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Clubbing (huf)

CA Siddhartha Bhardwaj (Proprietor at Siddhartha Bhardwaj & Associates Chartered Accountants) (33441 Points)

24 December 2011

In which situations can income of HUF be clubbed in the hands of the Karta/members. Kindly state the relevant provisions of the Income Tax Act

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Jinay (Article) (172 Points)
Replied 24 December 2011

Dear Siddhartha,

Following is the extract of Section 64(2) of the Income Tax Act, 1962 :

Clubbing Provisions in case of HUF

Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it 42 [into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property)], then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,—

(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;

(b) the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family ;

45 [(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly :]

Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse of the individual.

Explanation 48 [1].—For the purposes of sub-section (2),—

“property” includes any interest in property, 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.

It can be interpreted as when an individual in a HUF family transfers an asset which is held in his name or a joint name, is transferred in the name of HUF otherwise then for an adequate consideration then the clubbing provisions apply.

I hope this will suffice your purpose.

Regards,

Jinay Savla