What is HUF?
HUF stands for Hindu Undivided Family, which is a legal entity recognized under the Hindu law. It is a family arrangement that is recognized by the Income Tax Act of India for the purpose of taxation.
An HUF is formed by the members of a Hindu family who are lineally descended from a common ancestor, including their wives and unmarried daughters. It is considered as a separate entity from its members, and can own property, run a business, and file tax returns in its own name.
The head of the HUF, known as the Karta, manages the affairs of the HUF and makes decisions on behalf of the members. The Karta has the power to make investments, enter into contracts, and manage the assets of the HUF.
An HUF is taxed separately from its members, and is eligible for certain tax benefits and exemptions. HUFs can also create a separate legal identity and can be used for estate planning purposes, succession planning, and to protect family assets.
Partition of HUF
A Hindu Undivided Family (HUF) is a joint family structure consisting of members who are all descendants of a common ancestor. When there is a partition of an HUF, it means that the family members are dividing the assets and liabilities of the joint family and creating separate families. This can happen due to various reasons, such as the desire for family members to go their separate ways, a dispute among members, or the death of the head of the family.
In the case of a partition, the assets and liabilities of the HUF are divided among the members. The division of assets and liabilities is generally based on the principle of equal distribution, with each member receiving a share according to their status within the family. For example, sons would generally receive an equal share, while daughters may receive a smaller share or be given a cash payment in lieu of their share.
The partition of an HUF can be done either by mutual agreement among the members or by a court order. If done by mutual agreement, a partition deed is typically drawn up to document the division of assets and liabilities. This deed should be properly stamped and registered, and all family members should sign it. A court order may be required if there is a dispute among family members or if a member contests the partition.
Once the partition is complete, each member becomes the owner of their respective share of the assets and can dispose of them as they see fit. They are also responsible for their share of any liabilities that were part of the HUF.
It is important to note that the partition of an HUF can have tax implications. For example, any gains from the sale of assets during the partition may be subject to capital gains tax, and there may also be implications for income tax and wealth tax. It is therefore advisable to seek professional advice before carrying out a partition.
What are the new provisions regarding HUF after the amendment to section 6 of the Hindu succession Act 1956?
The Hindu Succession (Amendment) Act, 2005 brought about significant changes to the Hindu Succession Act, 1956, including the provisions regarding the Hindu Undivided Family (HUF).
Before the amendment, only male members of a Hindu family could be considered coparceners (i.e., persons having a birth right to the ancestral property of the HUF), but the amendment has now granted equal rights to daughters by birth in the HUF, which means that daughters are now coparceners in their own right, and have the same rights and liabilities as sons.
Therefore, after the amendment to Section 6 of the Hindu Succession Act, 1956, daughters now have equal rights in the ancestral property of an HUF, regardless of whether the HUF was formed before or after the amendment. This means that if an HUF has ancestral property, daughters would have an equal right to it along with the sons, and would be considered coparceners in the HUF.
It is important to note that the amendment to the Hindu Succession Act, 1956 does not have any impact on the tax laws related to HUFs under the Income Tax Act, 1961. HUFs continue to be recognized as a separate tax entity for the purpose of taxation, and the tax laws regarding HUFs remain unchanged.
What Steps are to be taken in case of Partition of HUF?
The following steps are generally taken in case of partition of an HUF:
1. Mutual consent: Partition of HUF can be done with the mutual consent of all the members. All the members must be willing to divide the HUF property.
2. Drafting of Partition Deed: A partition deed needs to be drafted which defines the share of each member in the HUF property.
3. Valuation of HUF Property: The HUF property needs to be valued before partition to determine the exact share of each member.
4. Registration of Partition Deed: The partition deed needs to be registered with the sub-registrar of the area where the property is situated.
5. Distribution of HUF Property: After registration of the partition deed, the HUF property is distributed among the members as per their respective shares mentioned in the deed.
6. Intimation to the authorities: The partition of HUF property must be intimated to the Income Tax department as well as the concerned Registrar of Companies, if any.
7. Transfer of title: After partition, the title of the property must be transferred in the name of the individual members as per their respective shares.
It is advisable to consult a legal expert or a Chartered Accountant or Tax consultant in India for proper guidance on the partition of an HUF.
What is the Assessment Procedure in the case of Partition of HUF?
When a Hindu Undivided Family (HUF) undergoes a partition, it results in a transfer of assets and liabilities from the HUF to the individual members of the HUF. As a result, there are certain tax implications that need to be considered during the assessment procedure. Here are the steps involved in the assessment procedure in the case of a partition of HUF:
1. Intimation to the Assessing Officer (AO): The HUF and its members must inform the AO about the partition of the HUF and provide details of the assets and liabilities that have been transferred to each member. The intimation must be made in writing and within reasonable time.
2. Valuation of assets: The assets and liabilities that have been transferred to each member need to be valued as on the date of partition. The values should be determined based on the fair market value of the assets as on that date.
3. Tax implications for the HUF: The HUF is taxed on the income earned by it till the date of partition. The income earned after the date of partition is taxable in the hands of the individual members who have received the assets.
