A Treatise On The Tax Implications Of Hindu Undivided Family (HUF)

Hindu Law has been discussed by various authors in the light of various judgments of courts. The said law stands amended by various enactments. This discussion would deal with the various aspects of Hindu Law which are relevant for the purpose assessment of income and wealth in the status of Hindu Undivided Family (HUF) as well as the impact of the provisions of Hindu Succession Act 1956 as amended by Hindu Succession (Amendment) Act 2005 which are relevant for the purpose of assessment of income and wealth in the status of HUF under Income Tax Act 1961. Firstly, would be discussing the legal position under the original Hindu law and then discuss the impact of the relevant provisions of Hindu Succession Act 1956.

As per original Hindu Law

“Hindu undivided family”

Under the Income Tax Act 1961, “Hindu undivided family” is one of the taxable entities specified u/s 2(31). Therefore, it is necessary to understand the scope of the said expression. It would be sufficient to refer to the decision of the apex court in the case of Surjit lal Chhabra 101 ITR 776 SC wherein the court explained the scope of the said expression as under:

– In the first place, joint family and undivided family are synonymous terms. P780

– The expression " Hindu undivided family " must be construed in the sense, in which it is understood under the Hindu law. P781

– A joint Hindu family consists of persons lineally descended from a common ancestor and includes their wives and unmarried daughters. The daughter, on marriage, ceases to be a member of her father’s family and becomes a member of her husband’s family.”P783

– That the joint and undivided family is the normal condition of Hindu society. The presumption, therefore, is that the members of a Hindu family are living in a state of union, unless the contrary is established (Mayne’s Hindu Law and Usage, eleventh edition, page 323 ; Mulla’s Hindu Law, fourteenth edition, page 284). P782

– The phrase ‘Hindu undivided family’ is used in the statute with reference, not to one school only of Hindu law, but to all schools”

– The plea that there must be at least two male members to form a Hindu undivided family as a taxable entity also has no force. The expression ‘Hindu undivided family’ in the Income-tax Act is used in the sense in which a Hindu joint family is understood under the personal law of Hindus. Under the Hindu system of law a joint family may consist of a single male member and widows of deceased male members, and apparently the Income-tax Act does not indicate that a Hindu undivided family as an assessable entity must consist of at least two male members.P 783-84"(Gowli Buddanna-vs-CIT 60 ITR 293 SC at 296; N V Narendernath-v- CWT 74 ITR 190 SC).  

– A man who separates from his father or brothers may, nevertheless, continue to be joint with the members of his own branch. He becomes the head of a new joint family, if he has a family, and if he obtains property on partition with his father and brothers, that property becomes the ancestral property of his branch qua him and his male issue. P782. See also: Bhagwan Dayal v. Reoti Devi AIR 1962 SC 287.

Family without male members

– There may be families consisting of females only. For example, after the death of father, it may consist of widow of the diseased and her daughters. According to Hindu law, a joint Hindu family must have a male member. Normally disputes had arisen in the past where subsisting joint family was reduced to a family with single male member. The question arose whether income from the ancestral property should continue to be assessed in the status of HUF? The stand of the deptt was that there must be two male members in the joint family for assessing the income in the hands of HUF. The apex court held that in such cases, joint family continues since there is nothing under Hindu law to say that there must be two male members in the joint Hindu family. (Gowli Buddanna-vs-CIT 60 ITR 293 SC at 296; N V Narendernath-v- CWT 74 ITR 190 SC) 

– In the case of CIT-vs-Verappa Chettiar 76 ITR 467 SC, after the death of karta, the property of joint family was held by the three widows as members of the Hindu undivided family. The question arose whether income from  such property could be assessed in the hands of HUF? The apex court (bench of 2 judges)held that it is not predicated of a Hindu joint family that there must be a male member in existence. Even after the death of the sole male member, so long as the property which was originally of the joint Hindu family remains in the hands of the widows of the members of the family and is not divided among them, the joint family continues.   

– However, the above judgment was considered by the apex court in case of Sandhya Rani Dutta 248 ITR 201 SC wherein it was observed (by a bench of 3 judges):

“In the present case, as aforestated, the assessee and her two daughters inherited in their individual capacity a one-third share each in the estate of the deceased. We have no authority before us which can lead us to the conclusion that the assessee and her two daughters were capable of forming a joint Hindu family or of throwing the interest of any one of them in the inherited property therein. As we have stated, the concept of Hindu females forming a joint Hindu family by agreement amongst themselves appears to us to be contrary to a basic tenet of the Hindu personal law.”

The decision in the case of CIT-vs-Verappa Chettiar 76 ITR 467 SC  was distinguished by observing as under:

“The Tribunal rightly noted that this Court had there held that so long as the property which was originally of a joint Hindu family remained in the hands of the widows of the members of the family and was not divided among them, the joint family continued. The conclusion that the Tribunal drew from this was erroneous, namely. "Thus, according to the Supreme Court also, only females can also form a joint Hindu family.”

