How HUF comes into existence
A
Hindu male with his wife and children automatically constitutes the HUF. The
HUF is a creature of Hindu Law. It cannot be created by acts of any party save
in so far as by adoption or marriage, a stranger may be affiliated as a member
thereof. An Undivided Family which is a normal condition of the Hindu society
is ordinarily joint not only in estate but in food and worship. The joint
family being the result of birth, possession of joint property is only an
adjunct of the Joint Family and is not necessary for its constitution.
Who can form HUF
Any Hindu, Sikh, Jain or Buddhist man can form an HUF, provided he is married. In fact, an HUF is automatically constituted when a couple exchanges wedding vows. Still, there are a few simple formalities to be completed for the HUF to function as a legal entity (see graphic).
Any Hindu, Sikh, Jain or Buddhist man can form an HUF, provided he is married. In fact, an HUF is automatically constituted when a couple exchanges wedding vows. Still, there are a few simple formalities to be completed for the HUF to function as a legal entity (see graphic).
First
step is to form a corpus for the HUF
This can be any capital asset (property,
gold, jewellery, securities, deposits) or cash. This is not as easy as it may
sound. You can not transfer just any asset to your family 'hotchpot'. Any
personal funds or property given by an individual to the HUF will lead to
clubbing provisions under Section 64 (2) of the Income Tax Act. This means the
income from these assets will be treated as that of the individual, thus
defeating the very purpose for which the HUF was established.
A husband and wife can form an HUF but a
wife can only be a member, not a coparcener. Therefore, the HUF income will not
be assessed separately. A member has equal rights but only a coparcener can
demand the partition of the HUF. "Only the birth of a child will give the
unit the status of an HUF for tax purposes,
Basic requirements for the existence of
an HUF
Basic
requirements for the existence of an HUF are as follows :
(i) Only one coparcener or member cannot form
an HUF
Family is a group of people related by blood
or marriage. A single person, male or female, does not constitute a family.
It was held that the
word "Family always signifies a
group. Plurality of persons is an essential attribute of a family. A single
person, male or female, does not constitute a family. A family consisting of a
single individual is a contradiction in terms of Section 2(31) of the
Income-tax Act, 1961, treats a Hindu undivided family as an entity distinct and
different from an individual. Assessment in the status of a Hindu undivided
family can be made only when there are two or more members of the Hindu
undivided family."
[C. Krishna Prashad v. CIT (1974) 97 ITR 493 (SC)]
It was held that once the sole surviving coparcener marries, a joint
Hindu family comes into existence, for the wife along with the husband
constitutes a joint Hindu family and there is no difference between a
"joint Hindu family" and "Hindu undivided family".
[Prem Kumar v. CIT (1980) 121 ITR 347
(All)]
HUF - A separate legal entity under
Indian tax law
Under section 4 of the Income Tax Act,
1961, Income-tax is payable by ‘every person’. ‘Person’ includes a ‘Hindu
Undivided Family’ as defined in section 2(31). The definition of ‘Hindu
Undivided Family’ is not found in the Income-tax Act. Therefore the expression
‘Hindu Undivided Family’ must be construed in the sense in which it is
understood under the ‘Hindu Law’
[Surjit Lal
Chhabda v. CIT (1975) 101 ITR 776 (SC)]
An
HUF cannot exist with one member alone
In
C. Krishna Prasad, therein, their Lordships of the Supreme Court were
considering the case of a single individual claiming the status of a Hindu
undivided family for purposes of tax and observed as follows (at page 497):
“In view of the above, it cannot be
denied that the appellant at present is the absolute owner of the property
which fell to his share as a result of partition and that he can deal with it
as he wishes. There is admittedly no female member in existence who is entitled
to maintenance from the above-mentioned property or who is capable of adopting
a son to a deceased coparcener. Even if the assessee appellant in future
introduces a new member into the family by adoption or otherwise, his present full
ownership of the property cannot be affected.”
[C.
Krishna Prasad v. CIT (1974) 97 ITR 493 (SC)]
A Hindu Undivided
Family (HUF) is a separate legal entity as per section 2(31) of the Income Tax
Act, 1961 and therefore, as long as the HUF is in existence, no individual
member can be separately assessed in respect of its income.
[ITO v. Bachu Lal
Kapoor (1966) 60 ITR 74 (SC)]
STRANGER can be
introduced in HUF only by adoption
[CIT v. M.M. Khanna
(1963) 49 ITR 232 (Bom)]
(ii) Joint Family continues even in the hands of
females after the death of sole male member
Even after the death of
the sole male member so long as the original property of the Joint Family
remains in the hands of the widows of the members of the family and the same is
not divided amongst them; the Joint Hindu Family continues to exist.
[CIT v. Veerapa
Chettiar (1970) 76 ITR 467 (SC)]
(iii)
An HUF need not consist of two male
members- even one male member is enough
It was held that more
than one male member is not necessary for constituting a Hindu Undivided Family
and that on partition, share allotted to a coparcener having only wife and no
son, would assume the character of Hindu Undivided family property.
