joint hindu family

Hindu Undivided Family

Sandeep Kulshrestha

Assistant Professor,

Amity Law School,

Amity University Madhya Pradesh

Fundamental Principle

The fundamental principle of the Joint Hindu Family is the Sapindaship, without which no Joint Hindu Family can be in existence. Therefore, Joint Hindu Family status is ordinarily the result of blood relation by birth or affiliation by adoption or marriage (Rukmini Bai Rathor v. CWT (1964) 54 ITR 430 (Orissa).

Fundamental Principle Joint Hindu Family is a creature of law

It can not be created by act of parties, except the affiliation by adoption and marriage.

Absence of an antecedent history of jointness between a Hindu male and his ancestors is no impediment in starting his own family and having Sapinda relationship with his wife and progeny.

Creation of HUF A Hindu male can constitute an undivided

Hindu family even with the wife and daughter.

A sole-surviving coparcener is capable of procreating and the family has the potentiality to add a coparcener.

A Joint Hindu Family normally joint in food, worship and estate.

The property of a Joint Hindu Family may consist of ◦ ancestral property,

◦ joint acquisitions

◦ self acquisitions thrown into the common stock

However, even in the absence of any property, the Joint Hindu Family may still be in existence as a Joint Hindu Family (Damodar

Krishnaji Nirgude v. CIT (1962) (Bombay).

JHF Property

Family must be joint

Joint and undivided family is the normal condition of Hindu Society and members are living in a state of union (Hira Chand Vastaram v. CIT (1965)58 ITR 533(Cal). However, branches of family, wife-wise, is not recognized as separate Joint Hindu Family (Kalyani v. Narayanan AIR 1980 SC 1173).

Schools of Hindu Law

There are TWO principal schools of Hindu Law, namely, the Mitakshara law, which is prevalent throughout India except Bengal and the Dayabhaga law which is applicable in Bengal. The Mitakshara school is further sub-divided into four minor schools, namely, Benaras School, Mithila School, Bombay School and Madras School.

Schools of Hindu Law

Hindu Law

Mitakshara

(All India Except Bengal)

Benaras School Mithila School Bombay School Madras School

Daybhag (Bengal Only)

Matriarchy & Patriarchal system

In certain parts of Southern India, “Matriarchy system” is prevalent, which is in contradistinction to the rest of India, where “Patriarchal System”, which represent the family having the common male ancestor as the founder. The Patriarchal System is well established and judicially recognized in whole of the country

Applicability of Hindu Law

Hindu laws are also applicable on Jains and Sikhs families alike of major branches of

Hindu Law by the four statutes , viz., The Hindu Marriage Act,1955, The Hindu Succession Act,1956, the Hindu Minority and Guardianship Act,1956 and the Hindu Adoption and maintenance Act,1956.

Effect of Conversion on JHF

Persons following other religions are not constituting Hindu Families, even though in certain parts of the country converts from Hinduism to Christianity are governed through force of customs by the Hindu laws of succession, but their families are not Hindu Joint Families

(P.F.Pinto v. CWT (1967)65 ITR 123 (Mysore).

Effect of Conversion on JHF

A Hindu declares for Special Marriage Act that he is not profess the Hindu religion, does not cease to be a Hindu. Such a person along with his son can constitute HUF in respect of his ancestral properties.

However, a person married to a Christian lady and his daughter is also a Christian , he alone can not constitute an HUF.

Joint Family is such every coparcener has a vested joint interest and joint possession.

Therefore, a Joint Family is not entitled to sue nor can it be sued as a legal person

However, HUF is treated separately for taxing unit distinct from members/ coparceners constituting it under the specific provisions of the IT Act,1961.

HUF is a distinct legal entity?

HUF is a distinct legal entity? HUF is not a distinct legal entity for all

purposes from those who constitute it.

A Mitakshara coparcenery Is a creature of law and can be disrupted at will by any coparcener demanding partition.

The Hindu coparcenery represents a natural relationship constituted primarily by birth or affiliation by adoption and

marriage (N. V. Subramanian v. WTO (1960) 40 ITR 567 (AP)

JHF and Mitakshara and Daybhag

A Joint Hindu Family under Mitakshara and Dayabhaga laws are alike normally joint in food, worship and estate and the nature of properties are also same i.e ancestral properties, joint acquisitions and self acquisitions thrown into common stock. Also the basic concept of who can be members of HUF are also same in both the laws. Still there are vital difference between the two.

