Hin

du

Un

div

ided

Fa

mil

yU

nder

Th

e H

indu L

aw

&In

com

e T

ax A

ct,

1961

{As A

mended b

y H

indu S

uccessio

n (A

mendm

ent)

A

ct,

2005}

•Chara

cteristics of HUF

•Consequence of Am

endm

ent in

Hin

du S

uccession A

ct

•M

ode of Cre

ation of HUF

•In

com

e T

ax Issues

Topic

s c

overed

Meanin

g o

f H

UF

Dis

tincti

on -

Co-p

arcener

and a

mem

ber

A H

UF, as such, can consist of a very

larg

e n

um

ber

of m

em

bers

in

clu

din

g fem

ale m

em

bers

as well as

dista

nt blood re

latives in

th

e m

ale line. However,

out of th

is, coparc

eners

are

only those m

ales w

ho

are

within

4 d

egre

es in lin

eal descendent from

the

com

mon m

ale

ancesto

r. T

he relevance of concept of

coparc

ener

is th

at

only coparc

eners

can ask for

partition.

The oth

er

male

fam

ily m

em

bers

; i.e,

oth

er

than coparc

eners

in

a HUF, have no direct

claim

over

HUF pro

perty,

but

can claim

only

thro

ugh the coparc

eners

.

Ch

ara

cte

ris

tics o

f H

UF

•The Karta can fu

nction in

Dual capacity and can claim

re

munera

tion a

nd o

ther benefits fro

m the H

UF. ( W

ho can

be K

arta -

discussed in later slides)

•It m

ay b

e com

posed of

-Larg

e or

-Sm

all or

-Nuclear Join

t Fam

ilies

•Every

above said fam

ilies m

ay h

old the p

roperty in its o

wn

RIG

HT, m

ay b

e assessed for its incom

e as a separa

te u

nit.

•A There

need NOT be m

ore

th

an one MALE m

em

ber

to

form

HUF

•If th

e fam

ily is re

duced to

Sole -Surv

ivoring coparc

ener

with o

ther fam

ily m

em

bers

, in

com

e tax is leviable o

n the

join

t fam

ily and n

ot on m

ale m

em

bers

as individual

Ch

aracte

ris

tics …

…..

Ch

aracte

ris

tics …

…..

•There

can b

e a H

UF com

prisin

g only of FEM

ALE

mem

bers

.

•A m

em

ber of th

e fam

ily carry on any oth

er

busin

ess individ

ually it will be h

is individ

ual

incom

e n

ot of fam

ily even if he b

orrows requisite

capital from

the join

t fam

ily fund.

•Mostly fees or salary

earn

ed b

y k

artaas d

irecto

r or

partner m

ay b

e consid

ere

d as h

is individ

ual

incom

e.

•Salary

incom

e of th

e individ

ual will not be assessed

as incom

e of th

e H

UF m

ere

ly b

y the reason that

the p

ers

on h

avin

g b

een educated, m

ain

tain

ed,

supported w

holly b

y join

t fam

ily funds.

Wh

o c

an b

e ‘K

arta

’

Wh

o c

an b

ecom

e K

AR

TA

?

The senior m

ost m

ale coparc

ener

Even if he b

ecom

e a

ged, in

firm

, ailin

g, or even a

leper

but m

ay c

ontinue to b

e a

KARTA. Hin

du law d

oes n

ot

clarify w

heth

er in

sanity or any oth

er m

enta

l in

firm

ity or

physical disability w

ill entitle the o

ther coparc

eners

to

rem

ove h

im.

In c

ase the s

enior m

ost m

em

ber is n

ot Karta, th

en the

next senior m

ale m

em

ber ta

kes over as K

arta.

{Man V

s G

ain

i IL

R (1918

) 40 A

ll 7

7}

A junior coparc

ener

Only if all the coparc

ener agre

ed.

{Narendra K

um

ar J.