[CIT V Krishna Kumar
(1983) 143 ITR 462 (MP) (FB)]
Presence
of another male member is not required for holding that the properties belong
to Hindu Undivided Family
It was held that the
properties received by the assessee at the time of partition would belong to
the Hindu Undivided Family consisting of the assessee and his minor unmarried
daughters. Presence of another male member is not required for holding that the
properties belong to Hindu Undivided Family which has a lone male member.
[P.R. Ramasubramania
Raja v. State of Tamil Nadu (1980) 121 ITR 879 (Mad)]
A father and his
unmarried daughters can also form an HUF.
[CIT v. Harshavadan
Mangladas 194 ITR 136 (Guj)
Further on partition of
an HUF a family consisting of a coparcener and female members is to be assessed
in the status of an HUF.
A
single male member can constitute a Hindu Undivided family alongwith any other
female member or female members
It is well settled that
the existence of a female member does not in any way curtail or restrict the
right of the sole surviving coparcener to alienate the coparcenary property as
if it were his separate property. In the
case of Surjit Lal Chhabda, the sole surviving coparcener made certain gifts of
undivided share of Hindu Undivided Family property in favour of his wife and
minor daughters. The donee sold the gifts and derived capital gains. It was
held that the capital gains arose to the donees and could not be assessed in
the hands of the Hindu Undivided Family.
[Surjit Lal Chhabda v.
CIT (1975) 101 ITR 776 (SC)]
The plea that there
must be at least two male members to form an HUF as a taxable entity, has no
force.
[Gauli Buddanna v. CIT
(1966) 60 ITR 347 (SC); C. Krishna Prasad v. CIT (1974) 97 ITR 493 (SC)
Modes
of creation of HUF
A Hindu Undivided Family can be created
by following ways:
(1) Creation of HUF by Blending of individual
property with the family Hotchpots
HUF
assets can be created by vesting of self-acquired property in the family
hotchpot even where the family kitty is empty. Thus assets of a main family or
branch of the family are created by a Karta or another coparcener throwing his
self-acquired property into the hotchpot of the family or branch of the family
to which they belong.
Blending means transfer of one’s individual
property in the common hotchpots and make it a part of the common property of
the HUF. There must be an intention to throw the
separate property into the common stock and it is necessary to waive all separate rights of the property, which must
be clearly established through a declaration. Only the coparcener is entitled
to throw in HUF’s common property.
(a)
Blending can be utilized for creating
smaller HUF
HUF can be created by impressing one’s
self acquired property with the character of HUF property by bringing in to
existence an HUF comprising the person himself, his wife & children. Existence
of a coparcenary is absolutely necessary before a coparcener can throw into
common stock his self acquired properties.
After
01.09.2005 daughter, being a coparcener can blend her individual property into
the HUF.
Conversion of self
acquired property into HUF property.
A
coparcener blend his self-acquired property with that of HUF
A
coparcener can blend his self-acquired property with that of HUF by
throwing his individual or self-acquired property into family hotchpot or by
impressing such property with the character of HUF property.
Such
blending of individual property with that of HUF does not require consent of
other members of the family
The act of blending does
not require consent of other members of the family. The act is an unilateral
act and is a matter of individual volition. There is no question of family
either accepting it or rejecting it. Such blending does not constitute a
transfer.
Act
of the coparcener blending individual property into HUF can be considered as
revocable transfer
Once blending is done, it
is not revocable. There is no provision for retransfer, directly or indirectly,
of the whole or any part of the income or assets to the transferor. As such,
there is no question of blending being regarded revocable transfer for the
purpose of Income-tax Act, 1961.
A coparcener can blend his individual property into his smaller HUF
wherein he is a Karta, while continuing to be a member of the bigger HUF
consisting of his father, himself and his brothers
A Coparcener can be coparcener of two joint Hindu
families. The blending is at his option, he may blend his property with
either of the HUF’s. In that view of the matter, a coparcener can
blend his individual property with his smaller HUF, wherein
he is Karta, while continuing to be a member of the bigger HUF consisting of
his father himself and his brother.
[CIT v. M.M Khanna (1963) 49 ITR 232 (Bom)]
(b) Applicability of Section 64(2) Of Income
Tax Act, 1961
Transfer of individual property in the common hotchpot is deemed to be a gift and income from the transferred asset is deemed to be the income of individual under Section 64(2) of the Income Tax Act, 1961.
Transfer of individual property in the common hotchpot is deemed to be a gift and income from the transferred asset is deemed to be the income of individual under Section 64(2) of the Income Tax Act, 1961.