Mitakshara school

Coparcenery is the feature of Mitakshara school and each son acquires on birth an equal interest with his father in all ancestral property held by the father and on death of father the son takes the property not as his heir but by survivorship. The essence of Coparcenery is Community of Interest and Unity of Possession. Here “Aggregate Ownership” is in existence and on partition

Acquisition of Coparcenery

Hindu Male governed by Mitakshara

By birth Son Acquires Coparcenary Property

share 1/2

By birth of Second Son share become 1/3

*Father loses his share with every new

birth so also every coparcener does

Father 1/3

Share

Son 1/3 Share

Wife

Daughter

Son 1/3 Share



Father 1/3

Share

Son 1/3 + 1/3 X 1/4

Share

Wife + 1/3 X 1/4

Share

Daughter + 1/3 X

1/4 Share

Son 1/3 + 1/3 X 1/4

Share


Father 1/4

Share

Son 1/4 Share

Wife (1/4 x 1/4)

Daughter 1/4

Share

Son 1/4 Share

Dayabhaga school

In Dayabhaga school , the sons do not acquire by birth any interest in the ancestral property of their father, their rights arise for the first time on death of the father. Here on death sons take the property as heirs and not as survivors. Therefore, there is no coparcenery during the lifetime of the father and sons can not demand partition under Dayabhaga school during father’s life.

Daybhag Coparcenary

The essence of family is the “Unity of Possession” only. Here, “Fractional Ownership” is recognized. On death of father each son takes “definite share in the property”, which does not fluctuate with births and deaths in the family. On partition, “Splitting up of Joint Possession” and “assigning a specific portion of the property” to the coparcener is taking place.

HUF & Coparcenacy

Under Mitakshara school, the Karta has limited

power of disposal over the family properties. Under Dayabhaga school, the father has

absolute rights of alienation regarding the ancestral property.

HUF consists of persons lineally descended from a common ancestor, including wives and unmarried daughters, who are united by the tie of Sapindaship arising by birth, marriage or adoption.

Hindu Coparcenery comprises only Hindu Male and those persons who acquire by birth an interest in the joint or coparcenery property( N. V. Narendranath v. CWT (1969) 74 ITR 190(SC).

Both above terms are creature of law and can not be created by act of parties.

The concept of coparcenery involves “community of interest, unity of possession and common enjoyment”. As such until partition taking place, the possession and enjoyment is common and extending to whole property.

However, after recent amendment in 2005 in Hindu Succession Act,1956, the difference between the two terms have virtually been removed.

Karta of HUF

Karta acts for the HUF is normally the eldest male member. A coparcener can only be Karta. A person can act Karta for bigger HUF and smaller HUF as well. Karta has defined rights and by actions Karta binds every member of the family

HUF comes into existence on marriage itself ? Yes;

It is true that upon partition, a single divided coparcener in the absence of other members in his branch, does not constitute an HUF (C. Krishna Prasad v CIT). But the inherited property does not loose its character of joint family property. Once such person marries, a Joint Hindu Family comes in to existence (Prem Kumar v. CIT). It is more so because, under Sec.18 of the Hindu Adoptions and Maintenance Act,1956, a Hindu wife can enforce her right from the moment of marriage by creating a charge on husband’s property, either self acquired or ancestral. Therefore, the status of the family is of HUF (Ashok Kumar Ratanchand v. CIT ; Also see L. Hriday Narain v. ITO (1970) 78 ITR 26 (SC).

Persons to whom Hindu Law applies?

To Hindus by birth and by religion alike (Converts to Hinduism) To illegitimate child where both parents are Hindus To illegitimate child where father is Christian and mother is Hindu and child

is brought up as Hindu To Jains, Buddhists in India, Sikhs and Nambudri Brahmins To a Hindu re-converts To sons of Hindu dancing girl converted to Ishlam, where sons are brought

up as Hindu by Grand Parents To Brahmos, to Aryasamaji and to Santhal To Hindus who have declared otherwise for Special Marriages Act,1872

Hindu Law does not apply :-

to illegitimate child of Hindu father from Christian mother to Hindu converts to Christianity to Hindu converts to Islam

.

Migration In case of migration of a Hindu from one place to

other, his/her original status will remain until under local customs and law he /she changes his basic customs .

What constitute Customs? A custom is a rule, which obtain the force of law from

long usage in a particular family or a class or community or in a particular area and district of the State.

Hindu customs recognized by courts are as follows: -Local customs -Class customs -Family Customs

.

HUF – law

Can Male member with wife & unmarried daughter form HUF ?

Yes [Surjit Lal Chhabda v. CIT (1975) 101 ITR 776 (SC)]

Can a single male member,after his marriage form a HUF?

Yes [CIT v. RM. AR. AR. Veerappa Chettiar (1970) 76 ITR 467SC)]

HUF cannot be created by act of parties but a corpus

can be created for an already existing HUF through the medium of a gift

or will etc

HUF – law

Can a person be a member of more than one HUF?

Can the wife severe from membership of HUF by unilateral

declaration, yet retain the marital tie?

A Hindu male having two wives and sons from each would

have one HUF or two?

One, Kalyani v. Narayanan AIR 1980 SC1173

HUF is not a distinct entity for all purposes.

