1. Hindu Undivided Family Formation - Partition - Reunion : Legal and Tax Framework By CA. Deepak M. Rindani Disclaimer: This is a general purpose and indicative-only presentation for discussion at a study meeting. It is neither an advisory or a legal opinion.

2. I. Basic Concepts: Who is a Hindu
What is HUF – all persons lineally descended from a common ancestor and joint in property, food and worship
HUF is not a juristic person in law

3. Who are considered Hindus?
Those who are Hindus by Birth and religion
Jains and Sikhs
Illegitimate Children whose both parents are Hindus
Any child whose father or mother is Hindu and who is brought up as Hindu
Those of certain Hindu Sampradayas (Arya Samaj, Swaminarayan, Brahma Samaj)

4. Who are Not considered Hindus?
Muslims, Parsis and Christians
Those who have converted from Hinduism
Khojas and Cutchhi Memons

5. Who can become Hindu?
Any person by expressing intention to live as Hindu, if the community accepts him/her
On conversion from other faith as per Hindu custom
Child of Hindu and non-Hindu parent – status of
Marriage between Hindu and non-Hindu

6. Sources of Hindu Law Ancient
– Vedas, Smrutis (Manusmruti), Custom, Scriptures (Dharmashastras)
Modern
– Legislation (codified law), Judicial precedents, Equity & Justice
Historical Background of HUF concept

7. II. Ingredients of HUF: “Hindu” “Undivided” “Family”
By birth
By adoption
By conversion(?)
Joint in respect of estate (property),
income, membership, food and worship
Related by
blood &
marriage
“Sapindaship” (relationship) is the essence of HUF

8. Composition of HUF:
Coparcenary:
Common ancestor- 1st degree
His descendants upto 3 more degrees under him (both sons and daughters)
Wife of ancestor
Daughters-in-law
Only male members and daughters

9. HUF Tree – Illustrative only
- A’s Wife
Sons
Daughter

10. Division between father and sonC D
At the time of partition the rule is that each son takes a share equal to the share of the father.
Example: A has three sons B, C and D. Each of them i.e., A, B, C and D will take 1/4th share in the joint family property.

11. Division between brothersA B C D E
When partition takes place between them, the rule is that they take equal shares in the joint family property.
For instance, a coparcenary consists of five brothers A, B, C, D and E, each of them on partition will take 1/5th share.

12. Division takes place among branches
When a partition takes place, the rule is that each branch takes per stripes (i.e., according to the stock) as regards every other branch, and the members of each branch take per capita (i.e. per head) as regards each other. A S SS
SS1
SS2 S1
SS3
SS4 S2
SS5

13. Schools of Hindu Law:
MITAKSHARA SCHOOL
DAYABHAGA SCHOOL
(in Bengal & Assam)
-Common ancestor and his lineal male descendants , wives , daughters
-Sons have specified interest but no right by survivorship
-Sons have right by birth & survivorship
- No Coparcenary
- No specified share but community of interest
-All income belongs to father
-Kerala has abolished HUF

14. III. Creation of HUF and HUF property:
Is in God’s hands, what we can do is to create HUF property once there is a family nucleus. Modes of creation of HUF property are:
1) By Blending:
Of self acquired property into HUF property by conduct/ declaration of members of HUF
This has tax implications

15. III. Creation of HUF property :
2) By Gift from Non-members:
Nucleus should exist – property created by gift
Intention of donor, documentation, receiver’s statement

16. 3) By Partition of Pre-Existing HUF :
Partial Partition: Partial as to members and/or as to property
Total Partition: Nothing left in HUF
Unequal partition is possible
Who is entitled to enforce partition
Who is entitled to how much share upon partition
Nature of property on partition in hands of receiver

17. 4) By Will (of any person):
To own HUF
To HUF of others
To future HUF of unmarried son
5) By Reunion:
Of previously partitioned HUF
All members who were partitioned need not necessarily reunite
But those who reunite must bring back all properties received on earlier partition

18. 6) By Joint Labour:
Family of craftsmen, joint activity and creation of joint income

19. Hindu Succession Act, 1956 Effect of 2005 amendment to Sec. 6
Daughter of coparcener now treated as coparcener-member of HUF of father with same rights as that of son
Even daughters married earlier are covered
Effect of partition effected before

20. Some Typical Situations – I
Husband & wife only – no children
Single male + mother + wife + daughter (Gowli Buddana)
Single male + wife + daughter (N.V. Narendranath)
single male + widow of deceased brother
two or more widows of deceased coparceners with undivided properties ( AR Veerappa Chettier )