As
per section 64(2) of the Income Tax Act, if any property has been transferred
by the individual, directly or indirectly, to the family otherwise than for
adequate consideration then the income derived from such property shall be
deemed to arise to the individual and not to the family and where the converted
property or any part thereof is received by the spouse of that individual on
partition the provisions of sub-section (1) shall apply.
(c)
Rights of members of HUF do not get
enlarged on throwing property into family hotchpot
Rights of members of HUF do not get enlarged on
throwing property into family hotchpot, income from said property had to be
treated as assessee’s individual income only. The property can change its legal
incidents on the birth of son.
(d)
Partition of HUF after Blending
This is for
achieving distribution of immovable property among members because giving it in
any other manner will require registration for effective transfer.
It was held that "a partition of the immovable
properties of a joint Hindu family can be effected by an oral agreement
irrespective of the value of the property".
[Popatlal
Devram v. CIT (1970) 77 ITR 1013 (Ori)]
No registered instrument
is necessary for blending the personal property with joint property
It was held that "no formalities are necessary for the
merger of a coparceners self-acquired property into coparcenary property. No
registered instrument is necessary. After such merger, such property cannot be
treated as the coparceners separate property"
[CIT
v. Kanhaiya Lal (1970) 75 ITR 702 (All)]
A unilateral
declaration of a Hindu coparcener, whereby he throws his self-acquired property
into the common stock of the joint family property, does not amount to a
transfer and, therefore, such an act does not constitute a gift.
(Goli Eswariah v. CGT
(1970) 76 ITR 675 (SC))
Can a female member of the
family blend her individual property into the HUF
Blending is a power given only to
coparceners. Since females are not coparceners, a female member of a
joint family cannot blend her individual property with HUF property.
However, such an act shall be considered as a gift and it shall become property
of the HUF.
(Mallesappa v. Desai AIR (1961)
SC 1298)
Female member cannot blend her separate property with joint
family property but she can make a gift of it to the HUF
The assessee had made gift of certain amounts in favour of
the HUF which consisted of herself, her husband, her father-in-law, her
mother-in-law and her minor son and three daughters. The Supreme Court held
that the income from the gifted amount would have to be taxed in the hands of
the HUF.
[Pushpadevi v. CIT (1977)
109 ITR 730 (SC)]
A female member can
also bequeath her property to the HUF,
[CIT v. G.D. Mukim (1979)
118 ITR 930 (P & H)]
Consequence
if self acquired property of the member is converted into joint family property
Where an individual, who is a member of the Hindu
Undivided Family, after 31.12.1969, -
(a)
converts, his separate property as the property of the HUF, or
(b) throws
the property into the common stock of the family, or
(c)
otherwise transfers his individual property to the family, otherwise
than for adequate consideration,
Ø then the income from such property shall continue to
be included in the total income of the individual.
In other words, if self-acquired property of an
individual is treated/ converted into joint family property without adequate
consideration, the income derived by the joint family on account of such
property shall be included in the total income of the individual who was the
owner of such self-acquired property.
FOR EXAMPLE
Mr. ‘A’ owns a house property from which he derives
an income of Rs. 6,00,000 per annum. With effect from 01.04.2015, he converts
this property as the property of an HUF of which he is a member. Although the
income shall henceforth be received by the HUF but it shall be deemed to be the
individual income of Mr. ‘A’ and shall be included in computation of his total
income under the head “Income from House Property”.
KEY
NOTE
Property here includes any interest in
property whether movable or immovable; the proceeds of sale thereof and any
money or investment for the time being representing the proceeds of sale
thereof; and where the property is converted into any other property by any
method, such other property.
Asset
need not be in its original form.
v
Asset was originally self acquired
property of the individual
v
Such asset is transferred directly or
indirectly to HUF hotchpot for inadequate consideration.
v
Treatment is as under :-
|
Case
|
Income to be clubbed in hands of transferor
|
|
Before partition
|
The entire income from such property
|
|
After partition
|
Income from the assets attributable to the spouse of
transferor.
|
KEY
NOTE
Such
conversion can be made by:
(a)
the act of impressing such separate property with the character of property
belonging to the family; or
(b)
throwing it into the common stock of the family.
PROVISIONS ILLUSTRATED
|
Mr. ‘A’ is a member of
HUF. It consists of Mr. ‘A’, Mrs. ‘A’, Mr. ‘A’s major son (Mr. X) & Mr.