No, CWT v. M.A.R. Rajkumar (1997) 226 ITR 804 (AP) (FB)

Female is coparcener in HUF

On and from the commencement of the Hindu Succession (Amendment) Act, 2005 in a Joint Hindu Family governed by the Mitakshara law, the daughter of a coparcener shall :-

by birth become a coparcener in her own right in the

same manner as the son;

have the same rights in the coparcenary property as she

would have had if she had been a son;

be subject to the same liabilities in respect of the said

coparcenary property as that of a son.

Partnership and HUF

An HUF cannot become a partner in a firm.

The Karta or a member of the HUF can represent the HUF in a firm.

A female member can also represent HUF in a partnership firm

- CIT v. Banaik Industries 119 ITR 282(Pat.)

Remuneration received by a member of HUF from a firm, where he was

partner on behalf of HUF for managing firms business was his individual

income

- CIT v. G. V. Dhakappa 72 ITR 192 (SC); Premnath v. CIT 78 ITR 319(SC).

Partnership between HUF and coparcener as working partner is valid

Tax advantages of HUF

HUF is a separate entity for taxation under the provisions of sec.

2(31)

Separate exemption limit under Income-tax Law of Rs. 1,60,000

Separate deduction u/s 80G, etc.

Separate deduction u/s 80C.

Separate partnership share.

Separate Income-tax Deduction on Interest for self occupied

House Property

Capital Gain Exemptions for HUF

Cost Inflation Index benefit available to Calculate Cost of

the Asset.

Tax benefit of 20% Tax on Long-term Capital Gains

Saving Tax on Long-term Capital Gain possible by investing

in Capital Gains

Bonds of NHAI / REC

Long-term Capital Gains Saving by investing in Residential

Property

Investment in shares & MFs

HUF can have a separate Demat Account.

Can invest in shares of companies :-

(a) Primary Market

(b) Secondary Market

Enjoy Tax Free Income for Long-term Capital Gains by holding shares

for more than one year

Enjoy lower tax rate of 15% on Short-term Capital Gains.

Can also invest in Mutual Fund

Wealth Tax on HUF

Separate exemption of Wealth-tax for HUF’s upto Rs. 30 lacs Wealth.

One House Wealth Tax Free

Productive assets of HUF fully exempt for Wealth-

tax

Real Estate in name of HUF

Self occupied one Residential House & the tax gain

specially by way of Interest on Loan & Repayment of Loan

Special 30% deduction on Rental Income also to HUF.

Exemption from Wealth-tax the real estate of HUF (Commercial / Rented Residential)

HUF can run a business

HUF can be a Proprietor of one or more than one

Business concerns.

Separate name can be kept of HUF business entity.

No tax Audit of HUF business if Turnover within Rs. 60lakhs.

Presumptive taxation u/s 44AD

Member’s Income

As per section 10(2) of the Income-tax Act, 1961 any sum received by an individual from Hindu Undivided Family of which he is member is exempt from tax.

Amount received not as a member of Joint Family but in pursuance of some statutory provision, etc. would not be exempted in this clause.

Member of joint family living apart from the other members does not effect his/her position in law to claim the right as per section 10(2).

Remuneration to Karta or members

Remuneration to the Karta or other members of HUF can be paid for services rendered to the family in carrying on the business of the family or looking after the interests of the family in a partnership business.

Jugal Kishore Baldeo Sahai v. CIT 63 ITR 238 (SC).

The payment must be for service to the family for

commercial or business expediency.

Jitmal Bhuramalv. CIT 44 ITR 887(SC).

Remuneration paid to the Karta or other members of the HUF should be under a valid agreement. The payment must be genuine and not excessive.

J. K. B.Sahai v. CIT, 63 ITR 238 (SC).

Judicial decisions HUF

Where members of HUF become the partners in a firm by

investment of family funds & not because of any Special

Services rendered by them - income will belong to HUF

– D.N.Bhandarkar v. CIT 158 ITR 724.

Where property was purchased by members of HUF with

loan from the HUF, which was later on repaid, income from

such property would be assessable as individual income

of the members –

-L. Bansidhar andSons v. CIT 123 ITR 58 (Delhi )

Deductions

Deduction available to HUF as per section 80C.

[Insurance Premium, PPF can be paid on the life of any

member]

Section 80D deduction available on Mediclaim Policy on the health of any member of the family.

Section 80DD deduction for maintenance including medical

treatment of a dependant who is a HUF member.

Section 80DDB in respect of Medical treatment for any member of the HUF.

Section 80G Donation to recognised Charity Trust.

Sections 80IA / 80IB for New Industrial undertaking.

Partition of HUF

The Partition of HUF can be:-

- Partial Partition

- Full Partition

Partial Partition of HUF

As per section 171(9) of the Income-tax Act,1961 the Partial Partition after 31-12-1978 is not recognised.

