Hindu Undivided Family

Formation to Partition Legal and Tax Implications

By CA. Deepak M. Rindani

I. Basic Concepts:

Who is a Hindu HUF all persons lineally descended from a common ancestor and joint in property, food and worship HUF is not a juristic person in law Sources of Hindu Law

Manusmruti

Dharmashastras

Historical Background
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II. Ingredients of HUF:

Hindu
By birth

Undivided

Family
Related by blood & marriage Sapindaship (relationship) is the essence of HUF
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Joint in respect of estate By adoption (property), income, By conversion(?) membership, food and worship

Who are considered Hindus?

Those who are Hindus by Birth and religion Jains and Sikhs Illegitimate Children whose both parents are Hindus Any child whose father or mother is Hindu and who is brought up as Hindu

Those of certain Hindu Sampradayas (Arya Samaj, Swaminarayan, Brahma Samaj)

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Who are NOT considered Hindus?

Muslims, Parsis and Christians Those who have converted from Hinduism Khojas and Cutchi Memons (subject to certain riders/provisions and not dealt with here)

Composition of HUF:
Common

Coparcenary:
Only

degree
His

ancestor- 1st

male members and daughters

descendants upto 3 more degrees under him (both sons and daughters)
Wife

of ancestor

Daughters-in-law

HUF Tree Illustrative only

- As Wife Sons Daughter

Schools of Hindu Law:

MITAKSHARA SCHOOL DAYABHAGA SCHOOL (in Bengal & Assam)

-Common ancestor and his lineal male descendants , wives , daughters -Sons have right by birth & survivorship

-Sons have specified interest but no right by survivorship - No Coparcenary

- No specified share but -All income belongs to community of interest father

-Kerala has abolished HUF

III. Creation of HUF:

Is in Gods hands, what we can do is to create HUF property once there is a family nucleus. Modes of creation of HUF property are: 1) By Blending:

Of self acquired property into HUF property by conduct/ declaration of members of HUF This has tax implications
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III. Creation of HUF:

2) By Gift from Non-members:

Nucleus should exist property created by gift

Intention of donor, documentation, receivers statement

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3) By Partition of Pre-Existing HUF :

Partial Partition: Partial as to members and/or as to property

Total Partition: Nothing left in HUF

Unequal partition is possible Who is entitled to enforce partition Who is entitled to how much share upon partition

Nature of property on partition in hands of receiver

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4) By Will (of any person):

To own HUF To HUF of others

To future HUF of unmarried son

5) By Reunion:

Of previously partitioned HUF All members who were partitioned need not necessarily reunite But those who reunite must bring back all properties received on earlier partition 12

6) By Joint Labour:

Family of craftsmen, joint activity and creation of joint income

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Some Typical Situations:

Husband & wife only no children Single male + mother + wife + daughter (Gowli Buddana) Single male + wife + daughter (N.V. Narendranath) single male + widow of deceased brother

two or more widows of deceased coparceners with undivided properties ( AR Veerappa Chettier )
single male + mother +sister

HUF can exist without single male coparcener

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HUF can exist with totally empty kitty of property

Females cannot blend their property into HUF but can give gift (Pushpa Devi) Females can be karta in absence of major male member

Sole surviving coparcener (male or female)

Only females left in family

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IV. Management of HUF Property:

Concept of Karta Manager Who can be Karta

Powers & duties of Karta

Powers & duties of other members rights of education, maintenance

Dispositions out of HUF property

Debts of HUF Obligations upon HUF property

Pious obligation of sons to pay debts of father out of coparcenary interest of sons in HUF property Duty of father to maintain wife, minor sons, unmarried daughters and infirm parents out of HUF property
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V. Partition of HUF:

Meaning of severance of status and interest Mere division of shares vs Metes & Bounds Kinds of Total / Partial Rights to enforce partition Allotment of shares of partition (Per Stripes and Per Capita) Documentation & Care
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VI. HUF and Law of Succession:

Devolution of interest in HUF upon death of Karta/Member

Overriding effect of Hindu Succession Act, 1956 Sec. 6

Succession to individual property Testamentary vs Intestate succession to interest in HUF

Ancestral Agricultural Lands

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VII. Status of females and daughters in HUF:

Mother

Wife
Daughters Daughters-in-law Rights of daughters and important implications of HS (Amendment) Act, 2005 Due to amendment, daughters to have same rights as coparceners Is there any distinction between married and unmarried daughters now?
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VIII. Taxation of HUF:

Treated as a person u/s 2(31)(ii) Tax rates same as Individuals

W.T. also leviable

Significant provisions of I. T. Act specific to HUF:
Sec. 6 (residential status) Sec. 56(2)(vii) sum/property received without/ for inadequate consideration Sec. 140(b) signing of return of income Sec. 10(2) sum received from HUF Sec. 64(2) clubbing

Sec. 171 derecognition of partial partition

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IX. HUF and Partnership Business:

Implications under Partnership Act Interest on capital Remuneration & Sec. 40(b) Borrowings from Banks

Drafting care in partnership deeds

Same person as partner in dual capacity as Karta and as Individual in same firm partnership law recognizes only individual as partner (Rashik Lal & Co. 229 ITR 458 SC)
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HUF as Proprietor of Business:

Use of HUF funds and labour

Use of HUF property

Can professionals or service providers function as HUF? Issue regarding lending by Banks

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X. Is HUF yet a Tax Planning Tool?

