PP

PRAPRDEEP PATIL

Meaning of HUF Hindu Undivided Family

The expression Hindu Undivided family on dissection consists of three words namely
(i) Hindu,
(ii) Undivided and
(iii) family.

Each word has a meaning of its own and it is very important for understanding the concept of the
HUF.
1. The Hindu Religion according to the ancient scripts is believed to be over 8500 years old.
The root of the Hindu religion is Sindhu or Indus valley civilization in the Indian
subcontinent. Hindu religion is also known as Sanatan Dharma meaning a religion which
is eternal or which always existed.
The word Hindu connotes that essentially a HUF can be formed only by the followers of the Hindu
Religion and no other religious community like Muslims, Christians etc can form a HUF: Broadly
speaking in the Indian context Bengalis, Marwaris, Marathis, Punjabis, Telgus, Tamilians etc who
are Hindus and Jams, Sikhs, Buddhists etc , can form a HUF. The Dictionary meaning of the word
Hindu is one who professes Hinduism particularly Aryans of India and it is the religion of the
majority of the Indians. A Hindu is an adherent of Hinduism, the predominant religious,
philosophical and cultural system of Bharat (India). The word Hindu was originally a Persian word
for river-dweller i.e., someone who lives around or beyond the river Indus, and meant any
inhabitant of Bharat, or the Indian subcontinent. Hinduism is basically pantheism, a belief that
God exists in everything in the universe.
The meaning given hereinabove is the general meaning used in day to day parlance. However, to
understand the concept of HUF in the light of taxatiOn, it is important to understand the meaning

Of the word Hindu as given in the various Acts. The definition of the word Hindu is though not
available in the Hindu Succession Act, Section 2(1) of the Hindu Succession Act, 1956 states that
it shall apply to any person who is a Hindu, Buddhist, lain or Sikh by religion. It also applies to any
person who is a convert or reconvert to the said religions but not to a Muslim, Christian, Parsi or
Jew by religion.

In the case of CWT vs R. Sridharan, (1976) 4 SCC 489, the Apex Court had considered the
definition of term Hindu and observed that it is a matter of common knowledge that Hinduism
embraces within itself so many diverse forms of beliefs, faiths, practices and worship that it is
difficult to define the term Hindu with precision. Thereafter it observed as follows in the context of
the meaning of the word Hindu at Para 17.

17. It will be advantageous at this stage to refer to page 671 of Mulla Principles of Hindu Law
(Fourteenth Edn.), where the position is stated thus:

The Word Hindu does not denote any particular religion or community. During the last hundred
years and more it has been a nomenclature used to refer comprehensively to various categories of
people for purposes of personal law. It has been applied to dissenters and non-conformists and
even to those who have entirely repudiated Brahminism. It has been applied to various religious
sects and beliefs which at various periods and in circumstances developed out of, or split off from,
the Hindu system but whose members have nevertheless continued to live under the Hindu law
and the courts has generally put a liberal construction upon enactments relating to the personal
laws applicable to Hindus.
b)

Undivided means that which is not divided or that which is united or joint or common in
mess or income.

c)

The word family denoted a group of persons normally Parents, Children forming
household, Set of Parents and Children, all descendants of common ancestor. In simple
language or the plain meaning of the word family means more than one person.

The Supreme Court in C. Krishnaprasad vs CIT (1974) 97 ITR 493 observed: Family always
signifies a group. Plurality of persons is an essential attribute of a family. A single person, male or
female, does not constitute a family. A family consisting of a single individual is a contradiction in
terms, an entity distinct and different from an individual. Assessment in the status of a Hindu
undivided family can be made only when there are two or more members of the Hindu undivided
family. An unmarried person though receiving ancestral property on partition would continue to be
assessed as an Individual. However, on marriage with addition of wife would be assessed in the
status of HUF.
Thus, it follows that a HUF is an entity consisting of a Hindu family, all of whose members are
descendants of common ancestor. The word descendant has been defined by Websters
Dictionary as One who descends, as offspring from an ancestor. Thus it is essential that all the
members of a HUF are formed of a Common ancestor i.e., the children of same parents or
grandparents.