‘A’s minor son (Y). On 01.04.2017, Mr. “A’ transferred his house property
acquired through his personal income to the HUF without any consideration. On
01.07.2018, HUF is partitioned and such property being divided equally. Net
annual value of the property for the Previous Year 2017-18 is Rs. 80,000
& that for the Previous Year 2018-19 is Rs. 1,00,000. State tax treatment
for both the years.
|
|
Solution
|
Computation of income from house
property in the hands of Mr. ‘A’ for the Assessment Year 2018- 19
|
Particulars
|
Details
|
Amount
|
|
Net Annual Value (NAV)
|
|
80,000
|
|
Less: Standard deduction under section 24(a)
|
30% of NAV
|
24,000
|
|
Income from house property
|
56,000
|
|
|
TAX TREATMENT FOR THE ASSESSMENT YEAR 2018-19:
Since Mr. ‘A’ transferred his house property acquired out of
personal income to his HUF without adequate consideration, therefore income
generated from such house property i.e. Rs. 56,000 shall be clubbed in hands
of Mr. ‘A’ as per provision of section 64(2).
|
||
Tax treatment for the
Assessment Year 2019-20: In the previous year 2018-19, partition took place on
01.07.2018; hence the treatment shall be as under:
|
Particulars
|
Details
|
Amount
|
|
Net Annual Value (NAV)
|
|
1,00,000
|
|
Less: Standard deduction under section 24(a)
|
30% of NAV
|
30,000
|
|
Income from house property
|
70,000
|
|
|
Income earned till partition from April’ 2018 to June’ 2018
i.e. Rs. 17,500 [(Rs. 70,000/12) × 3] shall be clubbed in hands of Mr. ‘A’
and income earned after partition i.e. Rs. 52,500 [( Rs. 70,000/12) × 9]
shall be divided among the family members. However, as per provision of
section 64(2) income of Mrs. ‘A’ shall be clubbed in hands of Mr. ‘A’.
|
||
|
Particulars
|
Mr. ‘A’
|
Mrs. ‘A’
|
Mr. ‘X’
|
Mr. ‘Y’
|
|
Income from house property before partition clubbed in hands
of Mr. ‘A’ as per section 64(2)
|
17,500
|
-
|
-
|
-
|
|
Share of Income from house property ` 52500/4
|
13,125
|
13,125
|
13,125
|
13,125
|
|
Income clubbed as per provision of section 64(2)
|
+ 13,125
|
(13,125)
|
-
|
-
|
|
Income clubbed as per provision of section 64(1A)*
|
+ 13,125
|
-
|
-
|
(13,125)
|
|
Less: Exemption under section 10(32)
|
(1,500)
|
-
|
-
|
-
|
|
Total income from house property
|
55,375
|
Nil
|
13,125
|
Nil
|
* It is assumed that Mrs. ‘A’ has no
other income.
(2) Creation
of HUF by receipts of Gifts
HUF branches and
sub-branches of main HUF can come into possession of assets either through
gifts or by testament (Will) specifically meant for the HUF. This is possible
by :
(i)
(a) female member of the HUF giving gifts from out of her separate property to
the HUF of which she is a member
(b) a daughter being coparcener can vest
her separate property in HUF.
(ii) a
father or other relation giving gifts to HUF of his son.
(iii)
a
stranger may also give gift to such an HUF helping not only with the initial
capital but also provide it with working capital.
The HUF can be formed with money received as gifts from
relatives. But there is again a tax implication here. While there is no tax on
gifts received by an individual from specified blood relatives, the HUF does
not enjoy this exemption.
Gifted
property will be HUF property if the gift is made to HUF
A person can give property and other assets to
his son's HUF but it should be clearly specified that the asset is for setting
up the HUF. Intention
of donor & the character of the gifted property will depend on the
construction of the gift deed. Precautions to be taken by family while
accepting gifts
KEY NOTE
The best way to avoid
the tax tangle is to form the HUF corpus with assets received as part of a
will.
Gift
of self acquired property by father to son’s HUF creates HUF of son
A father can gift his
self-acquired property to his son's newly created HUF. He has absolute right of
disposition over such property. He has, however, to make his intention very
clear that the gift is not to the son as an individual but to him as Karta of
HUF qua his sons. In such a case the smaller HUF Is created by this gift by the
father.
A Mitakshara father can
make a gift of his self-acquired immovable property to one of his own sons to
the detriment of another and he can make an unequal distribution amongst his
heirs. Therefore, it is not possible to hold that such property bequeathed or
gifted to a son must necessarily and under all circumstances rank as ancestral
property in the hands of the donee in which his sons would acquire coordinate
interest.
However, property so
gifted or bequeathed cannot become ancestral property in the hands of the donee
simply by reason of the fact that the donee got it from his father or ancestor.
It is essential that the gift deed should specifically mention the gift to the
HUF and not to individual son.
The father is quite
competent to provide expressly when he makes a gift, either that the donee
would take it exclusively for himself or that the gift would be for the benefit
of his branch of the family.
It was held that where
a grandfather made gifts to grandsons per stripe and the donor's intention was
made clear that gifts were meant for each of the grandsons as Karta of their
smaller branches, then the assets belonged to smaller HUF. They held that the
nature of bounty as being in favour of the branch family and not personally to
F was stamped on the gift when it was made to F and he could not change its
character subsequently. The shares so gifted belonged to F's joint family and
not to him as individual. In this particular case the gifts were not made per
capita to the seven grandsons but per stripe, i.e., each family was gifted 150
shares. Thus by this gift the grandfather created a number of family units.