Modi

Vs C

IT (1

976)

105

ITR

10

9 (S

C)}

Pow

ers o

f K

AR

TA

•M

anagin

g the affairs of HUF

•Control & b

ecom

e custo

dian of th

e fin

ances

•Can b

orrow m

oney for & on b

ehalf of HUF

•Spend m

oney for th

e fam

ily &

is n

ot Accounta

ble for it.

•NOT liable to subm

it account to

anybody.

•Can m

ake p

artition of th

e of th

e fam

ily S

uo m

oto

.

•Quantu

m of partition shall b

e w

ith K

ARTA’s lik

ing.

•HUF cannot enter in

to contracts, or form

partners

hip

firm

, or re

pre

sent except th

rough K

arta, however Karta

may allow oth

ers

to repre

sent HUF.

•Can GIF

T away th

e m

ovable pro

perties of

HUF for

natu

ral love &

affection b

ut within

reasonable lim

it.

•M

ay tra

nsfer im

movable p

roperties for pious p

urp

oses

or for th

e b

enefit of th

e fam

ily.

•The p

ower of alienation cannot be exerc

ised except

by K

arta, where

the join

t fam

ily p

roperty can b

e

alienated for th

e followin

g thre

e p

urp

oses only :

–Legal necessity.

–Benefit of esta

te of th

e fam

ily.

–Acts of In

dispensable d

uty

.

•The K

arta can alienate the join

t fam

ily p

roperty

with the consent of th

e coparc

eners

even if none of

the of th

e above exceptional cases exist and if all

the coparc

eners

are

adult the alienation is b

indin

g

on the entire

join

t fam

ily.

[ K

andasam

i V. S

om

ak

anda I

LR

(1912) 35 M

ad 1

77 ]

Pow

ers o

f ali

enati

on

Consequences o

f A

mendm

ent

in

Hin

du S

uccessio

n A

ct.

Consequence o

f A

mendm

ent

made b

y H

indu

Successio

n (A

mendm

ent)

Act,

2005

-rig

hts

& l

iabil

itie

s o

f a d

augh

ter m

em

ber

•Daughter shall b

e a C

oparc

ener of Hin

du F

am

ily P

roperty.

•If a

Hin

du d

ies, th

e c

oparc

ener pro

perty s

hall b

e a

llotted

to the d

aughter as is allotted to sons.

•If a

fem

ale coparc

ener dies b

efore

partition, th

en childre

n

of such c

oparc

ener would

eligib

le for allotm

ent assum

ing

a partition had ta

ken place im

mediately before

her

dem

ise.

•No re

covery

is m

ade for

ancesto

rs dues from

son,

gra

ndson, or gra

te gra

ndson b

y a

pplyin

g d

octrin

e of pious

obligation.

•A fem

ale m

em

ber can a

lso s

eek p

artition o

f th

e d

wellin

g

house w

here

the fam

ily resides.

•A w

idow o

f a p

re-d

eceased s

on e

ven though rem

arried is

now eligible for share

in p

roperty a

s legal heir o

f th

e p

re-

deceased son of th

e fam

ily.

•A fem

ale can also dispose of her

share

in

coparc

enery

pro

perty at her own w

ill.

Expenses i

ncurred o

n M

arria

ge

of

a D

au

gh

ter b

y H

UF

•C

on

sequ

en

ce o

f A

men

dm

en

t of

Hin

du

su

ccessio

n A

ct,

19

56

.

•Even d

aughter becom

e coparc

ener. B

ut

marriage of daughter still an obligation of

the F

am

ily u

nder Hin

du law.

•Thus, re

asonable am

ount of gift given on

her m

arriage should n

ot objected b

y the

male coparc

ener.

General

Rule

of

Successio

n -

Secti

on 8

The p

roperty O

f m

ale H

indu d

yin

g intesta

te

shall d

evolve as p

er th

e p

rovisions given

below:-

•Firstly am

ongst th

e h

eirs specified in C

lass

Iof th

e schedule.

•If n

o h

eirs of class I exists than am

ongst

the h

eirs of Class II.

•If n

o h

eirs in b

oth

classes then am

ongst

agnates of th

e d

eceased.