21. Some Typical Situations – II
HUF can exist with totally empty kitty of property
Females can not now blend their property into HUF but can give gift (Pushpa Devi) – not so after amendment?
Females can be karta in absence of major male member
Sole surviving coparcener (male or female)

22. Typical Situations – III
Only females left in family
Single male + mother +sister
HUF can exist without single male coparcener
NRI member of HUF in India – effect in country of residence?
Gifts by HUF of its property – restrictions :
- not to sons or karts
- reasonable amt to daughter/wife
- consent of all desirable (265 ITR 551 SC)

23. IV. Management of HUF Property:
Concept of Karta – Manager
Who can be Karta
Powers & duties of Karta
Powers & duties of other members – rights of education, maintenance
Dispositions out of HUF property
Debts of HUF
Obligations upon HUF property
Pious obligation of sons to pay debts of father out of coparcenary interest of sons in HUF property
Duty of father to maintain wife, minor sons, unmarried daughters and infirm parents out of HUF property

24. VI. HUF and Law of Succession:
Devolution of interest in HUF upon death of Karta/Member
Overriding effect of Hindu Succession Act, – Sec. 6
Succession to individual property
Testamentary vs Intestate succession to interest in HUF
Ancestral Agricultural Lands

25. VII. Status of females in HUF:
Wife/Mother
Daughter
Daughter-in-law
Hindu Succession (Amendment) Act, 2005-
- daughters have same rights as coparceners
Is there any distinction between married and unmarried daughters now?

26. V. Partition of HUF: Meaning of – severance of status and interest
Mere division of shares vs Metes & Bounds
Kinds of – Total / Partial

27. Meaning of Partition
Kalyani vs. Narayani 1980 Supplement SCC 298 (Supreme Court)
I-tax Act Sec. 171 defines partition
Partition of HUF vs. Distribution of Income
Status of partitioned property in hands of member

28. Rights to enforce partition
Karta can make total partition w/o consent of others; for partial partition, consent required
Any coparcener can demand partition with consent of all
If consent is denied, he/she has to file lawsuit

29. Partition
Allotment of shares of partition (Per Stripes and Per Capita)
Documentation & Care
Obligation to provide for on partition out of HUF kitty:
- HUF debts, maintenance/marriage of daughters, education, family rites

30. Effect of Partition of HUF property
On Karta
On sons unmarried at partition date
On unmarried sons marrying subsequently
(157 Taxman 527 (SC)
On sons married at partition date
On unmarried daughters
On married daughters
On wife

31. Taxation of HUF

32. VIII. Taxation of HUF: Treated as a “person” u/s 2(31)(ii)
Tax rates – same as Individuals
W.T. also leviable
Significant provisions of I. T. Act specific to HUF:
Sec. 6 (residential status)
Sec. 10(2) – sum received from HUF
Sec. 56(2)(vii) – sum/property received without/ for inadequate consideration
Sec. 64(2) – clubbing
Sec. 140(b) – signing of return of income
Sec. 171 – de-recognition of partial partition

33. IX. HUF as partner in firm – I :
Implications under Partnership Act – who is real partner qua other partners?
Interest on capital of HUF – deductible u/s 40(b) – taxed as income of HUF, not of individual
Interest on loan by karta in individual capacity – allowable – not hit by limit of se. 40(b) – 150 ITR 276 (Guj. FB)
Remuneration & Sec. 40(b) – deductible u/s 40(b) – 229 ITR 458; 88 ITD 322; but taxable in individual hands of partner – 201 ITR 831

34. HUF as partner – II Borrowings from Banks
Drafting care in partnership deeds
Same person as partner in dual capacity – as Karta and as Individual in same firm – partnership law recognizes only individual as partner (Rashik Lal & Co. 229 ITR 458 – SC)

35. HUF as Proprietor of Business:
Use of HUF funds and labour
Use of HUF property
Can professionals or service providers function as HUF?
Issue regarding lending by Banks

36. X. Is HUF yet a Tax Planning Tool?
Is a separate taxable entity
Gives rise to division of income and wealth
Is a tool to accumulate business assets/property in HUF name and allow use by other business entities to distribute wealth and tax incidents
Transfer of funds inter se HUF and its members by way of loans rather than gifts
Separate entitlements to exemption from capital gains u/s 54, 54EC, 54F etc.
Possibilities of multiple HUFs in appropriate situations of larger families

37. Is HUF yet a Tax Planning Tool?
Creating separate property income stream in HUF rather than Individual
Doctors: Income from costly equipment, nursing home, vehicle etc. in name of HUF
Building up corpus for education, medical bills, weddings etc.
Distribution of HUF income – Sec. 10(2) – exempt for receiver

38. Stamp Duty on HUF On Partition On Release
Existence of immovable property
Probate duty
Issues reg. titles, Revenue records etc.