[CIT v. Krishan Bans
Bahadur (1974) 96 ITR 714 (Del)]
Though it is the
donor's intention and not the donee's which determines the nature of the gift,
the donee's attitude may shed some light in understanding the donor's intention
and the precise character of the gift.
The Delhi High Court in
CIT v. Gurprit Singh (1983) 139 ITR 48 (Del) observed that in a case where a
gift of cash and immovable property belonging to HUF was made by Karta A to his
unmarried son G, the property would belong to the HUF of G on the birth of a
son to him. They held that A could not, by a purported gift, deprive the
property of its original character of HUF and as soon as a son was born to G,
the property would belong to HUF. Their lordships in the majority judgement were
impressed with the Supreme Court's view in C. N. Arunachala Mudaliar v. C.A.
Muruganatha Mudaliar AIR 1953 SC 495.
A property gifted by
Karta of HUF to a coparcener would assume the character of an HUF property in
his hands. Thus a new HUF can be created by a gift by the Karta of the HUF
property to the coparcener and this would help in the creation of his HUF.
Intention of making a gift to HUF must be
made clear in the gift deed
Thus,
while considering a gift for the purpose of creation of a family unit, the
intention of making a gift to a HUF has to be made clear beyond any doubt so
that in future there shall not be any dispute on this aspect. The judgement in
M. P. Periaknuppan Cheftiar v. CIT 99
ITR 1 (SC) has, therefore, to be kept in focus while preparing the gift deed
and the intention of the donor has to be made clear.
In
Jagga Row v. CIT, the father had settled in 1971 certain property on his son
absolutely out of natural love and affection which he bore to the HUF taking
the plea that his father intended to settle the property upon himself, his wife
and his sons who constituted an HUF. During the course of assessment
proceedings he filed an affidavit dated 20.01.1977 from his father stating that
he clearly intended that the property should go not merely to the son but also
to the members of his family.
[Jagga
Row v. CIT (1987) 166 ITR 862 (AP)]
It was held that where
a Hindu father divided his capital in the business between himself and his four
sons equally, all the four sons under the arrangement, got the share in
business as HUF property because of clear words expressed therein.
[CWT v. Narayandas
Sadani (1967) 65 ITR 137 (Cal)]
However, where two of
the sons were gifted property without specifying the donee as HUF, it was held
that they got it as individuals and not as Karta of HUF on the construction of
the gift deed. Thus gift deed has to be specific.
Clear
declaration of intention through affidavit
If there are express
provisions to that effect either in the deed of gift or a Will, no difficulty
is likely to arise and the interest would become ancestral in the hands of the
son on the terms of the grant or the bequest. The intention of the donor would
have to be collected from the language of the gift deed taken along with the
surrounding circumstances. Intention must be proved by some cogent evidence,
documentary evidence or by conduct or connivance.
[C.N. Arunachala
Mudaliar v. C.A. Muruganatha Mudaliar & Anr. AIR 1953 SC 495: (1954) SCR
243 (SC)]
Gift
to be valid & genuine.
No specific bar to a
gift by the father to the HUF of his son, his wife & minor children.
However, for avoiding the clutches of section 64 (1)(vi) such gifts better be
avoided.
[CIT v. Smt. T.
Suryamani Kothavalsala (2003) 263 ITR 271 also see CIT v. S.N. Malhotra (1989)
178 ITR 380 (Cal)
Gifts to Sons and their heirs treated as
individual gifts
Where
a father gifted his self-acquired properties to his sons, their heirs,
executors, administrators and assignees, it was held that intention of the
donor was clear and gifts were to the individual and not to the families.
It
was held that the words used "heirs, executors, administrators and
assignees in the gift deed of 1932 indicated that the gift was to individual
absolutely and there was nothing in the documents or surrounding circumstances
to suggest that this object of the bounty were the sons as the head of their
respective families or that interest of the sons was limited in any way. The
court further held that in the deed it was not stated that donees would take
the property as head of their family units and the donees had for many years
been filing returns as individuals. Gift deed thus clarifies the nature of
beneficiary of gift.
[M.P.
Periaknuppan Cheftiar v. CIT (1975) 99 ITR 1 (SC)]
Creation of HUF by gift from Stranger
HUF
is a creation of law and cannot be created by the act of parties, therefore, HUF
cannot be created for the first time by a gift from the stranger. If HUF
already exists, gift can be made by a stranger to such HUF. The gifted property
will be HUF property if the gift is made to HUF. Intention of donor & the
character of the gifted property will depend on the construction of the gift
deed
A
gift can be received from a stranger by the HUF but the stranger should
normally be connected with the HUF by special ties of friendship or kinship
etc. and the gifts should be given with proof and evidence about the
genuineness thereof. This is required because there have been cases of
non-genuine gifts being arranged from non-taxpayers or agriculturists in
support of credits introduced in the books of accounts.