– Branch of a bigger HUF is also a HUF which can be considered as smaller HUF. Bhagwan Dayal v. Reoti Devi AIR 1962 SC 287. Also Surjit lal Chhabra case (supra)

Other aspects

Apart from the above, it is also necessary to keep in mind certain other decisions which are relevant. As is apparent from the said expression, the member of an HUF must be Hindu. A question arose before the SC in the case of Champa Kumari Singhi 83 ITR 720 SC whether jains are Hindus or not. After considering the issue in details, the court held that Jains are Hindus by observing as under:

“The real question for determination is whether the word ‘Hindu’ preceding the words ‘undivided family’ signifies that the undivided family should be of those: (i) who profess Hindu religion ; or (ii) to whom Hindu law applies; or (iii) who though not professing Hindu religion have come to be regarded as HUF by judicial decisions and legislative practice. It may be mentioned that for a long time the courts and particularly the Privy Council seem to have taken the view that Jains are of Hindu origin; they are Hindu dissenters and although generally adhering to the ordinary Hindu law they do not recognise any divine authority of the Vedas nor do they practice a number of ceremonies observed by the Hindus.” 

In view of the above decision, the concept of HUF is not only applicable to Hindus by religion but also to those professing Sikh, Jaina or Buddhist religion.

Apart from the above decision, it would be useful to notice the definition of the word ‘Hindu’ in Hindu Succession Act 1956 as well as in Constitution of India.

Article 25 of the constitution of india wherein Explanation II provides as under:

“ In sub-clause (b) of clause (2), the reference to Hindus shall be construed as including a reference to persons professing the Sikh, Jaina or Buddhist religion, and the reference to Hindu religious institutions shall be construed accordingly.”

Hindu Succession Act 1956 applies to any person who is Hindu by religion in any of its forms AND any person who is Buddhist, Jain or Sikh by religion And any other person who is not a Muslim, Christian, Parsi or Jew by religion.

It has also been explained in the aforesaid Act that any child, whose one of his parents is Hindu, Buddhist, Jain or Sikh by religion and is brought up as member of the religion to which his parent belong to, shall be treated as Hindu.

Any person who is convert or reconvert to Hindu, jain, Sikh or Buddhist religion shall also be treated as Hindu.

In the case of CWT-vs Sardar Surjit Singh 138 ITR 186 Cal, Sikhs were held to be Hindus.( see also: 223 ITR 139 Pb, 103 ITR 661 Pb.)

In the case of CWT-vs- Sridharan 104 ITR 436 SC, the assessee was a member of HUF and he received certain properties on partition of such HUF. At that time he was unmarried. Later on, he married a Christian girl. He got a son from such wedlock and assessee claimed that he and his son formed an HUF and estate received on partition was assessable in status of HUF. It was found that son was brought up as Hindu. Accordingly, the apex court held that son should be treated as Hindu considering the legislative intent in various enactments relating to Hindus.

In the case of Add CIT-vs-Venkataraman 109 ITR 247(Mad), it was a converse situation i.e. where family of Hindu husband, Christian wife and daughter brought up as Christian was claimed to be an HUF. The court held that it could not be assessed as HUF..

Conversion:   If a Hindu gets converted as a Christian, he automatically gets severed from the Hindu family. (Pappu Rsdiar-vs-CGT 116 ITR 773; Abraham v. Abraham [1863] 9 MIA 195 PC).   

Family-meaning thereof:  The word ‘family’ always signifies a group. Plurality of persons is an essential attribute of a family. A single person, male or female, does   not constitute a family. He or she would remain, what is inherent in the very nature of things an individual, a lonely wayfarer till perchance he or she finds a mate. [C Krishna Prasad-CIT 97 ITR 343 SC] It was a case where the assessee was unmarried on the date of partition.

Though Hindu law is governed by the thoughts of various schools, almost whole of India is governed by two schools i.e. Mitakshra Law and Dayabhaga law. Dayabhaga law mainly applies to Bengal and Assam while Mitakshra Law applies almost rest of India. The distinction between the two is explained below.

All members of HUF have right of maintenance out of HUF properties.

There is also no limit to the number of members in a joint family.

Note: joint Hindu family system has been abolished in Kerela wef 1.12.76 and therefore, no person can claim the status of HUF after that. 222 ITR 765 SC.

Mitakshra-vs-Dayabhaga Law 

There are various schools of Hindu law but mainly there are two schools i.e. Mitakshara law and Dayabhaga Law. Mitakshara law applies to almost whole of India except Bengal and Assam areas where Dayabhaga law is applicable. The distinction between the two is explained below:

– Under Mitakshara law, the foundation of a coparcenary is laid when son is born to Mitakshra father while under Dayabhaga law, foundation of a coparcenary is laid on the death of father leaving more than one son. However, under Dayabhaga law, the sons inherit the property as their personal property but by mutual agreement can form the coparcenary.