Meaning Of 'HUF' Under Tax Laws

Income-tax and Wealth-tax is levied on a person under the Income-tax Act, 1961(in short the
I.T.Act) and the Wealth-tax Act, 1957(in short the W.T.Act) and the proposed Direct Taxes Code
(in short the D.T.C). The liability for tax would be on a person. Section 2(31) of the I.T Act, Section
3 of the W.T. Act and Section 314(184) of the DTC includes (i) an Individual and (ii) a Hindu
Undivided Family( in short the HUF) as a taxable entity. Thus a Hindu has the privilege of
planning to have two assessments one as an Individual and another as a HUF. One can even
plan to have manifold assessments by adopting the mode of partition, reunion, creation of family
asset etc. etc.
Under the said sections not a Hindu Coparcenary but a Hindu Undivided Family is one of the
assessable entities. Hindu joint family consists of all persons lineally descended from a common
ancestor, and includes their wives and unmarried daughters. A Hindu coparcenary is a much
narrower body than the joint family: it includes only those persons who acquire by birth an interest
in the joint or coparcenary property, these being the sons, grandsons, and great-grandsons of the

holder of the joint property for the time being. Since 2005 a daughter, who earlier was a member
till unmarried has been labelled as a Coparcener, with same rights and obligations as that of a
male?

There need not be more that one male member to form a Hindu undivided family as a taxable
entity under the Income-tax Act. The expression Hindu undivided family in the Income-tax Act is
used in the sense in which a Hindu joint family is understood under the personal law of the
Hindus. Under the Hindu system of law a joint family may consist of a single male member and
widows of deceased male members, and the Income-tax Act does not indicate that Hindu
undivided family as an assessable entity must consist of at least two male members as held in
Gowli Buddanna vs CIT (1996) 60 ITR 293(SC). Same is the position under the W.T. Act as held
in N.y. Narendranath vs CWT (1969) 74 ITR 190(SC).

Difference Between Joint Hindu Coparcenery

Under The Hindu Law And HUF Under The
Income-Tax Act, 1961
There is a difference between Hindu Undivided family (HUF) for the purposes of Income-tax Act,
1961 and that for the purposes of Hindu law and The Hindu Succession Act, 1956. The word HUF
for the purposes of Income-tax Act, 1961 can very well consist of a coparcener and other
members.
A Coparcener for the purposes of HUF means any member who has got a right to demand
partition of the HUF or a person who acquires by birth an interest in the joint or coparcenary
property.
The HUF for the purposes of Hindu law or The Hindu Succession Act is considered to be a
coparcenary whereas that for the purposes of Income-tax Act, 196 is considered to be a HUF
consisting of members as an assessable entity as has been held by the Privy Council in the case
of Kalyanji Vithaldas vs CIT(1937)51TR90.
In several Supreme Court cases, it has been held that for the purpose of forming Hindu Undivided Family,
there is no need to have more than one male member and one male member along with other female
members can validly constitute a HUF. However, in view of the Amendments made by the Hindu
Succession (Amendment) Act, 2005 which are discussed herein below, there is no need to have even a
single male member to constitute a HUF and HUF can consist of only female members also.

Mitakshara Law & Dayabhaga Law - HUF

There are mainly two types of schools, which govern the Hindu Undivided family. They are
1. Mitakshara Law
2. Dayabhaga Law
The Mitakshara Law applies to the whole of India except Bengal and Assam. Under this law as it
existed until the amendments made by The Hindu Succession (Amendment) Act, 2005, the son
acquires by birth an interest in the ancestral property. Ancestral property, under the Mitakshara
Law, thus devolves on the death- of a coparcener by survivorship. Mitakshara law recognizes two

kinds of devolution of property as follows: a)

Devolution by Succession is applicable to the Joint family property and

b)

Devolution by Survivorship is applicable to Property held in severalty by the last owner.

The Dayabhaga Law applies to the communities like Bengalis and Assamese living in the States
of Bengal and Assam and other parts of the world. According to this law, the son doesnt acquire
any right by birth in the ancestral property. The sons right arises for the first time on fathers
death. All properties thus, devolve by inheritance and not by survivorship. Under this school of
law, the coparcenary is formed only on death of the father. Females can also be coparcener.
Dayabhaga law thus recognizes only devolution by succession and it doesnt recognize the
devolution by survivorship as it recognizes in case of Mitakshara Law.
A Joint Hindu family according to the Mitakshara Law consists of a male member of a family with
his sons, grandsons and great-grandsons according to Hindu Law. They collectively constitute a
coparcenary of a Hindu Family. They are different from members who are not coparceners as we
have seen earlier. This is of course under the old law prior to the amendment made by the Hindu
Succession (Amendment) Act, 2005. After the above amendment, A Joint Hindu family can
consist of male as well as female members since female members have also acquired the status
of coparcener as per the said amendment. Thus now, members of a Hindu Joint family consists
of the common ancestor and all his lineal descendants up to any generation including the
wife/wives (or widows) and daughters of the common ancestor. A coparcenary is however a
narrower body of persons within a joint family. It consists of four successive generations of lineal
descendants as we have seen above.
As per the provisions of Section 2 of the Hindu Succession Act, 1956, the Act applies
a)

b)
c)