4. Tax implications for the individual members: The individual members who receive assets from the HUF will be taxed on any income that the assets generate after the date of partition. If the assets are sold at a later date, any gains or losses will be taxed in the hands of the individual members.
5. Filing of tax returns: The HUF must file a final tax return for the period till the date of partition. The individual members who receive assets from the HUF must include the value of the assets in their tax returns and pay tax on any income earned from the assets.
6. Settlement of liabilities: Any liabilities of the HUF that are transferred to the individual members must be settled by the members themselves. The HUF will not be liable for any liabilities transferred to the members.
Overall, the assessment procedure for a partition of HUF involves determining the values of the assets and liabilities transferred to each member, and ensuring that the appropriate taxes are paid on any income earned from the assets after the date of partition.
Whether HUF assessed as a unit, must Consist of at least 2 male members?
Yes, as per the Supreme Court decision in Gowli Buddanna vs CIT (1966) 60 ITR 293, an HUF assessed as a unit must consist of at least two male members. The Apex court held that “a Hindu undivided family (HUF), firm or other association of persons must consist of at least two male members to be assessable as such under the Income-tax Act.” However, it is important to note that this decision was made before the amendment of the Hindu Succession Act in 2005, which gives female members equal rights in the HUF property. Therefore, the applicability of this decision in the present context may be limited.
Whether partition between mother (a Widow) and sole surviving son (coparcener) is valid? Whether the existence of two coparceners is essential for claiming partition?
In the case of Ram Narain Paliwal vs CIT, the honorable Supreme Court held that a partition between a mother and her sole surviving son is valid, and there is no requirement of having at least two coparceners for claiming a partition. The court observed that under the Hindu Law, a son and his mother can form a joint Hindu family and that a partition can be effected between them. The court further held that the son could act as a Karta of the family and manage its affairs.
Therefore, it can be concluded that a partition between a mother and her sole surviving son is valid, and there is no requirement of having at least two coparceners for claiming a partition.
On the death of last surviving male member of an HUF, can it continue to be assessed as an HUF only with female members?
Yes, an HUF can continue to exist and be assessed as an HUF even after the death of the last surviving male member. In such a case, the HUF will be represented by its female members.
The Supreme Court in the case of CIT v. Kalu Babu Lal Chand [(1981) 129 ITR 131 (SC)] held that the fact that all the male members of an HUF have died does not affect the existence of the HUF as a taxable entity. The Court held that the property held by the HUF does not lose its character merely because there are no male members left in the family.
Therefore, an HUF can continue to exist and be assessed as such, even with only female members.
Whether there is ipso facto partition of a joint Hindu Family properties immediately after the death of a male coparcener of Mitakashara School?
No, there is no ipso facto partition of joint Hindu Family properties immediately after the death of a male coparcener of Mitakashara School. In the Mitakashara School of Hindu law, the interest of a deceased coparcener devolves by survivorship on the surviving coparceners and not by succession. Therefore, on the death of a male coparcener, his share in the joint family property devolves upon the surviving coparceners and the joint family continues to exist as before. However, the surviving coparceners can choose to effect a partition of the joint family property either by mutual agreement or by filing a suit for partition.
In the case of CIT vs Charan Dass (HUF) 2006 (284 ITR 434) was related to the taxability of income from a property received by an HUF as a result of the partition between the members of the HUF. The issue in the case was whether the income received by the HUF was taxable in the hands of the HUF or its individual members.
The honorable Supreme Court in its judgment held that income received by an HUF as a result of a partition is taxable in the hands of the HUF and not its individual members. The court observed that on the partition, the assets of the HUF are divided amongst its members and the income arising from such assets is also received by the HUF. Therefore, the income received by the HUF is taxable as the income of the HUF and not as the income of the individual members of the HUF.
Whether one person can be assessed in dual capacity, i.e one as a Karta of HUF and another as in his individual capacity?
Yes, one person can be assessed in dual capacity, i.e., as Karta of HUF and in his individual capacity. The income earned by an individual in his individual capacity will be taxed as per the provisions applicable to an individual taxpayer, and the income earned by him as the Karta of HUF will be taxed as per the provisions applicable to HUF.
The honourable Supreme Court of India in the case of Commissioner of Income Tax v. Chander Sen (1986) held that “It is open to a person to earn income from different sources and it is equally open to him to account for the income from different sources separately.”
Therefore, the same principle applies to the income earned by an individual in his dual capacity as the Karta of HUF and in his individual capacity.
In the case of Vijay Prakash Toshniwal vs CIT (2011), the Rajasthan High Court held that a person can be assessed in dual capacity, i.e., as a Karta of HUF and as an individual. The court held that the Income Tax Act recognizes the HUF as a separate entity for the purpose of taxation and a Karta is only a representative of the HUF and not an individual in his personal capacity. Therefore, if the income is earned by the HUF, it will be assessed as HUF income, and if it is earned in the individual capacity of the Karta, it will be assessed as his individual income.
However, the court also noted that there should not be any overlapping of income, i.e., the same income should not be assessed twice, once as HUF income and then as individual income. The court also observed that the Karta should maintain proper books of accounts to establish that the income has been earned in his individual capacity and not as a representative of the HUF.
