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Partial partition of huf - tax liability

PUNEET OBEROI (CHARTERED ACCOUNTANT) (100 Points)

30 August 2011

Dear Colleagues,

One of my clients is having liquid investments in Mutual Funds in HUF. They wish to Disinvest part of these funds and distribute them to the members in equal proportions. Please guide:-

1. If this is done, whether there will be any tax implications in the hands of HUF and members?

2. The HUF consists of Karta, wife, son, daughter. Who all are entitled to get the monies? I suppose only Karta, Son and daugher. Wife will not get the share.

Kindly advise.

Thanks in advance

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1 Replies

Ravi Chopra (CA) (661 Points)
Replied 30 August 2011

Dear Sir,

1. Though partial partition is recognised in HIndu Succession act, it has been derecognised by the provisions of sec. 171(9) & moreover, according to sec. 171(9), any partial partition effected after 31.12.78, is not recognized.

BUT going through the wordings of section 47, Certain transactions not to be regarded as transfer. It includes ANY DISTRIBUTION OF CAPITAL ASSET ON PARTIAL OR TOTAL PARTITION OF HUF.

Opinion - So, In my opinion, A Combined reading of above two, it wont be considered as division of Asset and HUF will be liable for capital gains since amounting to transfer (There is no recognition of partial partition , Also Sec 47 is general section and 171 is specific section) . Also, AO may regard this transaction as device to reduce tax liability.

2. Wife will be entitled to share equal to that of son on partition.( It does not applies to the above case whereit is partial partition)

https://legalsutra.org/1350/partition/ Though not a certified source, but provides a great deal of explanation to status of women in huf partition.

Extract from that includes

"The person who have no right to partition but who are entitled to a share in partition takes place includes father's wife, mother, grandmother. ( here father's wife & mother seems different to me as in first part, the father survives, and in later, father does not survive). Where husband seperates his sons during his lifetime, or sons claim partition , the wife was entitled to claim share equal to son (being father's wife)".

This is purely my interpretation. I will like to seek opinions of various experts on this issue as to my interpretation.