– Under Mitakshara law, the joint family is by operation of law and every family is presumed to be joint family unless proved otherwise but under Dayabhaga law, heirs of the deceased do not become members of HUF by operation of law. They remain co-owners of the property inherited but by mutual consent they can form joint family. In case of Sandhya Rani Dutta, 248 ITR 201 SC, the court held that where property was inherited by ladies only, they could not form joint family in the absence of male

– Under Mitakshara law, son gets a right in the family property by birth but under Dayabhaga law, son gets right to property on death of father.

– Under Mitakshara law, the coparcener has undefined right in the family property since share of coparceners goes on changing because of birth/death of coparcener because share in the coparcenary devolves by rule of survivorship while under Dayabhaga law, the coparcener acquires a definite share on the death of father by of  inheritance.

– Under Mitakshara law, the coparcenary continues so long as coparceners exist. But under Dayabhaga law, there is no such continuance automatically. However, the brothers may agree to continue the coparcenary with mutual consent.

– Under Mitakshara law, son as coparcener can demand partition of family property while under Dayabhaga law, no such right is available to coparcener.
– Under Mitakshara law, the test is unity of ownership while under Dayabhaga law, it is unity of possession. In CWT-vs- Biswanth chattergee 103 ITR 536 SC, it was held that on father’s death, the sons became owners of the property in their own right and therefore the wealth of deceased could not be assessed in hands of HUF.

Creation of Hindu undivided family

There is a myth that HUF can be created by the act of parties. According to Mitakshara Hindu law, it is a creature of law except in the case of adoption or reunion where HUF can come into existence by act of parties. In the case of Bhagwan Dayal v. Reoti Devi AIR 1962 SC 287, it has been held that HUF coparcenary is a creation of law and cannot created by agreement of parties except in the case of reunion.

The apex court in the case of Surjit Lal Chhabra 101 ITR 776 has clearly observed:“The joint Hindu family, with all its incidents, is thus a creature of law and cannot be created by act of parties, except to the extent to which a stranger may be affiliated to the family by adoption.” Thus every Hindu family is an HUF unless proved otherwise. (see also 248 ITR 201 SC)

However, under Dayabhaga law, the position is slightly different since heirs of the deceased do not become members of HUF by operation of law. In the case of CIT-vs- Sandhya Rani Dutta 248 ITR 201 SC, the court was considering a case under Dayabhaga law where a family consisted of father, mother and two daughters. On the death of father, all three ladies inherited properties in equal shares. Thereafter, by an agreement, they expressed to live jointly and the inherited properties were declared to be properties of joint family. The apex court held that they could not form a HUF in the absence of male member. It is to be noted that under Dayabhaga law, two male members can form HUF by agreement.

Donor cannot create an HUF.

In this connection, it is important to see the decision of MP HC in case of Satyanarayan Kanhaiyalal Gagrani-vs-CIT [2008] 215 CTR 521 (MP) wherein it has been held that donor could not create an HUF. In that case facts were these: One S was the Karta of the assessee-HUF. This HUF consisted of his wife B and three sons namely K, H and C. On 9-11-1981, one RB executed a Will in respect of her movable and immovable properties whereby she bequeathed her Rs.2 lakhs and jewellery to three smaller HUFs consisting of members of aforementioned bigger HUF in equal shares, i.e., 1/3rd to each HUF. These HUFs consisted of S, B & K, S,B & H and S,B and C respectively. The question arose as to whether such HUFs could be created by act of parties. The tax authorities as well as the Tribunal held in negative and consequently held that such gifts could only be considered as gifts in the hands of existing assessee. The hon’ble HC held as under:

Held that in view of the principles laid down in the Supreme Court decision in Bhagwan Dayal v. Reoti Devi AIR 1962 SC 287, the view taken by the Tribunal that creation of 3 smaller HUFs for bequeathing the properties by Will alleged to have been executed by RB was not in accordance with the principle applicable to formation of HUF under the Hindu Law was the correct view being in accord with the law laid down by Courts on the subject.

Hindu coparcenery:

It is to be noted that HUF is taxable in respect of income arising/accruing from ancestral properties which is also known as coparcenery property. Other incomes earned by the members are assessable as their individual income. It would therefore be appropriate to know about the coparcenary.