To any person, who is a Hindu by religion, in any of its forms or developments including a
Virashaiva, a Lingayat or a follower of the Brahmo, Prarthana or Arya Samaj
To any person who is a Buddhist, Jaina, or Sikh by religion; and
To any other person who is not a Muslim, Christian, Parsi or Jew by religion unless it is
proved that any such person would have been governed by the Hindu law or by any
custom or usage as part of that law in respect of any of the matters dealt with herein if this
Act had not been passed.

It may be noted that the phrase HUF has been used in the Statutes with reference to all the schools of
law including Mitakshara, Dayabhaga and others and not to any particular school of law. See in this regard
the decision of Privy Council in the case of Kalyanji Vithaldas vs CIT (1937) 5 ITR 90(PC)

Constitution Of HUF Property By Own Will Or

Choice Of A Person
Ordinarily, HUF is constituted on marriage when a person is bestowed by the God almighty with a
Child and only family property/asset is created by act of a man. Though it has been held in
several court cases, that a Joint Hindu family is a creation of law, but for the purposes of Incometax Act, 1961, the Act recognizes HUFs property constituted in several ways and they are
discussed as below:

HUF property can be constituted by a Hindu Father when he decides to unite for the purpose of
constituting the Hindu Undivided family and for the purpose of a creating a joint and common
pooi of assets to be used for the purpose of the benefit of the whole family. The essence for
constitution of HUF by owns will/choice of a Person is this common cause.
Once a Hindu father decides to constitute a HUF, it is advisable to request a close relative or
friend to gift of a sum of money or gift in kind who essentially settles this sum for the purpose to
the HUF and to be kept as corpus of the HUF for use absolutely by the family. This sum of money
or gift in kind acts as a corpus of HUF in such cases. It is important to note here that according to
Section 56(2) (vii) of the Income-tax Act, 1961, gifts received in aggregate from any person of
any immovable property or specified property or money in excess of Rs. 50000/- in any previous
year is taxable as Income of the donee and therefore, it is better to keep the amount/value of gift
to a sum less than Rs. 50000/- so as not to attract the provisions of Section 56(2) (vii) as above.
It may be noted that in respect of gifts above Rs. 50000/- in so far as the basis of valuation is
concerned the stamp duty value is applicable in case of immovable property and the fair market
value is applicable in case of any property other than immovable property. With retrospective
effect from 1st Octoher,2009 new rules 1W and 11UA have also been inserted in the Income tax
Rules, 1962 prescribing the method of determination of fair market value of property other than
immovable property for the purpose of Section 56 vide Income-tax (Second Amendment)
Rules,2010. Reported at (2010) 322 ITR (St.) 25.
Once this Gift is received, the amount can be deposited in a Bank account to be opened in the
name of HUF. Once the gift is received and deposited in the Bank account, the HUF property
comes into being and the accumulations/accretions in the corpus fund are treated as either
capital or revenue receipt depending upon the nature of the receipt. Generally it is better to get
the gift from ones father or mother so that concept of ancestral funds of Family is continued in
the Corpus of the HUF which is created on receipt of the Funds.
However in all cases, the gift should be genuine. Burden to prove the identity, capacity and
genuineness of the donor is on the donee else, the value of the gift as arrived at herein at would
be assessable as Donees Income from undisclosed sources. Declaration of gift should be well
worded, duly signed by the Donor and accepted by the Donee. Reliance can be placed on the
decision of the Apex Court in the case of Pushpa Devi vs CIT (1977) 109 ITR 730(SC)

Formation of HUF On Intestate Death of a Hindu

Father
On the death of a Hindu father who dies intestate (without making a wilt) leaving ancestral
movable and immovable assets; the ancestral assets so left are thereupon inherited by the heirs
of the Hindu father and the person so inheriting the ancestral assets can with the help of the
assets so received form a HUF by treating the assets so received as the Corpus of the HUF. Any
ancestral property received on death or partition would be HUF property in the hands of the male
recipient. Once properties are received as Corpus of the HUF, the best way would be to affirm
the above facts on an affidavit so that the intention of the person to this effect is confirmed.
In the case of CIT vs Nandlal Agarwal (1966) 59 ITR 758, the Apex court was confronted with a
situation where a person belonging to Mitakshara school of Hindu Law died intestate leaving his
widow and two minors. After the death of the person, a business was left behind and two
Guardians were appointed. In the meantime, the widow also died and two minors were held to
constitute a joint Hindu family and the income from the business left behind was held to be joint
family income assessable as Income from business belonging to family.

