Last week we began by examining the basic concept of Hindu Undivided Family (HUF). The article dwelt on the backdrop behind which the concept of an HUF was formed and also discussed how an HUF takes birth. This time we shall see how an HUF comes to an end, tax benefits associated with an HUF and other related issues.
Ending an HUF
Once an HUF is born, normally it continues to exist through generations until it is partitioned (dissolved). HUF partition can be partial or total. Where only certain members separate from the family or only certain assets of HUF are distributed, it is considered as a partial partition. A partition can be claimed by any coparcener on any grounds. Such a claim has to be submitted to the ITO who must make an inquiry and find whether there has been a proper partition. After it is ascertained as proper, any of the ex-coparceners has the option to treat his share either in his individual capacity or as his own smaller HUF, if eligible.
As per Sec. 171(4 & 7) a total partition does not imply a complete disintegration of the parent family into individuals. The total partition visualised by Sec. 171(9) is the total partition of the family properties among the main groups entitled to them and not among all the lineal descendants who are coparceners.
An individual can belong to several HUFs. Coparceners of a partitioned HUF may agree to reunite. This agreement need not necessarily be in writing. Even an oral agreement will do, if the conduct of the parties is in keeping with it. An agreement to reunite cannot be made by or on behalf of a minor.
At partition, no share of a coparcener can be apportioned amongst their lineal descendants, unless, the coparcener has expired. If he/she has expired, the share he would have got if he/she was alive, would be equally divided between his/her descendants. The total partition visualised by Sec. 171(9) is a partition of the family properties amongst its main groups. No right to the property is enjoyed by any lineal descendants who are only coparceners.
For clarity, let us take the instance of HUF of X married to Y. They have a son (S) and a daughter (D). The son has two children, A and B. The daughter has two children, E and F. This means that there are 7 coparceners. The wives are certainly members of the HUF but they are not coparceners. Husband of D is not a member of HUF. Now, suppose there is a partition. Prior to 20.12.04, when a daughter got married, she ceased to belong to the HUF and therefore had no right on the property, leave alone demanding a partition. An unmarried daughter was a member of HUF but had no right to demand a partition but got a fair amount for her maintenance and subsistence if and when a partition took place.
The property will get divided differently in different situations —
1. All are alive — 1/3rd to X, S and D.
2. X has expired — 1/3rd to Y, S and D. Mother gets equal share.
3. S has expired — 1/3rd to X and D. 1/6th to A and B.
4. X and S have expired — 1/3rd to Y and D. 1/6th to A and B.
5. X and Y have expired — ½ to S and D.
6. X, Y and S have expired — ½ to D and 1/4th to A and B.
7. X, Y and D have expired — ½ to S and 1/4th to E and F. Normally, the property of a female dying intestate devolves on her legal heirs, her husband and children. However, the property inherited by her from her parents devolves only on her children. In the absence of children, it shall devolve on the heirs of her father. [Sec. 15(2a) of Hindu Succession Act].
8. S and D have expired — 1/5th to X, A, B, E and F.
HUF is a separate unit of assessment, distinct from all its members. It has the same right to claim all the exemptions, deductions and rebates as an individual has. The HUF can hold property for the future benefit of a child who is yet to be born or of a person yet to be chosen through marriage or adoption. Any sum received as a member of an HUF, out of the income or wealth of the family, shall be tax neutral provided he himself has not gifted or blended his property into the property of the HUF. Any distribution of capital assets to the members on the partition of HUF is not to be regarded as transfer.
Deduction u/s 80C
HUFs and AOPs are debarred from investing in PPF on and from 13.5.05. No new accounts can be opened or post-maturity continuation availed of. Similarly, HUFs cannot make fresh investments in RBI Savings Bonds, Post Office NSC, etc. Fortunately, the ITA provisions have not been correspondingly changed. Therefore, contributions made in the name of any member of HUF by applying the HUF funds are eligible for 80C deduction.
n Income from impartible estate is taxable in the hands of the holder of the estate and not in the hands of the HUF. Though the impartible estate belongs to the family, income arising therefrom belongs to the holder of the estate who is the senior most male member of the family. CIT v Sardar Virendra Singh Bolia (1982) 135 ITR 802 (MP).
1. As ‘stridhan’ is absolute property of a woman; income arising therefrom is not taxable as income of HUF (or her husband).
2. Where a Karta of an HUF joins a partnership firm as a partner with the help of the funds belonging to the HUF, the income by way of interest on capital and working partner’s salary from such a partnership would be income of HUF and not of the Karta in his individual capacity. This income being share of profit from the firm is fully exempt u/s 10 (2A).
Next time, in the concluding part of the series, we shall look into some court decisions related to various aspects of an HUF as also some peripheral issues such as partition of an HUF as also the law related to gift to an HUF and applicability of clubbing provisions if any.
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