•Lastly, if n

o agnates then am

ongst th

e

cognatesof th

e d

eceased.

Defi

nit

ion

of

Cogn

ate

s &

Agn

ate

s

•Cognates

of

the

deceased

are

re

lative

thro

ugh m

atern

al side. “A p

ers

on is said to

be the cognate of th

e d

eceased if th

e two are

re

lative by blood and adoption not

wholly

thro

ugh the m

ales.”

•Agnates of th

e deceased are

re

latives from

th

e patern

al side.”

A pers

on is said to

be

the Agnate of th

e deceased if th

e tw

o are

re

lative by blood and adoption not

wholly

thro

ugh the m

ales.”

Modes o

f creati

on o

f ‘H

UF’‘C

orpus’

Mod

es o

f crea

tion

of

HU

F C

orpu

s b

y

•Blendin

g of in

dividual pro

perty w

ith

HUF chara

cter

•Gifts

•Join

t labour

•W

ill

•Partition

•Reunion

Crea

tion

of

HU

F C

orpu

s b

y B

len

din

g

•HUF can b

e cre

ated b

y im

pre

ssin

g

•One’s self acquired p

roperty

•W

ith the chara

cter of H

UF p

roperty

•by b

ringin

g in to existence.

•An H

UF com

prisin

g the p

ers

on h

imself, his w

ife &

childre

n.

•Blendin

g can b

e u

tilized for cre

atingsm

aller HUF.

Appli

cabil

ity o

f S

ec.

64(2

) of

I.T

.Act,

19

61

•Pro

perty tra

nsfer to

com

mon h

otchpot

of HUF w

as d

eem

ed to b

e a gift.

•On p

artition of HUF p

roperty w

as

clu

bbed in to the incom

e of transfero

r.

•Sim

ilar clu

bbin

g p

rovision w

ere

inserted in the W

ealth T

ax A

ct, 1

957

in S

ec 4

(1A).

Parti

tion o

f H

UF a

fter b

lendin

g

•This is for achievin

g d

istrib

ution of

imm

ovable p

roperty am

ong m

em

bers

because givin

g it in

any oth

er m

anner

will re

quire registration for effective

transfer.

•Each d

ivision w

ill have right to

claim

exem

ption u

nder Sec 5

(vi) of th

e

Wealth T

ax A

ct .

Crea

tion

of

HU

F b

y g

ift

from

Str

an

ger

•HUF cannot

be cre

ated for

the firs

t tim

eby a gift from

the stranger.

•If H

UF already exists, gift can b

e m

ade

by a stranger to

such H

UF.

•The

gifted

pro

perty

will

be

HUF

pro

perty if th

e gift is m

ade to H

UF.

•In

tention of donor

& th

e chara

cter

of

the g

ifted p

roperty w

ill depend o

n the

construction of th

e gift deed.

Gif

t Vis

-à-V

is H

UF

•The gift

made by th

e fam

ily of

a sole

coparc

ener

to th

e wife of th

e Karta of th

e

fam

ily is considere

d to b

e V

ALID

. {M

.S.P

. R

aja

h V

s C

GT

(1982) 134 I

TR

1 (M

ad)}

•Gift by H

UF to b

ride o

f m

ale m

em

ber

in the form

of jewellery

at th

e tim

e o

f m

arriage is valid.

Obligation

of

Karta

is

toward

s

marriage of both

sons &

daughters

.{C

IT V

s A

.K.D

aga &

Sons (2008

) 296 I

TR

623 (M

ad

)}

{CG

T Vs B

asan

tK

um

ar A

dit

ya Vik

ram

B

irla

(1

982)

137

ITR

72 (C

al)}

By f

ath

er

•W

ithin

reasonable lim

its

•as a “gift of affection”.

[Gift of affection

can b

e m

ade to a

wife,

daughter & son]

Gif

t of

HU

F P

roperty

Note

:A g

ift of th

e w

hole o

r alm

ost th

e w

hole o

f th

e

pro

perty to

one son exclu

din

g th

e oth

ers

is not

regard

ed as “gift of affection”.

