Analytical Study of Corporate

Personality: India & UK

Project submitted to
Mr. Shreyas Vyas
(Faculty: Corporate Law)

Project submitted by
Varun Chakravarty
Roll no. 185
Semester v

HIDAYATULLAH NATIONAL LAW UNIVERSITY

RAIPUR, C.G.

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Contents
Acknowledgements...................................................................... 3
SCOPE OF THE PROJECT.............................................................4
RESEARCH METHODOLOGY.........................................................4
Aims and Objectives........................................................................4
Sources Of Data...............................................................................4
Mode Of Writing..............................................................................4

INTRODUCTION.........................................................................5
HINDU UNDIVIDED FAMILY..........................................................6
Essential Ingredients of Hindu Undivided Family:..............................6
Formation of a HUF..........................................................................7

RESIDENTIAL STATUS.................................................................8
Fundamental rules for determining residential status of an Assessee: 8
Residential status:...........................................................................9

HINDU UNDIVIDED FAMILY UNDER THE IT ACT, 1961...................11

HUF: A Separate Legal Entity under IT Act, 1961..............................11
Residential status of HUF:..............................................................11

CONCLUSION...........................................................................13
REFERENCES...........................................................................14

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Acknowledgements

I am much indebted to my teacher Mr. Shreyas Vyas, who gave me a chance to work on the
topic. I take the opportunity to thank him for his assistance & comments & remarks on the
project before its final draft. Throughout I have been helped & encouraged by him.
A great debt of gratitude must be acknowledged to the Library & IT department for providing
with the valuable resources required for the making of this project.
Last but not the least I would like to thank my parents for all that they have done.

Varun Chakravarty
Sem V

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SCOPE OF THE PROJECT

The project deals with the Analytical Study concept of Corporate personality: India & UK
which talks the approaches taken by law as corporate law as a creation of law and giving
them a legal personality.

RESEARCH METHODOLOGY
Aims and Objectives
The aim of this project is as follows:i.
ii.
iii.
iv.

To give a brief background on Corporate Personality.

To briefly study Corporate Personality in India.
To briefly study Corporate Personality in United Kingdom.
To assess the status of Corporate Personality in India and United Kingdom.

Sources of Data
The sources of data for this project are secondary in nature, including books, articles, law
journals & online resources.

Mode of Writing
The mode of writing in this project is descriptive & analytical.

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INTRODUCTION
Corporate Personality is the creation of law. Legal personality of corporation is recognized
both in English and Indian law. A corporation is an artificial person enjoying in law capacity
to have rights and duties and holding property.
A corporation is distinguished by reference to different kinds of things which the law selects
for personification. The individuals forming the corpus of corporation are called its members.
The juristic personality of corporations pre-supposes the existence of three conditions:
(1) there must be a group or body of human beings associated for a certain purpose.
(2) There must be organs through which the corporation functions.
(3) The Corporation is attributed will by legal fiction. A corporation is distinct from its
individual members1.
It has the legal personality of its own and it can sue and can be sued in its own name. It does
not come to end with the death of its individual members and therefore, has a perpetual
existence. However, unlike natural persons, a corporation can act only through its agents.
Law provides procedure for winding up of a corporate body 2. Besides, corporations the
banks, railways, universities, colleges, church, temple, hospitals etc. are also conferred legal
personality. Union of India and States are also recognized as legal or juristic persons [3].
In certain cases, the corpus of the legal person shall be some fund or estate which reserved
certain special uses. For instance, a trust estate or the estate of an insolvent, a charitable
fund etc..; are included within the term legal personality.

1 Section 34 of Companies Act, 2013

2 Section 433 to 526 of Companie Act, 1956

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HINDU UNDIVIDED FAMILY

A Hindu Undivided Family offers specific advantages as far as taxation is concerned.
The Income Tax Act and Wealth Tax Act recognise the Hindu Undivided Family as an
independent assessable or taxable entity. Hence, Hindu Undivided Family enjoy all
deductions and exemptions under the IT Act independent of the income and tax liabilities of
its members. The Hindu Law defines the Hindu Undivided Family as a family, which consists
of males lineally descended from a common ancestor and includes their wives and unmarried
daughters.

Essential Ingredients of Hindu Undivided Family:

Members: An Hindu Undivided Family is automatically constituted after marriage. It

can also be formed by partition of an existing Hindu Undivided Family into multiple
units. A suitable name needs to be given to the Hindu Undivided Family, taking into

consideration the prevalent laws and the business that it intends to undertake.
Corpus: An important requisite for the constitution of an Hindu Undivided Family is
its corpus or capital. This capital is separate from the assets owned by its members.
The property received by way of a will in favour of the Hindu Undivided Family can

become the corpus.