A draft of such an affidavit is as follows:

AFFIDAVIT
I, CDR, son of Late DDR residing at Chowringhee Road, Kolkata-700 071 do hereby
solemnly affirm and declare as follows: 1. That my father .DDR died in state on 12th August, 2011 leaving behind certain
properties as listed in the annexure.
2. That out of the said properties, the property at Chowringhee Road, Kolkata-700 071 was
acquired by him by way of inheritance from my grandfather and was ancestral property.
3. That upon death of my father, I along with my wife, my sister, my son and my mother
has become entitled to the said property at Chowringhee Road as per the provisions of the
Hindu Succession Act, 1956.
4. That the said ancestral property has devolved on the HUF consisting of myself, my
mother, wife, sister, son etc.
5. That my wife, my son, my mother and my sister have signed this affidavit as a witness to
the facts as aforesaid and as an acceptance of the said facts.
6. That the Statements made hereinabove are true to the best of my knowledge and belief
and nothing is false.

Declared at Kolkata
This 21/04/2014
Witness and confirmatory
1.
2.
3.
(CDR) DECLARANT.

In this regard following precautions must be taken:

1.
2.

3.

The HUF must be capable of being formed i.e., it must consist of more than one member.
The declaration should be properly worded to indicate that it is proposed to inherit the
property to HUF.
The Stamp paper should be of requisite value.

4.

The Stamp paper should not be stale.

5.
The name in which stamp paper is purchased is proper i.e., either it is in the name of the
HUF, or in the name of the declarant or if is in the name of an Advocate, that Advocate must sign
the declaration as a Witness.

Formation of HUF on Receipt of Assets through a

WILL
An HUF can receive properties and other assets through a will from any person. An important
thing to be kept in mind while drafting a will is to specifically mention in the will, the portion of
asset which are bequeathed to a Hindu Undivided family. In absence of any specific reference to
the HUF, it may be difficult to characterize the property received by way of a will as HUF
Property. In this regard, reference can be had to the Delhi High Court decision in the case of
CIT. DelhiTI vs Shambhu Ram Soni reported at (1982) 138 ITR 373 wherein the question
arose whether the Assesses in the instant case who had inherited certain self acquired
properties of his father by way of a will were inherited by him in the Status of HUF property or
devolved unto him in his individual capacity. The Honble Court in this regard observed as under:
Property gifted or bequeathed by a father to his son cannot become ancestral property in the
hands of the son simply by reason of the fact that he got it from his father. The father is quite
competent when he makes a gift or a bequest to provide expressly either that the son would take
it exclusively for himself or that the gift or bequest would be for the benefit of his branch of the
family headed by the son. If there, are express terms or provisions to that effect in the deed of
gift or will, the interest which the son would take in the properties would depend on the terms of
the grant. In the absence of clear words, the question would be one of construction of the gift
deed or the will. The law in this regard was laid down by the Supreme Court in C N. Arunachala
Mudaliar vs C. A. Muruganatha Mudal jar (1954) SCR 243, AIR 1953 SC 495, 500, in these
words (p. 254):

As the law is accepted and well settled that a Mitakshara father has complete powers of
disposition over his self-acquired property, it must follow asa necessary consequence that the
father is quite competent to provide expressly, when he makes a gift, either that the donee would
take it exclusively for himself or that the gift would be for the benefit of his branch of the family if
there are express provisions to that effect either in the deed of gift or a will no difficulty is likely to
arise and the interest which the son would take in such property would depend upon the terms of
the grant. If, however, there are no clear words describing the kind of interest which the donee is
to take, the question would be one of construction and the court would I have to collect the
intention: of the donor from the, language of the document taken along with the surrounding
circumstances in accordance with the well-known canons of construction. Stress would certainly
have to be laid on the substance of the disposition and not on its mere form
After deliberations as above, the Honbie Court finally decided as under:
We are unable to accept the submissions of the counsel for the assessee. These contentions
are not borne out from the legal consequences of the provisions of the will. Taking the document
as a whole and all the relevant facts into consideration, it cannot be said that the testator
intended that the bequest was an integral part of a scheme of partition and what was given to the
sons was really the share of the property which would normally be allotted to him or them and in
his or their branch of the family on partition. The testator asserts his absolute right to dispose of