 A Hindu coparcenary is a much narrower body than the joint family. It includes only those persons who acquire by birth an interest in the joint or coparcenary property and these are the sons, grandsons and great-grandsons of the holder of the joint property for the time being, that is to say, the three generations next to the holder in unbroken male descent. Since under the Mitakshara law, the right to joint family property by birth is vested in the male issue only, females who come in only as heirs to obstructed heritage (sapratibandhadaya), cannot be coparceners.(Surjit Lal Chhabra 101 ITR 776; State of Maharashtra-vs- Narayan Rao Shamrao Deshmukh 163 ITR 31 SC.) This aspect of matter is important to understand whether the income earned is to be assessed in the status of HUF or not.

Incidents of coparcenery

– The lineal descendants of a person up to the third generation acquire by birth ownership in the ancestral properties of such person.

– That such descendant can, at any time, demand partition of ancestral property.

– That till partition each member of coparcenary has ownership extending over the entire property conjointly with the rest coparceners.

– That as a result of such ownership, the possession and enjoyment is common.

– That no alienation of property is possible without the concurrence of coparceners unless it is for necessity.

– The interest of a deceased coparcener lapses on his death by survivorship. So, interest of a coparcener in coparcenary property goes on changing by birth/death of a coparcener.

(See: CED-v- Alladi Kuppuswami 108 ITR 439 SC at Page 449)

What is meant by ancestral /coparcenary/ joint family property with reference to HUF? 

As per Hindu law, ancestral property means property acquired by forefathers. Therefore, any property which is received by the coparcener on partition is always considered as ancestral property. However, it is to be noted that if the coparcener is unmarried on the date of partition then income from such property would be assessed in his hands in individual capacity till he gets married, reason being that single person cannot constitute family.(C Krishna Prasad-CIT 97 ITR 343 SC.) It was heldby the apex court that once a property gets the character of HUF/ancestral  property, it continues to have such character even though holder of estate may be single. Till he gets married, he is the absolute owner and can dispose it in any manner he likes. Therefore, in the absence of family, the income from  such property is liable to be assessed in individual capacity. In case, he gets married before the end of the year then, such income would be assessed in hands of HUF consisting of himself and his wife.

The expression “Coparcenary property is wider than the expression ‘ancestral property’. It would include the following:

– Ancestral property i.e. the property inherited from father, grandfather or great grandfather; share allotted on partition;

– Property acquired by the coparceners with joint efforts. In Madanlal-v- Yogabai AIR 2003 SC 1880, it has been held that property raised and developed by joint efforts of father and sons would be joint family property;

– Property acquired with the aid of or on account of coparcenary property.

– Property of the coparcener thrown into common hotchpot of family funds. So, a female member could not throw her self- acquired property in common hotchpot of joint family. Pushpa devi-vs-CIT 109 ITR 730 SC.

– The property received by HUF having ancestral property as gift or under a will . Intention of the donor is relevant while considering the character of the gifted property. (M.P. Periakaruppan Chettiar-vs-CIT 99 ITR 1 SC.) 

The expression Joint family/HUF property is, in my opinion, still wider–A property may not be either ancestral or coparcenary property yet may be considered as HUF property in certain cases. There may be a family with a single male member without having ancestral/coparcenery property. Such family may receive gift from relatives or friends of members of family. Further, the single male member of such family may blend his self acquired property into joint family property.  Such property would neither be ancestral nor coparcenary property but certainly be HUF property. To buttress this view, reference may be made to the decision of the apex court in the case of Surjit lal chhara (supra). However, in such case, it was held that income from such property would be assessable as personal income of the male person till the birth of a son.

So, distinction must be  kept in mind between the cases falling within the ratio laid down by the apex court in the cases-(Gowli Buddanna-vs-CIT 60 ITR 293 SC at 296; N V Narendernath-v- CWT 74 ITR 190 SC) and C. Krishan Prasad 97 ITR 343 SC) on one hand and the cases falling within the ratio of the decision in Surjit Lal Chhabra 101 ITR 776 SC.

Whether property inherited from father can be treated as HUF property?

As per the old Hindu law, the property inherited by a coparcener was considered as ancestral property but after the commencement of HSA 1956, the property of father devolves by testamentary or intestate succession. The father has absolute right over the property acquired by him on account of personal efforts or through borrowed funds. He can dispose of such property as he wishes. Hence, property inherited from father cannot be treated as ancestral property. (CWT-vs-Chander Sen 161 ITR 370 SC)

Karta of HUF:

Under the Hindu law, the senior most male member is considered as Karta of such family. He is under obligation to manage the affairs of such family. If under given circumstances, such person is not in a position to discharge his obligation then the next senior member can be the karta of HUF with the mutual consent. Any member can also be appointed as manager. 

In the case Narender Kumar Modi 105 ITR 109 SC, the apex court approved this legal position by holding that Karta may give up his right to manage and the junior male member of family can be appointed as Karta of HUF.

