Hindu Undivided Family - Concept
Family connotes a group of people related by blood or marriage, "family" always specifies a group. Plurality of persons is an essential attribute of a family A Family consisting of a single individual is a contradiction. Section 2(31)(ii) of The Income Tax Act,1961 treats a Hindu Undivided Family as an entity distinct and separate from an individual and it would be wrong not to keep that difference in view-[Krishna Prasad C. v CIT (1974) 97 ITR 493 (SC)]
The expression Hindu Undivided Family (HUF) occupies an important place in the provisions of The Income Tax Act, 1961 but that expression is not clearly defined in the Act. Section 4 of The Income Tax Act, 1961, Income Tax is payable by every person. Person as defined in Section 2(31) includes a Hindu Undivided Family. The reason of omission evidently is that the expression has a well-known connotation under the Hindu Law and being aware of it, the Legislature did not want to define the expression separately in the Act. The expression Hindu Undivided Family (HUF) occupies an important place in the provisions of The Income Tax Act, 1961 but that expression is not clearly defined in the Act. Section 4 of The Income Tax Act, 1961 Income Tax is payable by every person. Person as defined in Section 2(31) includes a Hindu Undivided Family
The reason of omission evidently is that the expression has a well-known connotation under the Hindu Law and being aware of it, the Legislature did not want to define the expression separately in the Act. The expression ' Hindu Undivided Family'(HUF) must be construed in the sense in which it is understood under the Hindu law [Surjit Lal Chhabda v CIT 101 ITR 776 SC]. HUF is a body consisting of persons lineally descendent from a common ancestor, including their wives, who are staying together jointly Gowli Buddana v Commissioner of Income Tax (1966) (SC)- No requirement of more than one co-parcener in the family,a husband and wife can validly constitute a HUF.An HUF can be composed of a large number of branch families, each of the branches itself being an HUF and so also the sub-branches of more branches - CIT v M.M Khanna (Bom) E.g. Like Grandfather HUF, Father HUF, Sons/Grandsons HUF etc.
Definition of Person under The Income Tax Act, 1961
Section 2(31) of The Income Tax Act,1961
"Person" includes-
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) Every artificial juridical person, not falling within any of the preceding sub-clauses.
Explanation.-For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;
Partition
Partition under Hindu Law can be total or partial. Partition is severance of status of Joint Family, known as HUF under Tax Laws. In Total Partition all members cease to members of HUF and all the properties cease to be properties belonging to HUF. Partial partition may vis-a-vis a members or Vis-a Vis properties. Under Hindu Law for an effective partition it is not necessary to divide the properties in metes and bounds. But under the Tax Laws for an effective partition it is necessary to divide the properties in metes and bounds. Partition under the Income Tax Act is the ascertainment of individual shares of co-parceners in the HUF and later division by allotting separate properties to the members.
Notional partition under the provisions of Section 6 of The Hindu Succession Act,1956 is not sufficient for recognizing partition under The Income Tax Act,1961.
To Claim partition under The Income Tax Act,1961 it must fulfil the conditions laid down in Section 171 held in CIT v R.B Tunki Shah Baidyanath Prasad (1991) by Patna High Court and approved by Supreme Court .Motive or Need for partition can be questioned by the Income Tax Department:- [T.G. Sulakhe v CIT (AP)]
Members of HUF can live separately and such an act would not automatically amount to partition:- [Shiv Narain Choudhary v CWT (All)]
Possible ways to effect partition
- By Agreement
- By Intimation - Raghawamma v Chenchamma 1964 SC
- By Suit for partition
- By Arbitration
Partial Partition is not recognized under the Income Tax Act,1961 for Tax purposes-Section 171(9).Only completed partition of HUF is permitted.Hindu Law however recognizes partial partition Partial partition is not recognized under The Income Tax Act,1961 as a measure to counteract the tendency to tax avoidance. Multiple HUFs were created by effecting partial partition which resulted in Tax reduction or evasions (31st December, 1978)
Property received by a member on total partition of HUF
Property received by a member on total partition will retain its character as a joint family property. If he is single, it will be HUF property on marriage. The distribution of assets of an HUF, in the course of partition will not attract any Capital Gains Tax Liability, as it does not amount to transfer. One of the main reasons for partition of HUF is to reduce the tax liability, As per Section 47(i) of The Income Tax Act, 1961 any distribution of Capital Assets on the total or partial partition of Hindu Undivided Family is not regarded as transfer.