Gif

t to

str

an

ger

•K

art

a is N

OT

en

titl

ed

to g

ive a

ny

gif

ts t

o s

tra

ngers

,

EX

CE

PT

for

pio

us p

urp

oses.

{Ga

nga

dh

ar N

arsin

gd

as A

ga

rw

al

(HU

F) Vs C

IT (1

98

6)

16

2 I

TR

32

0 (B

om

)}

•A

cop

arc

en

er

ca

n d

isp

ose o

f h

is u

nd

ivid

ed

in

tere

st

in

the copa

rcen

ary

pro

pert

y b

y a

w

ill, B

UT

h

e C

AN

NO

T

ma

ke a

gif

t of

su

ch

in

tere

st

. It

is s

aid

to b

e v

oid

.

{Th

am

ma

Venk

ata

S

ubbam

ma

Vs

Th

am

ma

Rata

na

mm

a &

Ors.

(19

87

) 1

68 I

TR

76

0 (S

C)}

•G

ift

to a

str

an

ger

of

a jo

int

fam

ily

pro

pert

y b

y th

e

ma

na

ger

of

the

fam

ily

is

void

. M

an

ager

ha

s

NO

a

bsolu

te p

ow

er

of

dis

posa

l over

HU

F p

rop

ert

y

{Gu

ra

mm

a

Bh

ara

tar

Ch

an

ba

sa

ppa

D

esh

mu

kh

Vs

Ma

lla

ppa

Ch

an

ba

sa

ppa

AIR

19

64

SC

51

0}

Gif

t to

str

anger

Wh

o i

s r

egard

ed a

s s

tran

ger

The o

ther pers

ons m

ay b

e related to

the Karta or

the coparc

eners

in

th

e

contest of fam

ily.

Oth

er

pers

ons

means

exclu

din

g

relatives n

ot bein

g m

em

bers

of HUF.

Gif

t to

coparcener &

mem

bers

•The gift of fam

ily p

roperty b

y K

arta of an

HUF to coparc

eners

or non-coparc

eners

is

void

ab i

nit

io &

not

mere

ly v

oid

able

.{C

GT

Vs T

ej N

ath

(1972) 86 I

TR

96 (P&

H) (F

B)}

•G

ift

to d

augh

ter

Hin

du fath

er can m

ake a gift of ancestral

pro

perty w

ithin

reasonable lim

its at th

e

tim

e of m

arriage or even long after

marriage.

{R.

Kuppayee V

s R

aja

Gounder (2004) 265 I

TR

551 (S

C)

Gif

t to

wif

e b

y K

art

a

Th

e K

art

a is e

mp

ow

ere

d t

o m

ak

e g

ifts

to

his

wif

e

wit

hin

rea

son

ab

le lim

it o

f th

e m

ova

ble

assets

.

Bu

t th

e K

art

a C

AN

NO

T m

ak

e g

ifts

to h

is s

econ

d w

ife.

It is in

va

lid

.{C

om

mis

sio

ner o

f G

ift

Tax V

s B

ansh

ilal

Narsid

as (2004) 270 I

TR

231 (M

P)}

Gif

t by K

art

a t

o n

ephew

Gif

t m

ad

e b

y K

art

a t

o n

ep

hew

& in

tere

st

on

th

e

am

ou

nt

gif

ted

wa

s d

ep

osit

ed

in

th

e f

irm

. It

wa

s h

eld

th

at

gif

t w

as v

oid

.Pranji

vandas S

. Pate

l Vs C

IT (1994) 210 I

TR

1047 (M

ad)}

Gif

t by K

art

a t

o m

inor

chil

dre

n o

f fa

mil

y

Gif

t m

ad

e b

y K

art

a f

rom

–N

atu

ral lo

ve &

Aff

ecti

on

-wit

hin

rea

son

ab

le lim

its

Th

e g

ift

wa

s s

aid

to b

e V

ali

d{C

WT

/CG

T V

s S

hanm

ugasundaram

(1998) 232 I

TR

354 (S

C)]

Preca

uti

on

s t

o b

e t

ak

en

by f

am

ily

wh

ile a

ccepti

ng g

ifts

•Clear declara

tion of in

tention thro

ugh

affidavit.

