COMMISSIONER OF INCOME TAX VS. BANSHILAL NARSIDAS [2004 137 TAXMAN 358] MP HC, Section 5(1)(viii) of the Gift-tax Act, 1958 – Exemptions – Whether ‘karta’ of HUF can make out a gift within reasonable limits even without consent of other coparceners – Held, yes – Whether, therefore, gift made by a karta to his wife out of HUF’s assets is entitled to exemption under section 5(1)(viii) – Held, yes, JANA VEERA BHADRAYYA V. CGT [1966] 59 ITR 176 (AP HC), CGT V. HARI CHAND [1974] 95 ITR 308 (P&H HC). AUD = HUF HUF = 1 AUD. Krishna v. CIT 73 ITR 539 (SC). CIT v. G. N. Rao, 173 ITR 593 (AP). It may be remembered that gift for marriage or maintenance of daughter(s) is not liable to Gift Tax. The position may, however, be different in a case where the members of the HUF have got high individual incomes. The income of each member would be Rs.2,00,000/-. “If the purpose is only tax saving, it may work only for the initial years. Since, these incomes are joined, income tax cannot be levied on an individual income. For example, if a person has his wife and sons, they constitute an HUF. The condition precedent for a valid reunion under the Hindu Law are : (1) There must have been a previous state of union. For Assessment Year 2013-14 the rate of tax on all HUF’s would be the same as in the case of an individual. Therefore, if the HUF has excess funds or property, then, the Karta can make gift of movable assets to his wife, daughter or daughter-in-law at one go or over a period of time. Partitions can be of two types’ viz. The AAC held that having regard to the total wealth of the HUF, the value of the jewels gifted to the wife of the karta who was a member of the family was within reasonable limits and within the powers of the father-karta of an HUF. Therefore tax on members would be NIL.
(i) The family arrangement should be for the benefit of the family in general. If the income tax authorities feel that the HUF has been created to launder money, it may choose to take suitable action against it. The agreement should be between the Karta and other members of the family. HUF can receive gifts from member as well as outsiders. Female members cannot create or form an HUF by their acts even under the Dayabhaga School of Hindu Law. Tek Bhadur Bhuji v. Debi Singh AIR 1966 SC 292 . property which is acknowledged by the parties to the settlement. Say, person A earnsRs.9 lakh per year and has an ancestral property, which yields Rs.3 lakh as annual rent. 400; Mythili Nalini v. Kowmari, AIR 1991 Ker 266; Klae v. Dy Director of Consolidation AIR 1976 SC 807. Reunion is intended to bring about a fusion in the interest and in the estate among the divided member of an erstwhile Hindu Undivided Family, so as to restore to them the status of an HUF once again and therefore, reunion creates a right in all the reuniting coparcener, in the joint family properties which was the subject matter of partition among them, to the extent they were not dissipated before the reunion.
The Hindu Undivided Family tax entity can be used by Hindus, Sikhs, Buddhists, and Jains. E. Creation of HUF by Partition of a larger Hindu Undivided Family .
), l CIT v. R.Ponnammal 164 ITR 706 (Mad.). There may also be a case where the father or mother has got self-acquired properties. HUF.
from a coparcener, non-coparcener and even stranger.
Corpus can be divided only on agreement of every coparcener of the family. It is arrangement between member of a family descending from a common ancestor or near relation trying to sink their differences and disputes, settle and solve their conflicting claims once and for all to buy peace of mind and bring about harmony and goodwill in the family by an equitable distribution or allotment of assets and properties amongst member of the family. Family arrangement is arrived at for a consideration namely, to resolve the dispute amongst the parties, to preserve the family peace and harmony and to avoid litigation and therefore, the provisions of Gift Tax Act are not attracted. The tax burden on the family will be quite heavy. Where one of the parties executes a document styled as settlement deed where under some of the properties exclusively belonging to him as his self-acquired properties are settled in favour of the other members of the family, the terms of such document do not amount to a family arrangement. As stated above, the HUF is a creature of Hindu Law and these entities are HUFs alongwith the bigger HUF of the father or the grandfather. The Income Tax Officer might have the option to assess the income arising from the entire properties belonging to the erstwhile joint family prior to the partition in the hands of the reunited, Hindu Undivided Family. Ratanchand Darbarilal v. CIT 15 ITR 720 (SC). total or partial, are valied however, under income tax act, partial partition of an HUF’s “hitherto assessed” is prohibited/derecognized by the provisions of sec. 30 of Hindu Succession Act, can also be utilized for tax-planning. excellent details provided by you….it is extensive but not exhaustive… 2.5 lakh. ___________ by way of CASH/CHEAUE from my FATHER ________________________________(name of relative of karta of HUF) on dt.