The HUF is not an individual, so it has no relatives. Any
money it gets will be treated as a gift from a stranger. If the value of the
assets received as gifts in a year exceeds Rs. 50,000, it will be deemed as
income of the HUF and taxed accordingly.
Even
so, an HUF can safely receive gifts of up to Rs. 2,50,000 in a year without
incurring any tax liability because of the basic exemption available to it for
assessment year 2019-20. In fact, if the HUF invests Rs. 1,50,000 in specified
tax-saving instruments under Section 80C, it can receive assets worth up to Rs.
4,00,000 a year without having to pay a paisa as tax.
(3) Creation of HUF by doing joint labour for the
benefit of HUF
In the cases of properties acquired with the aid of
joint family property is also the joint family property.
Property acquired in
the course of some business carried on by the persons constituting a joint
Hindu family, takes the characteristic of joint family property.
As per Hindu law, in case of properties not acquired
with the aid of joint family property, it is presumed that property acquired by
coparceners by working together is joint family property unless the persons
concerned desire to hold it as co-owners. This is valid if the coparceners are
carrying on work together and belong to the same line of ancestors. The
income of joint family through joint labour is not subjected to clubbing
provisions of section 64(2) of the Income Tax Act.
|
Members
of a joint family may, by their joint iabour, earn income and acquire
property:
(i)
If the joint labour is done in
partnership, then the profit so earned and the property so acquired will be
partnership property and the share of each joint acquirer will belong to him
individually.
(ii)
If such a property is acquired and
the profit is earned with the help of or to the detriment of joint family
funds, then the property will be joint family property even though only some
of the members had put in their labour and skill for earning the income.
(iii) If,
however, the property is acquired without the aid of the joint family
property, the presumption is that it is the joint property of the joint
acquirer and will not be HUF property unless It is proved that the
coparceners intended to own the property as co-owners among themselves. In
that case the property will be jointly owned and not HUF property unless it
is proved that the coparceners intended to own the property as co-owners
among themselves.
(iv) If all the members
of the HUF put in joint labour then the presumption will be that the property
was acquired with the help of the joint efforts and labour of all the members
is HUF property.
The
Tribunal held that parallel business in pawning started by two of the members
of the HUF belonged to the HUF and the two persons were only benamidars of
the HUF. This finding was given on the strength of their conclusion that no
funds were invested by these members out of their individual funds and one of
them was in fact a minor at the time of starting the business. The books of
accounts were written by the same persons who wrote the HUF books and the two
members were unaware of obvious details of the business. The High Court held
that the factual finding of the Tribunal was passed on appraisal of
sufficient material available on records and there was no prima facie error
in the inference drawn by the Tribunal.
[Ram
Das Deoki Nandan v. CIT Taxation 8(3)-297 (All)]
If,
however, it is acquired by joint labour of some of the members without the
help of family funds, then unless it is established that it is HUF property,
it will be presumed that it is jointly owned property. However, no such
presumption arises where the business is carried on by only some of the
members of the joint family as held in Sudarsanam v. Naraslmhulu (1901) ILR
25 Mad 149.
Two
or more members of a joint family may by their joint labour acquire property
and treat it as the property of their branch of the HUF. All the members of a
branch or a sub-branch can form a distinct and separate corporate unit within
the large corporate family and hold property as such. If the members of such
a branch or sub-branch acquired property by joint labour, this would belong
to their branch or sub-branch and this forms nucleus of the property of this
branch creating a new HUF unit.
Thus
HUF property can be acquired under Mitakshara by joint labour of the
coparceners and this can be utilised as a source of creating HUF property or
nucleus of a branch of HUF. Thus the creation of HUF property can be brought
about by joint labour of the coparceners.
|
(4) Creation
of HUF by Inheritance through a specific bequest under a Will
A
new family unit 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. A mother had
bequeathed her properties to the joint family of her adopted son as there was
no legal bar to the mother bequeathing her property to HUF of her son. The gift
to HUF was proper.
Any family member or
relative can thus make a Will in favour of HUF of a person and property so
bequeathed would be HUF property.
No existence of HUF at
the time of execution of Will
HUF need not be in
existence at the time of execution of Will. Even a stranger can bring a HUF
into existence by making a will in the favour of HUF of a person.
Valid
Will should be there
It was held that a HUF
can also be created by will of a person provided the will is valid and there is
a specific bequest in favour of the HUF.
[CIT v. Ghansham Dass
Mukim (1979) 118 ITR 930 (P&H).
It was held that the
adopted son could legally form and in fact formed an HUF with his wife and
unmarried daughter and the bequest of the mother was in favour of this HUF with
his wife and unmarried daughter.