Powers of Karta:

1.Managing the affairs of HUF.—for this purpose, the Karta is entitled for reasonable  amount of salary,see-Jugal kishore Baldev Sahai –v-CIT 63 ITR 238 SC

2.  control and become custodian of finances

3. Can borrow money for & on behalf of HUF

4. Spend money for the family & not accountable for it.

5. NOT liable to submit account to anybody.

6. Can make partition of the family suo moto.

7.  quantum of partition shall be with Karta’s liking.

8. He can enter into contracts on behalf of HUF and may allow others to represent HUF. HUF as such cannot enter into partnership and therefore, karta or any other coparcener authorised can enter into agreement of partnership.

9. Can Gift away the movable properties of HUF for natural love & affection but within reasonable limit.

10.  can transfer the immoveable property for pious purposes or the legal necessity or for benefit of the family.

Gift under the Hindu law

Karta of family can make a gift of ancestral immoveable property within a reasonable limit keeping in view the total extant of property. The powers of the  Karta or the manager of the Joint Hindu Family vis-a-vis coparcenary property have been summarised in paragraphs 225, 226 and 258 of Mulla’s Hindu Law which reads :—

"225. Although sons acquire by birth rights equal to those of a father in ancestral property both movable and immovable, the father has the power of making within reasonable limits gifts of ancestral movable property without the consent of his sons for the purpose of performing ‘indispensable acts of duty, and for purposes prescribed by texts of law, as gifts through affection, support of the family, relief from distress and so forth’.******

226. A Hindu father or other managing member has power to make a gift within reasonable limits of ancestral immovable property for ‘pious purposes’. However, the alienation must be by an act inter vivos, and not by will. A member of a joint family cannot dispose of by will a portion of the property even for charitable purposes and even if the portion bears a small proportion to the entire estate. However, now see section 30 of the Hindu Succession Act, 1956 .

258. According to Mitakshara law as applied in all the States, no coparcener can dispose of his undivided interest in coparcenary property by gift. Such transaction being void altogether there is no estoppel or other kind of personal bar which precludes the donor from asserting his right to recover the transferred property. He may, however, make a gift of his interest with the consent of the other coparceners.

However, the apex court has given extended meaning to the powers of Karta/managing member by holding that he can gift the ancestral property of reasonable amount to daughter. In Guramma Bhratar Chanbasappa Deshmukh v. Malappa [1964] 4 SCR 497 and it was held :—

" The father or his representative can make a valid gift, by way of reasonable provision for the maintenance of the daughter, regard being had to the financial and other relevant circumstances of the family. By custom or by convenience, such gifts are made at the time of marriage, but the right of the father or his representative to make such a gift is not confined to the marriage occasion. It is a moral obligation and it continues to subsist till it is discharged. Marriage is only a customary occasion for such a gift. But the obligation can be discharged at any time, either during the lifetime of the father or thereafter. It is not possible to lay down a hard and fast rule, prescribing the quantitative limits of such a gift as that would depend on the facts of each case

In Kuppayee-vs-Raja Gounder 265 ITR 551 at 559 SC, it is held:

“whereas the father has the power to gift ancestral movables within reasonable limits, he has no such power with regard to the ancestral immoveable property or coparcenary property. He can, however make a gift within reasonable limits of ancestral immovable property for "pious purposes". However, the alienation must be by an act inter vivos, and not by will. This Court has extended the rule in paragraph 226 and held that the father was competent to make a gift of immovable property to a daughter, if the gift is of reasonable extent having regard to the properties held by the family.

Extended meaning given to the words "pious purposes" enabling the father to make a gift of ancestral immovable property within reasonable limits to a daughter has not been extended to the gifts made in favour of other female members of the family. Rather it has been held that husband could not make any such gift of ancestral property to his wife out of affection on the principle of "pious purposes. 

This apart, the question of reasonableness or otherwise of the gift made has to be assessed vis-a-vis the total value of the property held by the family. Simply because the gifted property is a house, it cannot be held that the gift made was not within the reasonable limits. As stated earlier, it would depend upon a number of factors such as the status of the family, the total value of the property held by the family and the value of the gifted property and so on. It is basically a question of fact.” 

Partition of HUF property

As per Hindu law.

– Partition is a process by which a joint enjoyment is transformed into an enjoyment in severalty. Each one of sharers had an antecedent title and therefore no conveyance is required. CED-vs-Kantilal Trikamlal 105 ITR 92 SC at p 101.

– Once shares of each sharer are defined, the partition is complete. It is not necessary that it should be by metes and bounds.

– Even a single coparcener can separate himself from rest of the family.

– Even partial partition is permissible. For example, joint family business could be divided while retaining other properties as joint property.

– Where there is partition between different branches, the respective branches continue to remain joint.

– Since partition can be effected between coparceners only, a family with sole coparcener is not amenable to partition. 111 ITR 539 Mad, CIT-v-Satpal Bansal 162 ITR 582(PH)(FB), 74 ITR 271 Guj.