Even after Partial Partition the income of the HUF shall be liable to be assessed under the Income-tax Act as if no Partial Partition had taken place.

Full partition of HUF

As per Explanation (a) to s. 171(9) of the Income-tax Act,

1961 partition means: -

where the property admits of a physical division, a physical

division of the property, but a physical division of the income

without a physical division of the property producing the

income shall not be deemed to be a partition; or where the

property does not admit of a physical division, then such

division as the property admits of, but a mere severance of

status shall not be deemed to be a partition;

Assessment after Partition as per s. 171 & order to be passed

by the Assessing Officer.

Partition of HUF

Partition need not be by Metes & bountes, if separate enjoyment

can, otherwise the secured and such division is effective so as to

bind the members. Cherandas Waridas, 39 ITR 202 (SC).

The members of an HUF can live separately and such an act

would not automatically amount to partition of the HUF.

Shiv Narain Choudhary v CWT 108 ITR 104 (All.)

Motive or need for partition cannot be questioned by the Income

Tax D. T. G. Sulakhe v. CIT, 39 ITR 394 (AP).

Judicial decisions – Partition

In order to be acceptable or recognizable partition under section 171

the partition should be complete with respect to all members of HUF

and in respect of all properties of HUF and there should be actual

division of property as per specified shares allotted to each member.

– Mohanlal K. Shah (HUF) v. ITO 1SOT 316.

Setting apart certain assets of HUF in favour of certain coparceners

on the condition that no further claim in properties will be made by

them is nothing but a partial partition and not a family arrangement

not recognised in view of s. 171(9)

– ITO v. P. Shankaraiah Yadav 91 ITD 228

Legal aspects of Partition

Distribution of the assets of an HUF in the course of partition,

would not attract any capital gains tax liability as it does not

involve a transfer – S. 47(i)

On the basis of the same reasoning distribution of assets in

the course of partition would not attract any gift tax liability,

and

There would be no clubbing of incomes u/s 64 as it would not

involve any direct or indirect transfer.

Money received without consideration

Provisions of section 56(2)(vii) applicable even to HUF if any

sum of money or property is received by the HUF

exceeding Rs. 50,000 p.a. without consideration.

There is no relative of HUF

Gift by will or inheritance exempt.

Amount or property received in contemplation of death of

payer or donor exempt.

Gift of HUF Property

Elementary proposition that Karta of HUF cannot gift or alienate

property except to the extent recognised under the Hindu Law,

namely necessity etc –

CGT v. P. Hanumanthappa 68 ITR 363,

K.P. Gupta v. CIT 233 ITR 456

Reasonable limits depends upon facts - CGT v. B.V.Narasimharaju 101 ITR 74

Karta can make reasonable gifts to daughters – Sushil Kumar & Sons v. ITO 234 ITR 98

Gift on Marriage Occasion is valid – S. Lakshmamma v. Kotayya AIR 1936 Mad. 825.

Gift of immovable property should be for pious purpose – CIT v Ram Gopal Rajgharia 123 ITR 693

Gift by member to HUF As per section 64(2) a gift by a member to his HUF after

31-12-1969 would attract Clubbing of Income in the hands of

the member and as such the income from the converted

property shall be deemed to arise to the individual & not to

the family.

And where the converted property is the subject matter of

partition, any income derived from such property by the

spouse would be clubbed in the hands of the individual.

Accounts and Audit Accounts - Normal I.T. Provisions

Accounting Standards applicable

TDS provisions after achieving Tax Audit Turnover

Audit – Tax Audit u/s 44AB

Audit for claiming deductions under chapter IVA

- 80HHB 80HHBA, 80HHC, 80HHD, 80HHE, 80HHF

- 80I, 80IA, 80IB

.

Computation of Income

Aggregate of :-

Income under the head House Property

Profits and gains from business & profession

Income from capital gains

Income from other sources

Less: deduction under chapter VIA i.e., 80C, 80D,80DD, 80DDB, 80G,

80GGA, 80HHB, 80HHBA,80HHC, 80HHD, 80HHE, 80HHF, 80I, 80IA,

80IB,80L & 80O.

.

Computation of Income

Calculate Tax on Total Income

Less: relief u/s 86, 90 & 91

• Add: Interest u/s 234A, B & C

• Less: TDS & Advance Tax

• Less: Self Assessment Tax

• Balance Tax payable / Refund due

Tax planning through HUF

By increasing the number of assessable units through the device of partition of the HUF;

By creation of separate taxable units of HUF through will in

favour of HUF or gift to HUF;

Through family settlement / arrangement;

By payment of remuneration to the Karta and other members

of the HUF;

By use of loan from HUF to the members of the HUF;

Through gift by HUF to its members specially to the

.

Thank You