the properties. The testator does not treat his self-acquired properties as ancestral properties
and then proceed to allot to his sons and their families as in partition. In the will, the testator is
conscious of the fact that he is possessed of the properties detailed therein and shall remain
their owner till his death, Then, the testator mentions his family as consisting of his wife, the two
sons and four daughters. There is an absence of the mention of the grandson or grandsons as
forming part of the family headed respectively by the two sources. The testator then considered it
advisable to make a will for the disposal of the property after his death. The disposal suggests
the settlement of the self-acquired properties. The. Testator then appoints his sons as executors
and trustees of the will. The appointment of the executors is to administer the properties
according to the will by which bequests are made to two daughters of the amount stated in the
will and Rs. 5,000 to each of the grand-daughters to be spent on their marriages. Arrangements
are made for the wife. In respect of these obligations the testator directed them to be discharged
from and out of the entire property bequeathed. Only the remainder is divided between the two
sons. The appointment of the executors and trustees is an indication that the residue allotted to
the two sons was not in the scheme of partition but a bequest. The testator bequeathed the
property in the manner described by him in the various clauses of the will including cl. 7. He
directed that the rest of the property shall be shared equally by his two sons. It cannot be that the
intention of the testator was to divide his remaining property as in a partition and to allow his two
sons equally for themselves and as representing their branch of the family. The words of the
allotment of the rest of the property, movable and immovable, to be shared equally by the two
sons, Shambooran and Vishwanath clearly point to an intention on the part of the testator to
make it absolute and exclusive to the sons to the extent of their share. The words whatsoever
and wheresoevers are not merely in consonance with the scheme of partition, but go equally to
the disposal of the property, absolutely, of the testator at the time of his demise. On a careful
construction of the document as a whole, we feel that there is no indication of the intention of the
testator that the property shared by the two sons equally be taken by them as ancestral property
in their hands. We feel that the Tribunal did not come to a correct construction of law on the will.
The reference is answered in favour of the Revenue and against the assessed. On the facts and
circumstances of the case, we make no order as to costs
Thus, drafting of the will must be done carefully in the light of the judgement of the Apex Court
cited hereinabove particularly when the property which is sought to be devolved by way of will is
self acquired property and is bequeathed to a HUF.
As in the earlier case, even here it is better for the person receiving the properties to affirm an
affidavit to enable one to prove the property as an HUF property

Formation of HUF On A Son/Daughter Being Born To

Parents

We have seen that in order to constitute a HUF under the Hindu law, plurality of coparceners is neces
family consists of only Husband and wife, an interesting question arises whether unborn child in the wom
Husband and wife can constitute a valid HUF. A similar question arose in the case of T.S. Srinivasan vs
In this case, it was argued that under the Hindu Law, a son conceived has the same rights of prope
therefore, HUF status should be granted from the time the son was conceived. However, the Apex
reasoning held that for the purposes of income-tax Act unless the son comes into existence, it is difficult
of HUF notwithstanding the fact that the Hindu Law recognizes rights of an unborn son or son in the wom

It is important to note that the case herein dealt with the case of unborn son, however in view of the am
Succession Act,

the case would equally apply to unborn daughters or daughters in the womb. Moreover, the ca

reconsideration since the said judgement was given in view of the fact that till the time a child is born, i
whether the child would be a son or a daughter. Thus, in view of the above, as soon as a son/daughte
can claim status of HUf in respect of the properties which is received by him on partition of HUF of which