{C.N

. A

runach

ala

Mudali

ar V

s C

.A. M

uruganath

aM

udali

ar &

Anr. A

IR 1

953 S

C 4

95: (1

954) S

CR

243 (S

C)}

•Gift to

be valid &

genuin

e

No specific b

ar to

a gift by the fath

er to

the

HUF of his son, his w

ife &

min

or childre

n

For avoidin

g the clu

tches of sec 6

4 (1)(vi)

such gifts b

etter be avoided

{CIT

Vs S

mt.

T.

Suryam

ani

Koth

avals

ala

(2003) 263 I

TR

271}

{CIT

Vs S

.N.

Malh

otr

a (1989) 178 I

TR

380 (C

al)}3

•HUF can accept gifts fro

m relations w

ho m

ay

not be the m

em

ber of th

e fam

ily.

Crea

tion

by w

ill

•No existence of HUF at th

e tim

e of

execution of will.

•Valid w

ill should

be there

.{C

IT V

s G

hansh

yam

Das M

uk

im (1979) 118 I

TR

930 (P &

H)}

•A

n H

UF

is c

rea

ted

if

there

exis

t a

va

lid

will.

Crea

tion

of

HU

F b

y f

em

ale

mem

bers

Via

ble

nd

ing

•Fem

ale m

em

bers

CANNOT form

an H

UF

by B

LENDIN

G{C

IT V

s S

andh

ya R

ani

Dutt

a (2001) 248 I

TR

201 (S

C)}

•Fem

ale m

em

ber cannot blend h

er

separa

te p

roperty E

ven if she is the

absolu

te owner.

{Push

pa D

evi

Vs C

IT (1977) 109 I

TR

730 (S

C)}

•In

fam

ily consisting of fem

ales p

roperty

which is origin

ally of HUF, re

main

in the

hands of wid

ow m

em

ber, they cannot

divid

e am

ong them

, th

e join

t fam

ily

continues.

{CIT

Vs R

M.A

R.A

R. Veerappa C

hett

iar (1970) 76 IT

R 4

67 (S

C)}

Creati

on b

y p

arti

tion

A &

W

B &

WDaughter

C &

W

B11

B12

Daughter

C1

Daughter

B1 &

WB12

•A’s H

UF w

ith self, h

is w

ife &

unm

arried d

aughter

•B’s H

UF w

ith self, his w

ife, 2 sons,

gra

ndson &

gra

nd d

aughter

•C’s H

UF w

ith self, his w

ife &

daughter

Incom

e T

ax I

ssues

Parti

tion -

Incom

e T

ax

Parti

tion o

f a H

indu U

ndiv

ided F

am

ily

The P

art

itio

n o

f H

UF c

an b

e:-

1.Part

ial

Part

itio

n

2.T

ota

l Part

itio

n –

Assets

of

HU

F a

re p

hysic

all

y d

ivid

ed.

Ta

x I

mpli

ca

tion

s o

f Pa

rti

al

Pa

rti

tion

of

HU

F

1.

As p

er section 1

71(9

) of th

e Incom

e-tax A

ct, 1

961

the

Partial

Partition

after

31-1

2-1

978

is

not

recognized.

2.

Even a

fter Partial Partition the incom

e o

f th

e H

UF

shall b

e liable to b

e assessed u

nder th

e Incom

e-tax

Act as if no P

artial Partition h

ad taken p

lace.

Tax I

mpli

cati

ons o

f Full

Parti

tion o

f H

UF

1.

As p

er s. 171(9) of th

e Incom

e-tax A

ct, 1

961 p

artition m

eans: -

(i)

where

the p

roperty adm

its of a p

hysical

division,

a

physical division of th

e p

roperty,

but a

physical

division of th

e incom

e w

ithout a

physical division o

f th

e

pro

perty p

roducin

g

the

incom

e shall n

ot be d

eem

ed to

be a

partition; or

(ii) w

here

the p

roperty d

oes n

ot adm

it of a p

hysical

division,

then such d

ivision as the p

roperty adm

its

of, but

a m

ere

severa

nce of sta

tus shall n

ot be

deem

ed

to

be

a

partition;

2.

