.Sincedaughterisnowconsideredascoparcener,shewouldeligibletoexercisesuchright.However,itisto
notedthatprovisionsofsection64ofITAct61wouldbeattracted.
ThenextimpactisthatafterthecommencementoftheHinduSuccession(Amd)Act2005,interest of coparcener in property
on his/her death shall devolve by testamentary or intestate succession and not by survivorship in view of the amended
provisions of section 6(3). It would be appropriate to point out that as per Hindu law, interest of coparcener, on his death,
devolvedbysurvivorship.ThisprinciplecontinuedevenafterthecommencementofHinduSuccessionAct1956subjecttoone
exception.Theexceptionwasthesituationwherethedeceasedcoparcenerhadlefthimafemalerelativespecifiedinclass1of
the Schedule or a male relative specified in that class who claimed through such female relative. This discussion shows that
ruleofsurvivorshiphascompletelynomoreisapplicable.
Section 6(3) also creates a legal fiction to the effect that (i) a division of property had taken place as if partition had taken
place on immediately before his/her death (ii) that daughter had been allotted a share as is allotted to a son (iii) share of pre
deceasedson/daughterisallottedtotheirsurvivingchildand(iv)shareofpredeceasedchildofpredeceasedsonordaughteris
allottedtotheirchild.
However,itistobenotedthattheaforesaidamendmentdoesnotaffectthelegalpositionu/s171ofITAct1961.The
provisions of section 171 have to be complied with irrespective of the amendment of section 6 of Hindu Succession Act
1956. In case of CITvsMaharani Rajlaxmi Devi 224 ITR 582 SC, the court has held that recording of partition u/s 171 is
necessaryevenincasefallingu/s6oftheHSA.Itobserved:itmustbeheldthatthoughforthepurposeofHUF,section6
oftheHinduSuccessionAct,wouldgoverntherightsofthepartiesbutinsofarasincometaxlawisconcerned,thematter
hastobegovernedbysection171(1).
Itisfurthertobenotedthat.TherequirementunderITactisthatpropertieshavebeenpartitionedbymetesandboundas
farassection171oftheITActisconcerned,itisnottherequirementthatpartitionmustbeeffectedthroughregistered
deedbetweentheparties.
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The major points have been taken care of. However, some points may have been left inadvertently and the readers may take
theirownviewsormaycontactmethroughemailkaushalsinghal15@gmail.com
(K.C.Singhal)
Peoplealsoviewed..
AvoidanceOfLawisanExcuse
HowtosavetaxlegallybyformingHUF
COMMENTS
0
#1Subramaniam 2014062818:00
hellosir
Pleaseclearifymethis.
2brotherswithoutinheritancestartearningfromsmallbusinessessandlaterstartbuyingpropertyalternativelyin
individualnamesfromcommonincome,andliveinthesamehouse,elderbrotherdiessuddenlyyoungerbrothertakes
careofthefullfamily.after9yearsstillnopartitiontheelderbrotherswifediesofillness.,Theyoungerbrothertakescare
oftheentirefamilyfromthen.
thequestionisdoallthesenowbelongtoanHUFcananybodygoforapartitiondeed.
Quote
#2princemkariya 2014071713:54
DearSir,
Sirisitnecessarytohavepropertyofforefathersonorbefore1947tocreateHUF.
0
Quote
0
#3SUMITKUMARBASAK 2014102800:01
AnyPersonwhoinheritedpropertyfromhisfather,andifthepersonisfoundpsychiatricpatient,andalsoitisfoundthat
hecouldnotkeepthebusinessasitwasinhisfather'sregime,thentheeldersonofthatpatientcanclaimtheproperty,if
heismarried,whereasthepatient'syoungersonnotmarried,asofthedate.
Pleasereplyforthesame,tobeobliged.
Quote
#4AlonebutAlive 2016012210:38
iwantnotesaboutJointHinduFamilyBusiness(NeedandImportanceandsomegrafs)forProject
0
Quote
#5OnSharanGupta 2016031920:37
Documentsrequiredforopeninghufsavingsbankaccount............
0
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Detailed Analysis of HUF With Hindu Succession Act 1956 and Income Tax Act 1961 by K.C

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Detailed Analysis of HUF With Hindu Succession Act 1956 and Income Tax Act 1961 by K.C

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