Is a separate taxable entity Gives rise to division of income and wealth

Is a tool to accumulate business assets/property in HUF name and allow use by other business entities to distribute wealth and tax incidents
Transfer of funds inter se HUF and its members by way of loans rather than gifts Separate entitlements to exemption from capital gains u/s 54, 54EC, 54F etc. Possibilities of multiple HUFs in appropriate situations
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Stamp Duty on HUF

On Partition On Release Existence of immovable property Probate duty Issues reg. titles, Revenue records etc.

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XI. Is HUF Relevant In Present Times?

Rising trend of nuclear families and individualism changing social forces Are our families truly joint and undivided? Equal rights to daughters after marriage boon or bane continuing debate Issues reg. banking, borrowing, transfer of immoveable property, probate etc. Can we preserve our culture of unity and mutual family bonding through HUF?
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XII. Salient Features of HUFs and Landmark Rulings:

1.
2.

A single member cannot be treated as HUF.

1.

3.

HUF may consist of single 2. male and widows of deceased males, A single male, his wife and daughters. Family may be formed by 3. partition though not be survivorship.

C. Krisnaprasad 97 ITR 493 (SC) Gowli Buddana 60 ITR 293 (SC)

N.V. Narendranath 74 ITR 190 (SC)

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4.

On partition of bigger HUF, a coparcener and his wife can constitute HUF. It is possible to constitute HUF on marriage of an individual male, if he has received asset on inheritance or partition.

4.

5.

5.

Soth Tulsidas Bolumal 170 ITR 1 (AP) Krishnakumar 143 ITR 462 (MP) Premkumar 121 ITR 347 (ALL)

6.

Took a contrary view to (5) above.

6.

Vishnukumar 142 ITR 357 (ALL)

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7.

Individual property of 7. father who dies after Hindu Succession Act came into force (17-6-56) devolves on sons As individuals. Even the property held by a father received on partition, on death of father, on second partition, is Sons separate and individual property.
For Right of a surviving 8. female relative, Sec. 6 of H.S. Act (Explanation) lays down that there will be deemed partition.

Chander sen 161 ITR 370 (SC)

8.

Gurupada Khandappa Madgam Vs. Hirabai 129 ITR 440 (SC)

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9.

10.

11.

But HUF even then 9. continues- Explanation: - merely helps to identify the share of female members and their Legal heirs. On death of sole male 10. member after HS Act (17-656) females heirs receive property as their absolute property. HUF can consist of 11. husband and wife only

State of Maharastra Vs. Narayan Rap 163 ITR 31 (SC)

Smt. Nagarathnama 76 ITR 352 (MYS) Knatilal Manilal 90 ITR 289 (GUJ) C.I.T. vs. Arunkumar Jhunjhuwala 138 CTR 63
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Blending of Individual Property to HUF Court Rulings

1. When individual throws 1. his personal property with joining family character, there is no transfer- mere declaration unstamped, even if it is immoveable is Sufficient-conduct has to be seen. A sole male member on 2. conversion shall continue to be, assessed as IND., Goli Eswarisash 76 ITR 675 (SC) R. Subramania 28 ITR 352 (Mad) Lale Knnaiyalal 75 ITR 702 (ALL)

2.

Surjitlal Chhabds 101 ITR 776 (SC)

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4.

A female cannot convert 4. her individual property into HUF property. It would amount to transfer. (Is this different after amendment to HS Act?)

Pushpa Devi 109 ITR 730 (SC)

Note: - Tax advantage of conversion has since been lost by insertion of Sec. 64(2) in IT Act, 4(IA) in WT Act

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Creation of HUF by Will or Gift Court Rulings

By unequivocal intention of donor or testator, a beneficiary can take gift/ legacy as a karta of HUF M.P. Pariakaruppam 99 ITR 1 (SC)

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Partition Court Rulings

1. Severance of HUF takes place on the date unequivocal intention is made. The date of suit for partition is the date of severance of status of HUF. Date of arbitrators award is the date of severance. 1. A Raghavamma AIR 1964 SC 136 Bijoy Kumar 84 ITR 71 (CAL)

2.

2.

3.

3.

Ratanchand 4 ITR 189 (ALL)

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4.

Entries in the books will be sufficient in case of business.

4.

5.

6.

Partition can be unequal 5. No Gift tax is payable because there is no transfer. There can be partition 6. between Father and Minor Sons. There can be no partition if there is one male member. 7.

A. Kuppiah 63 ITR 522(M) Bhimraj 26 ITR 185. N.S. Getti Chettier 82 ITR 599 (SC) Apoorva Shantilal 141-ITR-558 (SC) V.V.S. Natarajam 111-ITR-539 (M) T.G.K. Menon 140-ITR-876 (M)

7.

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Partial Partition Court Rulings

Partial partition Kaloomal Tapeshwar derecognized- A 133-ITR-690. partition (total) though valid under Hindu Law, it has to be within the meaning of Sec171 (9) i.e. by metes and bounds, or such other mode.

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Interaction?

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