[CIT v. Ghanshyam Dass
Mukim (1979) 118 ITR 930 (P&H)]
It was held that
ancestral properties allotted to adoptive son by a Will were ancestral in the
hands of the son even though he received it through the Will. They held that:
"Even if one were to hold that Nanak Chand got the property
by virtue of the alleged Will, the property having been bequeathed to him by
the sole surviving coparcener shall in the absence of any clear intention,
whether express or implied, be ancestral property in his hands vis-a-vis his
own issues. None of the plaintiffs ivere bom when the Will was made and
therefore there was no occasion for him to convey that the grand children shall
stand disinherited..."
[Nanak Chand v. Chander Kishore AIR 1982
(Del) 520]
(5)
Creation of HUF by Partition of a larger Hindu Undivided Family
Partition of an
existing HUF can also result in creation of many smaller HUFs. As per Hindu
Law, the property does not change its character on partition. Property received
by a coparcener having a family, continues to have characteristic of HUF. An
unmarried coparcener receiving any property will own the property in the status
of HUF until he acquires the status of HUF.
However, the partition
has to be total partition because the law does not recognize partial partition
as per section 171(9) of the Income Tax Act, 1961.
PROVISIONS ILLUSTRATED
To take an example the
common ancestor of this HUF is H and it consists of the father H, his sons A
and B, grandsons A1, A2, A3, B1 and B2 and great grandsons A1G1, A1G2, A3G1,
A3G2, B1G1, B2G1 and B2G2.
|
H
|
|||||||
|
A
|
B
|
||||||
|
A1
|
A2
|
A3
|
B1
|
B2
|
|||
|
A1G1
|
A1G2
|
|
A3G1
|
A3G2
|
1G1
|
B2G1
|
B2G2
|
In the illustration
given above, there can be a partition between H and his sons A and B and on the
joint HUF properties being divided between them branches headed by A, and B
would separate from each other and from the common ancestor H. The result would
be that there would be three HUFs
(i) consisting of H, his wife and unmarried
daughter, if any,
(ii) the branch headed by A and (iii) branch headed
by B,
each of these three
owning joint property. Therefore by a partition of main HUF, three smaller HUFs
are created with separate nucleus of family property. This represents the first
important step in creation of three smaller HUFs.
There can be a further
partition of the HUF of A and his sons resulting in four family units:
(i) A, his wife and unmarried daughter, if any.
(iij AT and his sons.
(iii) A2 and his wife and unmarried daughter, if
any.
(iv) A3 and his sons.
Similarly there can be
a partition of the family B into three units:
(i) B, his wife and unmarried daughter, if any,
(ii) B1 and his son, and
(iii) B2 and his sons.
Thus the property
belonging to the HUF of the common ancestor H, subject to tax as a single unit,
has been distributed into 8 parts, each subject to fax in the status of HUF.
Eight families have come into existence owning tangible assets.
These eight HUFs have
come into existence in the normal and natural course of families splitting into
nuclear or smaller HUFs, in order to meet the present day circumstances and,
therefore, creation of these eight HUFs is due to normal process of living and
there is neither anything un-natural or illegal in partitioning family of.
Hindu law allows a
partition as soon as any coparcener demands if and therefore there can be eight
smaller units by partition. In fact in modern conditions of Hindu Society, such
smaller HUFs are a rule and not the exception. These 8 HUFs are created by
partition.
It was held that in
case of married coparceners who have no child, the property will continue with
the status of HUF.
[CIT v. Krishna Kumar
(1982) 10 Taxman 292 (MP)]
(6) Creation of HUF by Reunion of separated
coparceners
After
partition of HUF, members may re-unite to form a new HUF. However, there are
certain conditions to make such reunion valid in the eyes of law.
Reunion means
reconstruction of divided HUF on partition.
Essentials
conditions of reunion
Even after partition of
HUF, members may re-unite to form a new HUF. However, there are following conditions
to make such reunion valid in the eyes of law.
(i) Reunion can take place only when there was
in existence a HUF and there was total partition of such HUF.
(ii) It can take place only between persons who
were parties to the original partition and to support such reunion, there must
be an agreement between the parties.
(iii) To constitute a reunion there must be an
intention of the parties to reunite in estate & interest and such intention
is evident.
(iv) As per Mitkarsha, Dayabhaga and Smriti
Chandrika, a member of a joint family once separated can reunite only with his
(a) father,
(b) brother or
(c) paternal uncle but not with any other
relation.
The intention to
reunite was to be based on the evidence in the form of subsequent conduct, or
subsequent memorandum of reunion, etc. The onus Is on the reuniting coparceners
to prove that they have reunited. It is not necessary that all of the
coparceners reunite but any of the coparcener who reunites must bring back to
the family what he had taken away or what is left out of the same with him.
No writing is necessary
for a reunion. Even persons who are parties to a registered deed of partition
may reunite by an oral agreement.
The effect of reunion
is to remit the reunited members to their former status as members of HUF.
However, a memorandum of reunion may be recorded.