Deed: Though it is not mandatory to have a deed for the formation of an Hindu
Undivided Family, it is advisable to execute one from a legal and taxation perspective.
It should include details of the karta, members of the Hindu Undivided Family
consisting of coparceners, and other family members, the corpus as well as the

business of the Hindu Undivided Family.

PAN: An Hindu Undivided Family has a separate Personal Account Number and the
karta must apply for one. The PAN needs to be quoted while making investments and
carrying out financial transactions of the Hindu Undivided Family.

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Formation of a HUF
Typically, a HUF is automatically created. As the name suggests, a HUF
means a family of Hindus. However, under the Indian tax law, persons belonging to
the Jain and Sikh religion can also form HUFs. The existence of a HUF requires at
least two members of a family, of which at least one should be male. A HUF can also
consist of the male members and female members, being their wives and unmarried
daughters. Once a member of a HUF receives any ancestral property from any
ancestor three generations above him, a HUF is automatically created. For example, if
a married Hindu male person receives any ancestral property from his great
grandfather, that property will be automatically regarded as his HUFs property.
Another way to form a HUF is by receiving an asset or property by way of gift from a
lineal ascendant with a specific instruction by the donor that the same is being gifted
to the HUF. Although generally, a HUF always exists in a Hindu family, from a tax
point of view, it is created only when it receives assets or any property or is engaged
in any commercial activity. A PAN card may be issued by the Income-tax Department
in the name of a HUF and an account gets created for filing of tax returns.

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RESIDENTIAL STATUS
Tax incidence and imposition on an assessed is dependent on his residential status. For
example, whether an income, accrued to an individual out of India, is taxable in India is
dependent upon the residential status of an individual in India. Likewise, whether an income
secured by a foreign national in India (or out of India) is taxable in India is dependent on the
residential status of an individual, rather than his citizenship. Consequently, the
determination of the residential status of the person is very important to ascertain his tax
liability3. One can affirmatively conclude that taxation of the assessee is dependent on his
residence. As a result, the first question is always towards appropriate establishment of the
residential status of an assessee.
In the case of the Resident, the entire income is taxable, oblivious to the fact that it is earned
in India or outside India. In the situation of a Non-resident, only the income earned in India
is taxed. There should be a basis for the government for taxing any income of an indivudual.
Indian Government has taken 3 conditions for levy of income-tax in India4:
1. Residence.
2. Source of Income.
3. Receipt of Income.
For the charge of income-tax, Indian Government can tax the total income of Indian tax
residents; or the Indian sourced income & income earned in India of tax non-residents of
India.

Fundamental rules for

determining residential status of an

Assessee:
Section 6 lays down the tests of territorial correlation amounting for residence for all
taxable entities. Two different tests are provided for individuals, two for companies,
and one for Hindu undivided families, firms, associations of persons and other
3Taxman,

Students' Guide to Income Tax, Tans Prints (India) Pvt. Ltd., 33rd Ed., 2005-06, p-27

4Ibid.

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assessable units. The tests are mock - staying for a day more or less may make a
difference- but they make for exactitude and accuracy, and they were held legitimate
and inter vires under the 1922 Act5.

Residential status:
Three types of residential status are envisaged for an assessee under the Act. He may be1. Resident (also known as resident and ordinarily resident)
2. Non resident or not resident.
3. Resident but not ordinarily resident (a category of residential status) only valid for
individuals and Hindu undivided families.6
The following essential rules must be kept in mind while determining the residential status7

Residential status is established by each category of persons disjointedly e.g., there

are distinct set of rules for establishing the residential status of an individual and
distinct rules for companies etc.

Residential status is always established for the previous year because one has to
establish the total income of the previous year only.

Residential status of person is established for every previous year because it may
change to year to year. For example, A, who is resident of India in the previous year
2004-05, may become a non-resident in the previous year 2005-06. If a person is
resident in India in a previous year applicable to assessment year in respect of any
source of income, he shall considered to be resident in India in previous year
applicable to the assessment year with regard to each of his other source(s) of his
income.

5Kanga,

Palkhivala and Vyas, The Law and Practice of Income Tax, Lexis Nexis Buttersworths, I Vol, IX Ed.,2004,

p-348.
6 ibid
7Girish

60.

Ahuja and Ravi Gupta. Concise Commentary on Income Tax, Bharat Law House Pvt. Ltd., 6thEd., 2005,pp-

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A person may be resident of more than a country in any previous year.