Partition under section 171 of I T Act 1961:

– Section 171 raises a legal fiction that an HUF, once assessed shall be deemed to continue unless a finding of partition has been given under this section. Consequently, unless a finding is recorded under section 171 that a partition has taken place, the income from the properties would be included in the total income of the family by virtue of sub-section (1) of section 171. ( Kaloomal Tapeshwari Prasad-vs-CIT 133 ITR 690SC)

– Section 171, as originally enacted, applied to total as well as partial partition. However, sub section (9) inserted by Finance (No 2)Act 1980 recognises only complete partition. The cut of date is 31.12.1978. Thus partial partition effected after this date is not given effect to by the AO even though such partition may be legal as per Hindu Law. Hence, for the purpose of income tax assessment, the HUF shall be deemed to continue notwithstanding the partial partition and the income from all properties shall continue to be assessed in the hands of erstwhile HUF.

–  It is to be noted that section 171 applies to those HUFs which have been assessed under the Act. So, in my opinion, partial partition can still take place where HUF has not been assessed without invoking this section. Such partition is not required to be recorded under this section. This is fortified by the decision of SC in case o A Thimmayya 55 ITR 666 SC wherein it was observed: “An order under sub-section (1) can only be made if certain conditions co-exist—the family in question has been hitherto assessed as undivided and a claim is made at the time of making an assessment that partition of the family property has been made between the members or groups in definite portions. Sub-section (2) of section 25A becomes effective only if an order under section 25A(1) is made and not otherwise.”  See also—Trilochan Singh-v-CIT 180 Taxman 640 PH,CIT-v-Hari Kishan Gupta 117 Taxman 214 Del.

– Section 171, as applicable from A.Y. 1980-81, recognises only complete partition.  Explanation to this section recognizes only partition by metes and bounds i.e. the physical division of property is condition precedent. So, there is a departure from Hindu law. Even a decree of court would not be sufficient or binding on AO unless physical division takes place. ITO-vs- N K Sarada Thamptty 187 ITR 696 SC;  Narender Modi-vs- CIT 105 ITR 109 SC

– Partition can be effected on demand of coparceners or suo moto by the father in his superior power even without the consent of sons. Such right can also be exercised even where sons are minors. Apoorva Shantilal Shah (Huf) Seth Gopaldas (Huf)-vs-CIT 141 ITR 558 SC.

– Although mere severance of the status of the family may tantamount to partition under the Hindu law of Joint family, the requirement of the Income-tax Act is a little more. A partition to be recognised under the Act must lead to physical division of the joint properties. If the properties belonging to a HUF are not partitioned at all by dividing them among the members, even though capable of division, then the members of the family cannot say that so far as those properties are concerned they stand divided.(CIT-vs-Venugopal Inani 239 ITR 514). In this case, partial partition took place with respect to certain partition without making a physical division. The AO was held to be justified in rejecting the claim.

– If the property is not capable of being divided physically then it should be divided to the extent possible (Explanation to section 171). Apportionment on an equitable basis, having regard to all relevant factors, is also a kind of physical division of the properties contemplated in the Explanation to section 171. Any other view will be one divorced from the realities of life. (Kallomal Tapeshwari Prasad 133 ITR 690SC).

– In the above case, there were a large number of items of property. Assessee divided these among 10 members having shares therein i.e without making physical division. It was contended that these were incapable of being divided among the members. The SC held that in such cases, they are usually apportioned on an equitable basis having regard to all relevant factors to equalise the shares. Such apportionment is also a kind of physical division of the properties contemplated in the Explanation to section 171. Any other view will be one divorced from the realities of life. The instant case was not a case where it was impossible to make such a division. Nor was it shown that the members were not capable of making payment of any amount for equalisation of shares. In fact, there was no material in the instant case showing that the assessee ever seriously attempted to make a physical division of the property as required by law. All that was attempted was to rely upon the arbitrator’s award which were insufficient to uphold the claim of the assessee. Accordingly the impugned properties were capable of physical division. Kallomal Tapeshwari Prasad 133 ITR 690SC

– In case of CIT-vs-Maharani Rajlaxmi Devi 224 ITR 582 SC, the court has held that recording of partition u/s 171 is necessary even in case falling u/s 6 of the HSA. It observed: “ it must be held that though for the purpose of HUF, section 6 of the Hindu Succession Act, would govern the rights of the parties but insofar as income-tax law is concerned, the matter has to be governed by section 171(1).”

– It is mandatory that assessee must make a claim at the time of making assessment u/s 143/144. If such claim is made, the AO is required to make an enquiry into such claim after giving notice to all the members. After making enquiry, AO is required to record a finding accepting/rejecting the claim.