39. XI. Is HUF Relevant In Present Times?
Rising trend of nuclear families and individualism – changing social forces
Are our families truly joint and undivided?
Equal rights to daughters after marriage – boon or bane – continuing debate
Issues reg. banking, borrowing, transfer of immoveable property, probate etc.
Can we preserve our culture of unity and mutual family bonding through HUF?

40. XII. Salient Features of HUFs and Landmark Rulings:1.
A single member cannot be treated as HUF.
C. Krisnaprasad
97 ITR 493 (SC) 2.
HUF may consist of single male and widows of deceased males, A single male, his wife and daughters.
Gowli Buddana
60 ITR 293 (SC) 3.
Family may be formed by partition though not be survivorship.
N.V. Narendranath
74 ITR 190 (SC)

41. 4.
On partition of bigger HUF, a coparcener and his wife can constitute HUF.
Soth Tulsidas Bolumal
170 ITR 1 (AP)
Krishnakumar
143 ITR 462 (MP) 5.
It is possible to constitute HUF on marriage of an individual male, if he has received asset on inheritance or partition.
Premkumar
121 ITR 347 (ALL) 6.
Took a contrary view to (5) above.
Vishnukumar
142 ITR 357 (ALL)

42. 7.
Individual property of father who dies after Hindu Succession Act came into force ( ) devolves on sons As individuals. Even the property held by a father received on partition, on death of father, on second partition, is Son’s separate and individual property.
Chander sen
161 ITR 370 (SC) 8.
For Right of a surviving female relative, Sec. 6 of H.S. Act (Explanation) lays down that there will be deemed partition.
Gurupada Khandappa
Madgam Vs. Hirabai
129 ITR 440 (SC)

43. 9.
But HUF even then continues- Explanation: - merely helps to identify the share of female members and their Legal heirs.
State of Maharastra Vs. Narayan Rap 163 ITR 31 (SC)
10.
On death of sole male member after HS Act (17-656) females heirs receive property as their absolute property.
Smt. Nagarathnama 76 ITR 352 (MYS) Knatilal Manilal 90 ITR 289 (GUJ)
11.
HUF can consist of husband and wife only
C.I.T. vs. Arunkumar Jhunjhuwala
138 CTR 63

44. Blending of Individual Property to HUF – Court Rulings1.
When individual throws his personal property with joining family character, there is no transfer- mere declaration unstamped, even if it is immoveable is Sufficient-conduct has to be seen.
Goli Eswarisash
76 ITR 675 (SC)
R. Subramania
28 ITR 352 (Mad)
Lale Knnaiyalal
75 ITR 702 (ALL) 2.
A sole male member on conversion shall continue to be, assessed as IND.,
Surjitlal Chhabds
101 ITR 776 (SC)

45. 4.
A female cannot convert her individual property into HUF property. It would amount to transfer. (Is this different after amendment to HS Act?)
Pushpa Devi
109 ITR 730 (SC)
Note: - Tax advantage of conversion has since been lost by insertion of Sec. 64(2) in IT Act, 4(IA) in WT Act

46. Creation of HUF by Will or Gift – Court Rulings
By unequivocal intention of donor or testator, a beneficiary can take gift/ legacy as a karta of HUF
M.P. Pariakaruppam
99 ITR 1 (SC)

47. Partition – Court Rulings1.
Severance of HUF takes place on the date unequivocal intention is made.
A Raghavamma
AIR 1964 SC 136 2.
The date of suit for partition is the date of severance of status of HUF.
Bijoy Kumar
84 ITR 71 (CAL) 3.
Date of arbitrator’s award is the date of severance.
Ratanchand
4 ITR 189 (ALL)

48. 4.
Entries in the books will be sufficient in case of business.
A. Kuppiah
63 ITR 522(M)
Bhimraj
26 ITR 185. 5.
Partition can be unequal No Gift tax is payable because there is no transfer.
N.S. Getti Chettier
82 ITR 599 (SC) 6.
There can be partition between Father and Minor Sons.
Apoorva Shantilal
141-ITR-558 (SC) 7.
There can be no partition if there is one male member.
V.V.S. Natarajam
111-ITR-539 (M)
T.G.K. Menon
140-ITR-876 (M)

49. Partial Partition – Court Rulings
Partial partition derecognized- A partition (total) though valid under Hindu Law, it has to be within the meaning of Sec171 (9) i.e. by metes and bounds, or such other mode.
Kaloomal Tapeshwar
133-ITR-690.

50. Interaction?