Taxation of Hindu Undivided Family - Income Tax - Ready Reckoner - Income Tax

Taxation of Hindu Undivided Family Meaning of Hindu Undivided Family Hindu Undivided Family ( HUF ) does not define under the income tax act. Hindu Undivided Family ( HUF ) is treated as a person under section 2(31) ​ of the Income-tax Act, 1961. HUF is a separate entity for the purpose of assessment under the Act. Under Hindu Law, an HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family. Jain and Sikh families even though are not governed by the Hindu Law, but they are treated as HUF under the Act. Hindu Coparcenary A Hindu Coparcenary includes those persons who acquire by birth an interest in Joint family property. Previously, it was limited to male descendants only. with the introduction of Hindu Succession (Amendment) Act, 2005 from September 6, 2005, daughters also are given coparcener status. Some members of the HUF are called co-parceners. they are related to each other and to the head of the family. A Hindu coparcenary includes those person who acquire a interest in joint family property by birth. Existence of Hindu Undivided Family The Existence of a HUF does not arises from a contract but arise from status. There not be more than one Male or on female coparcener w.e.f. 6th September 2005 to form a HUF. The Income Tax act, 1961 also does not indicate that a HUF as an assessable entity must consist of at least two male members or two coparceners. School of Hindu Law Emergence of Schools of Hindu Law Originally, there were no schools of Hindu jurisprudence. Due to the emergence of various commentaries on Shruti and Smriti, different schools of thought arose. Shruti means which has been heard . The shrutis include the four Vedas - Rig, Yajur, Sam, and Athrava along with their brahmanas . Vedas primarily contain theories about sacrifices, rituals, and customs. Smriti means what is remembered. It includes those works which are created by the virtue of memory of sages and are further divided into Dharmashastras and Dharmasutras. Existence of Schools of Hindu Law In the codified area of Hindu Law, there is no scope for existence of Schools as the codified Hindu Law lays down uniform law for all Hindus. The Schools of Hindu Law have relevance only in respect of the uncodified areas of Hindu Law. The basic difference between the two schools of Hindu Law with regard to succession Dayabhag School of Law Mithakshara School of Law Prevalent in West Bengal and Assam Prevalent in rest of India Nobody acquire the right , share in the property by birth as long as the head of family is living. One acquires the right to the family property by his birth and not succession irrespective of the fact that his elders are living. Thus, the children do not acquire any right, share in the family property, as long as his father is alive and only on death of the father, the children will acquire right/share in the property. Hence, the father and his brothers would be the coparceners of the HUF. Thus every child born in the family acquires a right/share in the family property. Manager of HUF or Karta : The person who manages the affairs of the family is known as Karta. Normally the senior most male member of the family acts as Karta. However a junior male member can also act as Karta with the consent of the other member. However, in view of the present social mores and needs of the modern progressive society this decision of the Supreme Court needs to be revised / reviewed. Besides the same person can be taxed as both individual and Karta of an HUF. The individual and the HUF are two different units of taxation i.e. two different assesses. Can Female can be Karta of HUF? Yes! Until January 2016, a woman could not be the HUF Karta. But in a landmark case, Mrs. Sujata sharma Vs Shri Manu Gupta 2015 (12) TMI 1646 - Delhi HC ruled in favour of a female being the Karta of a HUF. However, the same has not been incorporated in the Income Tax Act as yet. Branches of HUF A HUF can have several branches or sub-branches. For example, if a person has his wife and sons, they constitute A HUF. If the sons have wives and children, they also constitute smaller HUFs. If the grandsons also have wives and children, then even they will also constitute still smaller or sub-branch HUFs. 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. It is immaterial whether these smaller HUFs possess any property or not. Property can be acquired by any mode; by partition of bigger HUF or by gifts from any member of the family or even by a stranger or by will with unequivocal intention of the donor or the testator that the said gift or bequest will form the joint family property of the donee or the testatee. A HUF can be composed of a large number of branch families, each of the branch itself being a HUF and so also the sub-branches of more branches. Joint Family Property : The following types of properties are generally accepted as joint family property : Ancestral property; Property allotted on partition; Property acquired with the aid of joint family property; Separate property of a co-parcener blended with or thrown into a common family hotchpot. The provisions of Section 64(2) of the Income Tax Act, 1961 have superseded the principles of Hindu Law, in a case where a co-parcener impresses his property with the character of joint family property. Note:- Income includes loss. For the purpose of Section 64 income includes loss. Therefore, under all the provisions discussed above, where the income arising to one person is to be clubbed in the hands of another person, in the relevant loss, the loss shall be taken into account in computing the income of such person. Karta in his individual capacity and Karta representing HUF are two distinct entities. HUF can sublet its contract to Karta in his individual capacity. Income earned by Karta in his individual capacity from such contract cannot be assessed in the hands of HUF. [ Vijay Prakash Toshniwal and others versus Commissioner of Income-Tax - 2005 (11) TMI 45 - Rajasthan High Court ] On partition of HUF the mother, i.e. wife of Karta takes a share equal to the sons and daughters. However, they can mutually decide to take unequal shares. As per section 47 of the act, no capital gain shall arise to HUF on distribution of assets on partition of HUF. A complete partition with unequal shares may be agreed between the parties is not illegal and can be final. However, an unequal partition between karta as the sole adult member and the minor children may be challenged at the instance of the minor children on attaining majority or having a partition reopened by the court. Such a reopening however, will only be permitted if the division is unjust and unfair.