The Supreme Court in all the decisions unequivocally held that on dissolution of a firm there is a mutual adjustment of rights amongst the partners and therefore, there is no transfer of assets by sale, exchange, relinquishment of the asset or extinguishments of any rights therein. G.T.O. A.A.C. The Supreme Court in the case of Commissioner of Gift-Tax v. N. S. Getti Chettiar, 82 ITR 599 held that there is no liability to Gift Tax if there is an unequal distribution of assets amongst members of the family on partition. CIT V/s Maharaja Bahadur Singh & others (1986) 162 ITR 343 (SC). Besides, if a gift made to the minor daughter of the Karta is valid then the provisions of sec. A.Y. The person who manages the affairs of the family is known as Karta. Notwithstanding the provisions of sec. More. The Hindu Undivided Family (HUF) is a special feature of Hindu society. Hindu: In this term are included all the persons who are Hindus by religion. It is, therefore, necessary that the preamble to the family arrangement should advert to the existence of difference which are likely to escalate to possible litigation and cause lack of peace and harmony in the family and likely to bring dishonor to the family name and prestige. The definition of the term “transfer” contained in section 2(47) of the Income Tax Act, 1961 prior to its amendment by the Finance Act, 1987 with effect from 1.4.1988 has been considered by the Supreme Court in the case of Dewas Cine Corporation ( 68 ITR 240), Bankey Lal Vaidya ( 79 ITR 594 ) & Malbar Fisheries Co. ( 120 ITR 49) wherein the High Court, was called upon to consider whether on dissolution of a firm there is a transfer of assets amongst the partners. Even if a possible claim in the property which is acknowledged by the parties to the settlement will be sufficient.
On these facts, therefore, the question for consideration is, whether the donor can be considered to be undivided Hindu family and not the father-coparcener in favour of his wife in his individual capacity. “From a plain reading of Sec. In the case of Roshan Singh v. Zile Singh (AIR 1988 SC 881) the Supreme Court held that the parties to family arrangement set up competing to the properties and there was an adjustment of the rights of the parties. As held by the Supreme Court in the case of CWT v. Chander Sen (161 ITR 370 ) the person inheriting the property from his ancestor, even if he has a wife and son would receive the property absolutely in his own right and his son would not have any interest in that property. (1) total partition, and (2) partial partition. Sometimes a singular can mean more than one, as in the case on hand. Collect in store or have delivered to your door. Daughters born in the family are coparcener and women married into the family are equally members of the undivided family. Jugal Kishore Baldeo Sahai v. CIT 63 ITR 238 (SC). In such an affidavit the party giving up his right in other properties which are allotted to other parties to the Family Arrangement states that the said other properties may be transferred in the records of the registering authorities without notice to him. CIT v. M.M.Khanna 49 ITR 232 (Bom). The remuneration so paid would be allowed as a deduction from the income of the HUF and thereby tax liability of the HUF would be reduced, provided the remuneration is reasonable and its payment is bonafide. 6,50,000 is taxed in individual hand @ 30% tax due is Rs. The agreement need not always be in writing. In the operative portion of the Memorandum of Family Arrangement-cum-Compromise the properties and business which have been allotted to different parties are required to be specified. In the instant case the assessee received gift from his HUF. as an individual and as Karta of his HUF. 1,95,700/- to nil. At present, rate of firm’s tax and the rate of tax in case of a company, is 30% flat, therefore conversion of HUF business into a partnership or a company is not advantageous. My father along with his brothers carried business together after my grandfathers dead.they took purchased properties and finally there took a partation and my dad got his share. v. Bhupati Veerbhsadra Rao ( 9 ITD 618 ), C.G. The Hindu Undivided Family (HUF) is a special feature of Hindu society. 171(9) have been declared ultra-vires by the Madras H.C. in the case of M.V.Valliappan v. ITO, 170 ITR 238. On the basis of the affidavit which is required to be executed before a Notary Public; mutation entries can be made by the concerned authorities. The Karta or a member of the HUF can represent the HUF in a firm. CIT v. Veerapa Chettiar, 76 ITR 467(SC). The joint family being the result of birth, possession of joint property is only an adjunct of the Joint Family and is not necessary for its constitution. and they are ready to left his share in HUF.
The income from property of HUF can be further invested in instruments such as shares, mutual funds, etc. To record a family arrangement arrived at orally, a memorandum of family arrangement-cum-compromise is required to be drawn up wherein the properties and assets belonging to the parties to the family arrangement are required to be specified. (iii) An HUF need not consist of two male members- even one male member is enough : The plea that there must be at least two male members to form an HUF as a taxable entity, has no force. The bigger HUF will continue as a separate taxable unit even after the death of the Karta. i dad pays income tax under HUF status. 6,50,000 is only Rs. It is not also the creation of an interest. 64. Jitmal Bhuramal v. CIT 44 ITR 887(SC). When the matter reached the High Court, the Andhra Pradesh High Court held that in order to constitute a family arrangement, there must be an agreement or arrangement amongst the members of the joint family who wish to avoid any plausible or possible disputes and secure peace and harmony amongst the members. Delivery. Hence a purely voluntary act of giving up one’s right in property without compelling circumstances indicating an existing or a possible dispute resulting in a compromise may well constitute a conveyance by way of gift and not valid family arrangement.
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