Assessm

ent

after

Partition as per

s. 171 & an ord

er

to be

passed b

y the A

ssessin

g O

fficer.

See a

lso C

IT v. Sm

t. M

eera

Pre

m S

undar

(HU

F)

[2005] 147 T

AX

MA

N 5

35 (A

LL.), C

IT v

. D

hara

m

Pal

Sin

gh [2005] 146 T

AX

MA

N 4

21 (A

LL.)

Gem

s o

f Ju

dic

iary

Hon’b

le S

uprem

e C

ourt

in U

nio

n o

f In

dia

v. M

.V.

Vall

iappan [1999] 238 I

TR

(1027) observed

•That

for

the purp

oses of in

com

e-tax, th

e concept

of

partial partition of th

e Hin

du undivid

ed fam

ily was

recognized, but is d

one a

way w

ith b

y the a

mendm

ent

which

specifically

pro

vid

es

that

where

a

partial

partition h

as taken p

lace a

fter Decem

ber 31, 1978, no

claim

of

such partial

partition havin

g ta

ken place

shall be in

quired in

to under

sub-s

ection (2

) and no

findin

g shall be re

cord

ed under

sub-s

ection (3

) th

at

such partial partition has ta

ken place.

If a

ny su

ch

fi

nd

ing i

s r

ecord

ed

un

der s

ub-s

ecti

on

(3

) w

heth

er

befo

re or a

fter Ju

ne 1

8,

19

80

, bein

g th

e d

ate

of

intr

od

ucti

on

of

the F

ina

nce (

No.

2)

Bil

l, 1

98

0,

the

sa

me s

ha

ll b

e n

ull

an

d v

oid

.

Con

td..

•The e

ffect of th

e a

fore

said s

ub-s

ection is that for th

e

purp

oses o

f in

com

e-tax p

artial partitions takin

g p

lace

on or after January

1, 1979, are

not to

be recognized.

•If a

partial partition h

as taken p

lace a

fter th

e c

ut-off

date n

o inquiry a

s contem

plated u

nder sub-s

ection (2)

by th

e In

com

e-tax Officer

shall be held. Even if th

e

inquiry is com

pleted a

nd the fin

din

g is given, it w

ould

be tre

ated as n

ull and void.

See a

lso :

Com

mis

sio

ner o

f In

com

e-t

ax,

v.

Kh

ach

eru (

HU

F)

[2009] 185 T

AX

MA

N 3

98 (PU

NJ. &

HA

R.)

Gem

s o

f Ju

dic

iary

•T

he

Supre

me

Court

in

th

e

case

of

Kall

oom

al

Tapesh

wari

Pra

sad (H

UF

) v. C

IT [1982] 133 I

TR

690 h

as h

eld

th

at

•To claim

a partition within

four

corn

ers

of th

e In

com

e-tax Act

certain

additional re

quirem

ents as pro

vid

ed under

section 171

are

required to b

e fulfilled.

•In

terp

reting s

ection 1

71 it has b

een h

eld b

y it th

at Hin

du L

aw

does n

ot re

quire that th

e p

roperty in every

case b

e p

artitioned b

y

metes and b

ound or physically into

differe

nt portions to com

plete

a p

artition.

•Disru

ption o

f sta

tus c

an b

e b

rought about by a

ny o

f th

e m

odes

recognized u

nder Hin

du L

aw and it is open to the p

arties to enjoy

their share

of th

e p

roperty a

s tenants in com

mon in a

ny m

anner

known to law accord

ing to their d

esire.