Brihaspati, an ancient
law giver, has stated that:
"He
who being once separated dwells again through affection with his father,
brother or paternal uncle is termed reunited".
Entire property
existing on day of reunion have to be brought back.
[CIT v. Vaiyapuri
Chettiar (1995) 215 ITR 836 (Mad)]
In the reunion of an HUF, all assets originally partitioned need not be
pooled back.
[Paramanand Bajaj v. CIT (1982) 135 ITR 673 : 28 CTR 290 (kar)]
It was held that right of reunion is limited to the coparceners and the
female members of the family have no right to reunite. As a daughter is a
coparcener under the Amendment of the Hindu Succession Act, she has now a right
or re-union.
[Pushpa Devi v. CIT 109 ITR 730 (SC)]
The Privy Council in Balabux v. Rukhmabai (1903) LR 30 IA 130 (PC)
observed that:
"A reunion in estate property so called can
only take place between persons who were parties to the original
partition."
Similar view was expressed in the iater judgment of Ram Narain Chaudhry
v. Pan Kuer AIR 1935 PC 9 when the Privy Council observed that:
"The
parties to the reunion must have been parties to the original partition"
The Bombay High Court in Vishvanath Gangadhar v. Krishnaji Ganesh (1866)
3 AC 69 (Bom) held that:
"renunion must be made by the parties or some
of them, who made tire separation. If any of their descendants think fit to unite
they may do 'so, but such a union is to a reunion in the sense of the Hindu
laxv, and does not affect the inheritance."
This view has been endorsed by the Gujarat High Court in Arvind Chunilal
v. CIT 140 ITR 241 (Guj).
For reunion two things are essential : firstly that one can reunite with
his father, brother or paternal uncle; in other words, the reunion is
restricted to these three classes or cases only.
[Nona Ojha v. Prahbudat - AIR 1924 Pat 647]
Create
HUF Deed
Creating a HUF Deed is not
mandatory. However it is always beneficial to have a HUF Deed. A HUF deed is a
written formal document on a stamp paper stating the name of Karta and
Coparceners of HUF. The eldest male member of HUF becomes Karta of HUF. The
name of members of HUF and the name of the HUF is also required to be stated in
the HUF Deed at the time of creating of HUF. The name of HUF is usually the name
of the Karta followed by the word HUF e.g. Ashok Kumar HUF. HUF Deed also states the capital with
which the HUF has been initiated. There are various sources through which
capital can be introduced in the HUF.
Requirement
of Rubber stamp of HUF
A Rubber stamp of HUF will also be prepared. Rubber
stamp should be Rectangular. Rubber Stamp will be affixed on all the documents
pertaining of HUF to authorize the transaction.
Apply
for PAN
Since HUF is a separate assessee
under Income Tax Act, 1961, therefore HUF have to hold its own permanent
account number. A separate application for PAN Card can be made, in Form 49A,
by the Karta of HUF on behalf of HUF for allotment of PAN. On allotment of PAN,
HUF is required to file separate Income Tax Return & can avail all the
benefits under Income Tax Act, 1961.
Open
Bank Account in the name of HUF
As regards bank account of a HUF,
it should be either in the name of the HUF or in the name of the Karta of the
HUF with a specific declaration that the account is that of the HUF. The
members should also be careful and not deposit their personal funds in the HUF
bank account as only funds belonging to the HUF can be kept in it. Normally,
only the Karta is authorized to sign all cheques and operate the account on
behalf of the HUF. However, he may also authorize any other member of the HUF
to operate the same on behalf of the HUF.
Branches of HUF
An HUF can have several branches or sub-branches. For example,
if a person has his wife and sons, they constitute an HUF. If the sons have
wives and children, they also constitute smaller HUFs. If the grandsons also
have wives and children, then even they will also constitute still smaller or
sub-branch HUFs.
As the HUF is a creature of Hindu Law and these entities are
HUFs alongwith the bigger HUF of the father or the grandfather. It is
immaterial whether these smaller HUFs possess any property or not. Property can
be acquired by any mode; by partition of bigger HUF or by gifts from any member
of the family or even by a stranger or by will with unequivocal intention of
the donor or the testator that the said gift or bequest will form the joint
family property of the donee or the testate or Re-union of HUF.
An HUF can be composed of a large number of branch families,
each of the branch itself being an HUF and so also the sub-branches of more
branches.
[CIT v. M. M. Khanna (1963) 49 ITR 232 (Bom)]
HUF Properties are
Presumed Joint Property, Unless Proved to be Self-Acquired
It was held that all assets pertaining to Hindu Undivided Family
(HUF) are to be treated as joint property of the HUF, unless the contrary is
proved as self-acquisition of property through valid documents.
[Adiveppa & Ors. v. Bhimappa & Anr. being Civil Appeal
No. 11220 of 2017 - Order dated 06.09.2017 (SC)]
No comments:
Post a Comment