Physical division of property by way of book entry not permissible. Partition must be made by physical division only to the extent possible to make valid claim for recognizing the partition for Income Tax Purpose. Partition can be made through oral agreement [Poptlal Devram v CIT (1970) (Orissa)]. Where property not capable of physical division book entries showing division of property may be good evidence of partition, Business held by a HUF can be portioned by making book entries as business not capable of physical division [R.B Bansidhar Dhandhania v CIT,Motilal Shyam Sunder v CIT],[CIT v R.G Ramakrishnier]. In Case of Vineeta Sharma v Rakesh Sharma (SC)-Oral Partition Valid with Condition held valid, Partition effectuated after 20th December 2004 must be duly registered
Procedures for recognition of partition
The HUF, which has been hitherto assessed, must make a claim to the Assessing Officer that the HUF properties have been subjected to total partition. Assessing Officer after making an inquiry after giving notice to all members of the HUF and record a finding that there was total partition of the HUF and the date on which it had taken place. Order under Section 171 not required where HUF has not been assessed to tax [(CIT v Hari Krishnan Gupta (2001)(Del),Roshan Di Hatti v ITO(1968) (SC)]
Partition of HUF shall be effective from the date of partition as mention in partition deed filed with the A.O and not from date of passing the Order recognizing the partition under Section 171 of the Income Tax Act,1961-Smt. Sudha V. Iyer v Income Tax Officer (Mum) ITAT. In the given case partion was effected on 31-03-2005 as per partition deed dated 01-04-2005 but Order under Section 171(1) was passed on 14-10-2008
Oral Partition of HUF was held to be valid in the case of-Estate of Pandurangan (HUF) v ITO (Mad)
Responsibility to pay tax after partition of HUF up to the date of partition
Section 171(6)-every member of HUF before partition shall be jointly and severally liable for the tax on the income assessed of the HUF
Section 171(7)-several liability of the member depend according to the portion of joint family property allotted at the time of partition
Member of a HUF before partition is not personally liable, after partition in respect of liability of HUF, ex-members liability is personal as held by Supreme Court in Govindas v ITO (1976)
Re-Union of HUF
Even after a total partition it is possible for the co-parceners to reunite undoing the earlier partition among themselves. Reunion beings back to life the former status of HUF. Reunion can only take place between persons who are parties to original partition. Reunion may of the family or any member of it.
Conditions for a valid reunion under Hindu Law
- Must have been a previous state of union. Reunion is possible only among persons who were earlier members of the HUF.
- There must have been a partition.
- The reunion must be effected by the parties or some of them who made the partition. Bring about fusion in interest and estate among the divided member of erstwhile HUF.
- There must be a junction of estate and reunion of property because reunion is not merely an agreement to live together as tenants in common.
- There should be proper agreement among the parties so that intention revert to the original status of HUF is expressed clearly and unambiguously.
- If partition by Registered Deed then Reunion must also be Registered Deed-Parmanand L Bajaj v CIT (1982) (Kar).
Reunion a Tax Planning Tool
Under The Income Tax Act, 1961 partial partition has been derecognized and in case of reunion is not necessary to bring back entire property obtained at the earlier partition. Reunion is a good substitute for partial partition as an effective measure for Tax Planning. In that case one can achieve the objective of Tax Panning which was available before de-recognition of partial partition of HUF.
Summary
The current Article discusses only a select issues and Case Laws with reference to Hindu Undivided Family (HUF) under Income Tax Act,1961,there are lot of Case Laws and debatable issues addressed with reference to HUF by various Legal Forums like ITAT, High Court and Supreme Court Taxpayers and Professionals should carefully arrive at the conclusion after having a through understanding of the various rulings.
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