•B

ut

the

Incom

e

Ta

x

La

w

intr

od

uced

certa

in

ad

dit

ion

al

condit

ions of

its ow

n to

giv

e eff

ect

to th

e pa

rti

tion

u

nd

er

secti

on

1

71

. A

tr

an

sa

cti

on

ca

n be record

ed

a

s a

pa

rti

tion

un

der secti

on

1

71

on

ly if

, w

here th

e property

a

dm

its of

a

ph

ysic

al

div

isio

n,

a ph

ysic

al

div

isio

n of

the property

h

as

tak

en

pla

ce.

Gem

s o

f Ju

dic

iary

Com

mis

sio

ner

of

Incom

e-t

ax v

. Shyam

Lal

Agra

wal (H

UF

) [2

009] 178 T

AX

MA

N 2

27 (A

LL.)

Issu

es

In ord

er to

be accepta

ble or re

cognizable p

artition

under

section

171

the

partition

should

be

com

plete w

ith respect to

all m

em

bers

of HUF a

nd

in re

spect

of

all pro

perties of

HUF and th

ere

should

be actu

al

division of

pro

perty as per

specified share

s allotted to each m

em

ber.

Moh

anla

l K

. S

hah

(H

UF) v.

ITO

1 S

OT

31

6.

(Mu

m –

ITA

T)

Settin

g apart certain

assets of HUF in

favour

of

certain

coparc

eners

on th

e condition th

at

no

further claim

in p

roperties w

ill be m

ade b

y them

is n

oth

ing b

ut a p

artial partition a

nd n

ot a fam

ily

arrangem

ent not re

cognised

in view of s. 171(9

).IT

O v

. P.

Sh

ank

araia

h Y

adav 9

1 I

TD

228 (IT

AT

–H

YD

)

Issu

es

Resid

enti

al

Sta

tus o

f H

UF

•Section 6 (2

) of

the In

com

e-tax Act, 1961 clearly

contem

plates a situation where

a HUF can be non-

resid

ent also. In

fact, H

UF c

an a

lso b

e N

ot Ord

inarily

Resid

ent. A

HUF w

ill be c

onsid

ere

d to b

e resid

ent in

In

dia unless,

during th

e pre

vious year, th

e control

and m

anagem

ent

of

its affairs is situated wholly

outsid

e India. In

such a case, it w

ill be tre

ated as n

on-

resid

ent HUF.

•S.

6(6

)(b)

further

pro

vid

es th

at, in

case of

a HUF

whose m

anager has n

ot been resid

ent in

India in n

ine

out of ten p

revious y

ears

pre

cedin

g the p

revious y

ear

or has, during the seven p

revious years

pre

cedin

g that

year, b

een in India for a tota

l 729 d

ays o

r less, such

HUF is to

be re

gard

ed as Not

Ord

inarily Resid

ent

within

the m

eanin

gof th

e In

com

e-tax Act, 1961. As

such, it is n

ot necessary

for a H

UF to b

e resid

ent in

In

dia.

Case S

tudy

•A

n H

UF

is h

avin

g a

ll t

he p

ropert

ies i

n I

ndia

. T

he K

art

a o

f th

e H

UF

is

re

sid

ing outs

ide In

dia

perm

an

en

tly an

d th

e

fem

ale

m

em

bers

are

sta

yin

g in

In

dia

an

d are

m

an

agin

g

the a

ffair

s o

f th

e H

UF

. W

hat

would

be t

he s

tatu

s o

f such

HU

F?

•Ans.As d

iscussed in the earlier answer, the test is n

ot where

th

e

Karta

resid

es,

the

test

is

where

th

e

control

and

managem

ent of th

e a

ffairs o

f HUF is s

ituated. Even if a p

art

of control and m

anagem

ent is situated in

In

dia, such HUF

will be tre

ated a

s resid

ent in

India. Though, genera

lly, Karta

is supposed to

m

anage th

e affairs of

HUF,

it is not

an

absolu

te ru

le and,

by consent, th

e power

of

control

and

managem

ent

may be delegated to

oth

er

mem

bers

of

the

fam

ily, either fu

lly or partially.

Incom

e o

f m

em

ber r

eceiv

ed f

rom

HU

F -E

xem

pt

1.