– Failure to make an order on the claim made does not affect the jurisdiction of the ITO to make an assessment of the Hindu family which had hitherto been assessed as undivided. The ITO may assess the income of the Hindu family hitherto assessed as undivided notwithstanding partition, if no claim in that behalf has been made to him or if he is not satisfied about the truth of the claim that the joint family property has been partitioned in definite portions, or if on account of some error or inadvertence he fails to dispose of the claim. In all these cases his jurisdiction to assess the income of the family hitherto assessed as undivided remains unaffected, for the procedure for making assessment of tax is statutory. Any error or irregularity in the assessment may be rectified in the manner provided by the statute alone, and the assessment is not liable to be challenged collaterally. ITO-v-A Thimmayya 55 ITR 666 SC.

– Unless an inquiry is undertaken by the department and a finding is recorded as required by sub-section (3) of section 171 read with the definition of the expressions ‘partition’ and ‘partial partition’ in theExplanation to that provision, there could for the purposes of the Income-tax Act be no partition and the HUF would continue to be a HUF assessable to tax as if the property continues to belong to the HUF; this is the position which emerges on a plain reading of section 171 and that too for the limited purposes of the Act only.(R B Tunki Sah Baidyanath Prasad-v-CIT 212 ITR 632 SC)

Before concluding, it would be appropriate certain decisions of the apex court which are relevant in making the assessment or computing the income of HUF.

In the case of Ram Laxman Sugar Mills-v-CIT 66 ITR 613 SC, it has been held that A Hindu undivided family is undoubtedly a "person" within the meaning of the Indian Income-tax Act : It is however not a juristic person for all purposes, and cannot enter into an agreement of partnership with either another undivided family or individual. It is only karta/manager/coparcener/member who can enter into such agreement on behalf of HUF.

In various cases, where the karta is partner representing the HUF and salary or commission is paid to partner, the issue arises whether such salary or commission should be assessed in the hands of HUF or as personal income of the karta. The test laid down by the court is whether such payment because of investment in the firm or as a compensation for the services rendered. In case of former, it will be assessed as income of HUF while in case of later, it will be assessed as personal income of karta. This test has been laid down in case Raj Kumar Singh Hukam Singhji 78 ITR 33. See also Prem Nath-vs-CIT 78 ITR 319 SC has been followed in CIT-vs-Lachhman Dass Bhatia 162 Taxmann 118 Del.

Impact of Hindu Succession (Amendment) Act 2005 on above issues

 At the outset, it may be mentioned that section 4 of Hindu Succession Act 1956 overrides the existing Hindu law in respect of the matters covered by the provisions of this Act. In other words, the matters covered by the Hindu Succession Act 1956 will hold the legal position and to that extent Hindu law will cease to affect. Keeping in view this aspect, let me discuss the impact of Hindu Succession (Amendment) Act 2005.

The first relevant amendment is the amendment of section 6 w.e.f. 9.9.2005. Firstly, it declares that on and from the commencement of this Act, in the joint family governed by Mitakshra law, daughter of a coparcener shall, by birth become a coparcener in the same manner as the son. Consequently, she would have the same rights and subject to same liabilities as that of a son. Thus, the scope of coparcenary has been enlarged by the Hindu Succession Amendment Act 2005. However, it is to be noted that it not extended further to next generations of such   daughter.

This amendment has a great impact on the concept of HUF and its treatment under the Income Tax Act. Under the Hindu law, joint Hindu family must have at least one male member.(CIT-vs-Sandhya Rani Dutta 248 ITR 201 SC) The court observed: “The principal question here was the capacity of Hindu females to form among themselves a HUF. No authorities to support this were brought to Court’s notice; indeed they could not be, for the concept appears to be alien to the Hindu personal law which requires the presence of a male for the purposes of the constitution of an HUF.”

After the amendment in section 6 of Hindu Succession Act 1956 w.e.f. 9.9.05, the daughter of a coparcener in joint family is also to be treated as coparcener on the same footing as that of a son. The discrimination between son and daughter disappears. Therefore, in my opinion, where a family consisting of father, his wife and a daughter existed on 9.9.05 and thereafter father dies then the remaining family of widow and daughter would constitute HUF and the principle laid down in Sandhya Rani’s case (supra) would not apply. In other words, where HUF, having ancestral property exists as on 9.9.2005 but subsequently is reduced, on the death of male member, to a family having female members i.e. wife of the deceased and daughters, the income from properties of such family would, in my opinion, will continue to be assessed in the hands of HUF in view of the decisions of the apex court in Gowli Buddanna-vs-CIT 60 ITR 293 SC at 296; N V Narendernath-v- CWT 74 ITR 190 SC; the reason being that daughter of coparcener  is also be considered as coparcener.  