Citizenship of a country and residential status of that country are disconnect concepts.
An individual may be an Indian national/citizen, but may not be a resident in India.
Conversely, a person may be a foreign national/citizen, but may be a resident in
India.8

It is the obligation of the assessee to place all relevant facts before the assessing
officer to facilitate him to establish his exact residential status.9

The tests of residence provided in Clause (1) for individuals are substitutes and not
collective. Each of the tests needs the personal attendance of assessee in India for the said
period in the duration of the accounting year. If the assessed is incessantly out of India
during whole of a year, even though, he may be, in the non-technical sense, normally
resident in India.
The term India means the geographical territories and the territorial waters of the
country, and does not involve Indian ships operating beyond the Indian territorial waters.
Thus, for counting the days, for which a person is in India, his stay in Indian ship abroad
is not considered.10 The Finance Act 1990 gave statutory recognition to this aspect with
an amendment to the explanation to Section 6(1) which ensured that the Indian seamen
working on board an Indian ship would be seen as resident in India for any year, only if
the sojourn in India is for 182 days and more in that year.

8 A.C. Sampath Iyengar, The Law of Income Tax, Bharat Law House Private Limited, 1994, p-869
9 ibid
10 CIT v. Avtar Singh, (2001)247 ITR 260

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HINDU UNDIVIDED FAMILY UNDER THE IT

ACT, 1961
A Hindu undivided family, firm or other association of persons are classified as
residents in India in any previous year in every case excluding where during that year the
control and administration of its affairs is entirely outside India.

HUF: A Separate Legal Entity under IT Act, 1961

Majority of the population in India belongs to the Hindu community.
Hinduism, being an ancient religion has several old customs and traditions as well as
rituals which are being followed by its members even in present times. The joint
family system, where members of one family lived together under one common roof,
including married brothers, their children and grandchildren, sometimes even
extending to five generations, continues even today in most Hindu families. Under the
joint family system, the members share houses, properties, business, income, wealth,
food and their value systems and principles. Therefore, in India, a joint Hindu family
is given a separate legal entity status called Hindu Undivided Family (HUF) and this
status is shared and enjoyed by all members of the family.

Residential status of HUF:

Resident:
A Hindu undivided family, firm or other association of persons are classified
as residents in India in any previous year in every case excluding where during
that year the control and administration of its affairs is entirely outside India.

Non-resident HUF:
What applies to non-resident individuals will also, in some cases, be
applicable to a non-resident HUF. A HUF, whose management and control is
exercised wholly outside India during the financial year. From a tax point of

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view, if it can be shown that all decisions concerning the family members and
the affairs of the HUF were taken outside India during the relevant year, that
HUF will enjoy all benefits also available to a non-resident individual and the
same tax exemptions.

Resident but not-ordinarily resident HUF:

An HUF can get a resident but not ordinarily status (RNOR) if the Karta or
manger has been a non-resident in India in nine out of the ten preceding years
or has been a resident in India in two out of the seven preceding years. Thus,
where the Karta decides to return to India after his residence in any country,
the HUF will not turn to resident HUF in India straightaway but it will get the
benefit A NOR HUF also enjoys tax advantage in as much as on the return of
the Karta, the HUF is treated as RNOR for the next nine years. The advantage
of NOR status is that all income from property or investments belonging to the
HUF outside India will be exempt from tax in India.

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CONCLUSION
HUF is a good tax saving tool as it is regarded as a separate legal entity under the tax
law and also assessed to tax separately as a distinct legal person. As income from sources
such as income from house property or income from business or capital gains can be taxed
separately in the hands of a HUF and is not clubbed with the individuals income, there can
be substantial savings in taxes as income is divided between two entities, that is, the
individual and the HUF and expenses and deductions can also be claimed from both incomes,
individual, as well as HUF. Further, if an individual is already employed with somebody, he
can carry out a business and earn income in the name of a HUF and he can get the benefit of
exemptions and deductions from that income too.
As has been seen, foreign- earned income of the Indian residents becomes taxable in
India. Equally, foreign earned income of the non- residents are not taxable in India. Thus, a
person will always attempt to become a non- resident in India for the purpose of taxation.
Consequently, it is very imperative to appreciate when a person becomes resident in India.
Likewise its vital to recognize the conception of resident and not ordinarily resident in terms
of Hindu undivided family (HUFs) and companies under the Income Tax Act, 1961.

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REFERENCES
Cases

Ram Laxman Sugar Mills vs. CIT [1967] 66 ITR 613

CIT v. Avtar Singh, (2001) 247 ITR 260

Books

Taxman, Students' Guide to Income Tax, Tans Prints (India) Pvt. Ltd., 33rd Ed., 2005-06

A.C. Sampath Iyengar, The Law of Income Tax, Bharat Law House Private Limited,
1994

Girish Ahuja and Ravi Gupta. Concise Commentary on Income Tax, Bharat Law House
Pvt. Ltd., 6thEd., 2005

Kanga, Palkhivala and Vyas, The Law and Practice of Income Tax, Lexis Nexis
Buttersworths, I Vol, IX Ed.,2004

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