As p

er section 1

0(2) of th

e Incom

e-tax A

ct, 1

961

any sum

re

ceived by an in

divid

ual from

Hin

du

Undivided Fam

ily of

which he is m

em

ber

is

exem

pt from

tax.

2.

Am

ount re

ceived n

ot as a m

em

ber of Join

t Fam

ily

but

in purs

uance of

som

e sta

tuto

ry pro

vision,

etc. would

not be exem

pted in this clause.

3.

Mem

ber

of

join

t fam

ily livin

g apart from

th

e

oth

er m

em

bers

does n

ot effect his/her position in

law to claim

the right as p

er section 1

0(2

).

Issues

Pro

perty purc

hased with th

e aid of join

t

fam

ily fu

nds,

howsoever

sm

all th

at

may

be,

still

the

pro

perty

would

be

HUF

incom

e and cannot

be in

com

e of

the

individual with m

ajor portion o

f purc

hase

price.

S. Peria

nnan v

. C

IT 1

91 I

TR

278.

Issue

Incom

e fr

om

H

ou

se property

to

be ch

arged

in

th

e h

an

ds o

f H

UF w

here p

roperty

is p

urch

ased

in

th

e n

am

e o

f H

UF ?

Issue

HU

F a

s P

roprie

tor o

f B

usin

ess

1.

HUF can b

e a

Pro

prieto

r of one o

r m

ore

than o

ne

Busin

ess concern

s.

2.

Separa

te nam

e can be kept

of

HUF busin

ess

entity

.

3.

No tax A

udit o

f HUF b

usin

ess if Turn

over within

Rs. 60 lakhs.

4.

Busin

ess In

com

e Com

puta

tion @ 8% without

books o

f account in

case turn

over is u

pto

Rs. 60

lakhs–The P

resum

ptive B

asis

Issu

es

Issu

es

Issu

es

Issu

es

Issu

es

Where

mem

bers

of HUF b

ecom

e the p

artners

in a

firm

by investm

ent of fam

ily funds &

not because

of any Special Serv

ices re

ndere

d by th

em

, th

en

the incom

e w

ill belong to H

UF

Issue

Issue

Issue

Capit

al

Gain

Exem

pti

on B

enefi

ts f

or H

UF’s

1.

Cost In

flation Index b

enefit available to C

alculate

Cost of th

e A

sset.

2.

Tax benefit

of

20% Tax on Long-term

Capital

Gain

s.

3.

Tax Savin

g on Long-term

Capital Gain

possib

le

by in

vesting in

Capital Gain

s Bonds of NHAI /

REC.

4.

Long-term

Capital Gain

s Savin

g by in

vesting in

Resid

ential Pro

perty.

Issues

Deputy

Com

mis

sio

ner o

f In

com

e-t

ax,

Cir

cle

3(4

), M

um

bai

v. K

ish

ore

Kanungo

[2006] 102 I

TD

437 (M

UM

.)

Issues

Issues

Issues

Issues

Ta

xa

tion

of

mon

ey r

eceiv

ed

by H

UF

wit

hou

t con

sid

era

tion

–S

. 5

6(2

)(vii

)

Provis

o t

o S

. 5

6(2

)(vii

)

Dir

ect

Tax C

ode

vs.

Incom

e T

ax A

ct,

1961.

S.

16

9 o

f D

TC

vs.

17

1 o

f IT

Act

19

61

.

S.

17

1 o

f IT

Act

19

61

S.

169 o

f D

TC

S.

16

9 o

f D

TC

vs.

17

1 o

f IT

Act

19

61

.

S.

17

1 o

f IT

Act

19

61

S.

169 o

f D

TC

Th

an

k Y

ou

Pre

sente

d b

y: C

A. SA

NJA

Y A

GA

RW

AL

Pre

sente

d b

y: C

A. SA

NJA

Y A

GA

RW

AL

Em

ail

ID

E

mail

ID

: : agarw

al.s.c

a@

gm

ail

.com

agarw

al.s.c

a@

gm

ail

.com

Mobil

e N

o.

Mobil

e N

o.

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