An important question arises whether daughters married before Sep 9, 2005 would become coparceners of their parental family in view of the said amendment. In my view, they cannot be considered as coparceners for the reasons given hereafter. If we read the amended section 6 carefully, it is clear that it applies only when in the joint family as on 9.9.05., the female is the daughter of a coparcener. That means that both the coparcener as well as daughters of such coparcener must be the members of such joint family as on 9.9.05. The married daughters, as per Hindu law, ceased to be members of joint family on the date of marriage itself and became member of husband’s family. Accordingly, in my opinion, the  daughters married before 9.9.05 cannot become coparcener of parental family. For the similar reason, where the coparcener had expired prior to 9.9.2005, the daughter of such person cannot be treated as coparcener; reason being that member of coparcenery ceased to be members of the coparcenery on his death as per Hindu law.

Secondly, under the amended law, if daughter has become coparcener in the joint family, then  such daughter can also act as karta of the HUF in the absence of senior male member. Under the Hindu law, prior to amendment, the senior member of coparcenary could act as karta. Consequently, on the death of father, she can act as karta of the family consisting of widow and daughters of the deceased. 

Next major impact is that the daughter of coparcener can demand partition of joint family property where coparcenery consists of two or more coparceners. A family having single coparcener is not amenable to partition (VVS Natarajan-v-CIT 111 ITR 539 Mad). The reason is that partition presupposes two persons entitled to partition.

The next major impact is that daughter of coparcener as on 9.9.2005 shall be deemed to have interest in the coparcenary property by birth. However, the legislature has saved all the alienations of properties effected before 20.12.2004 by the proviso to section 6(1). Consequently, the daughter who has become coparcener cannot challenge the alienation of any joint family property which had taken place before 20.12.2004.

However, it is to be noted, the Explanation to this section has defined the word ‘partition’ as a partition executed by a deed registered under Registration Act 1908 or a partition effected by a decree of the court. In other words, oral partition or written partition but not registered are outside the scope of such proviso and consequently, such female coparcener can challenge the alienation in a court of law.

The next impact is that any property to which a daughter becomes entitled to by virtue of section 6(1) shall be held as an incident of coparcenery ownership and shall be regarded as property capable of being disposed of her by testamentary disposition. This is contained in sub section (2) of section 6 and it has an overriding effect over other provisions of the Act. That means that apart from right to demand partition, she can dispose of her interest in joint family interest by testamentary disposition without asking for partition. In such situation, according to me, the quantification of her interest will be done on the basis of value of property as on the date of such disposition.

The next impact is that such female coparcener shall also be entitled to blend her self-acquired property with the HUF property by throwing the same common stock. The reason is that only the coparcener had a right to blend his self-acquired property with the HUF property by throwing the same common stock. (Mallesappa Bandeppa Desai v. Desai Mallappa [1961] 3 SCR 779; AIR 1961 SC 1268.)  Reference can also be made to the decision of the apex court in  the case of Pushpa Devi 109 ITR 730 where it was held that female member could throw her self acquired property into common stock of joint family property. Since daughter is now considered as coparcener, she would eligible to exercise such right. However, it is to noted that provisions of section 64 of IT Act 61 would be attracted.

The next impact is that after the commencement of the Hindu Succession (Amd) Act 2005, interest of coparcener in property on his/her death shall devolve by testamentary or intestate succession and not by survivorship in view of the amended provisions of section 6(3). It would be appropriate to point out that as per Hindu law, interest of coparcener, on his death, devolved by survivorship. This principle continued even after the commencement of Hindu Succession Act 1956 subject to one exception. The exception was the situation where the deceased coparcener had left him a female relative specified in class 1 of the Schedule or a male relative specified in that class who claimed through such female relative. This discussion shows that rule of survivorship has completely no more is applicable.

 Section 6(3) also creates a legal fiction to the effect that (i) a division of property had taken place as if partition had taken place on immediately before his/her death (ii) that daughter had been allotted a share as is allotted to a son (iii) share of pre-deceased son/daughter is allotted to their surviving child and (iv) share of pre-deceased child of pre-deceased son or daughter is allotted to their child.

However, it is to be noted that the aforesaid amendment does not affect the legal position u/s 171 of I T Act 1961. The provisions of section 171 have to be complied with irrespective of the amendment of section 6 of Hindu Succession Act 1956. In case of CIT-vs-Maharani Rajlaxmi Devi 224 ITR 582 SC, the court has held that recording of partition u/s 171 is necessary even in case falling u/s 6 of the HSA. It observed: “ it must be held that though for the purpose of HUF, section 6 of the Hindu Succession Act, would govern the rights of the parties but insofar as income-tax law is concerned, the matter has to be governed by section 171(1).”

It is further to be noted that. The requirement under IT act is that properties have been partitioned by metes and bound as far as section 171 of the I T Act is concerned, it is not the requirement that partition must be effected through registered deed between the parties.

 The major points have been taken care of. However, some points may have been left inadvertently and the readers may take their own views or may contact me through email-kaushalsinghal15@gmail.com

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