Bigger HUF And Smaller HUF

Often it is seen that the term Bigger HUF and Smaller HUF is used in the matters relating to
Joint family Property and a question arises as to what is Bigger HUF and what is Smaller HUF.
Bigger HUF generally refers to the HUF consisting of all the members of Joint Hindu Family
and the Smaller HUF refers to a branch of the such family which is carved out of the bigger
HUF and which holds property which is ancestral in the hands of that branch only and which is
separately identifiable to that branch and the members of that branch only. In the case of CIT
vs M.M.Khanna(1963) 49 ITR 232 (Bom), the Honble Bombay High Court held that a joint
Hindu family springs from a Hindu male and every Hindu male can be the stock of a fresh
descent constituting a joint Hindu family or a Hindu coparcenary. Where, from a Hindu male a
joint Hindu family springs into existence, this family goes on having its different branches and
sub- branches. Each branch starts with the male descendant of the common ancestor and
each sub-branch with the male descendant of the head of the branch. While the entire group
proceeding from the common ancestor with its several branches and sub-branches in the
normal undivided state is a Hindu joint family, each of the branchesand each of the subbranches again is a Hindu joint family according to the concept of a joint family under the
Hindu law. It is, therefore, possible for a main Hindu undivided family to be composed of a
large number of branch families, each of the branches itself being a Hindu joint family and so
also the sub-branches of those branches. Where a Hindu joint family consists of branch
families each of the branch families may possess property which constitutes the joint family
property of that branch alone and in which the other branches or the main Hindu family as
such have no right or interest. The smaller joint family can have a legal existence and is
capable of holding property of its own as distinct from the property of the main family while the
main family remains intact. While the main family may possess property which belongs to the
entire family or in other words belongs to the hotchpotch of the main family, each of the
smaller joint families existing within the main family may possess property which belongs to its
own hotchpotch.
Under the Hindu law any member of a joint family can throw his self- acquired property in the
hotchpotch of the family to which he belongs and thus make it the joint family property of the
said family. A member of the smaller joint family can, therefore, impress his self-acquired
property with the character of the joint family property of the smaller family to which he
belongs. He is no doubt also a member of the main joint family and he can, if he so chooses,
throw his self-acquired property in the hotchpotch of the main family also. But that will be a
matter of his volition. There is nothing in the Hindu law or in the concept of a joint family under
the Hindu law which prevents him from throwing his property in the hotchpotch of the smaller
unit to which he belongs, while the larger unit remains intact.
The throwing of property into the common hotchpotch of the joint family is possible even if the
family hotchpotch is empty, i.e., even if there is no nucleus of the family. In this regard,
reference can be had to the following decisions:
1. Subramania Iyer (R.) vs Commissioner of Income-tax (1955) 28 hR 352(Mad).
2. Commissioner of Income-tax vs Talukdar (P.N.)(1982) 135 ITR 628(Cal)
Thus, the Bigger HUF and the Smaller HUF can simultaneously function without any hindrance
and simultaneously be assessed to the Income-tax

HUF- Opening a Bank Account / DEMAT

Account
A HUF can open a Bank account in any bank. The types of Bank accounts that can be opened
by a HUF are Savings Account, Current Account or Term Deposit Account. In addition to this, it
is also possible for HUF to open Accounts relating to borrowings from bank by way of Cash
credit, Term Loan or any other types of loan. Moreover, a HUF can also open Demat A/c or
Depository Account for the purpose of holding shares of a Company.
The foremost thing to be done for opening a Bank account of a Joint Hindu family is to give a
Joint Hindu Family letter, which is generally required to be given by HUF as per the format given
by the Bankers. Each bank has its own format, which is generally developed by the bankers after
consultation with its legal department. A sample of such letter is given herein below.

DECLARATION
As our HUF wishes to open an account with your bank in the name of XY HUF.
We beg to say that the first signatory to this letter i.e., XY is the Karta of the Joint family and
other signatories are the adult co-parceners of the said family.
We further confirm that the business of the said joint family is carried on mainly by the said Karta
as also by the othr signatories hereto in the interest and for the benefit of the entire body of coparceners of the joint family. We all undertake that claims due to the bank from the said family
shall be recoverable personally from all or any of us and als for the entire family properties of
which the signatory is the Karta including the share of minor-coparceners.
We hereby undertake to inform the bank Of the death or birth of a coparcener or any change
occurring at any time in the membership of our joint family during the currency of the account.

STEPS : REQUIRED FOR OPENING A BANK ACCOUNT

While opening a Bank account, the following steps are required to be undertaken / followed: -

1.
The style in which the Bank account is to be opened has to be decided and the style can
be any one of the following styles: 1.
2.
3.
4.

XYHUF
XY&SONS
X Y & SONS (HUF)
X KUMAR Z KUMAR

In the above styles, X denotes the first name of the Karta of the HUF and Y denotes the family
nam or title of the Karta. Further, in option d) hereinabove, the style X Kumar Z Kumar
represents X as karta and Z as his son. Now that daughters have also become coparceners,
there should not be a problem in keeping the name as X Kumar A Kumari, where A represents
daughter of X.
2.

After having decided the name in which the account is to be opened, the names of the

members constituting the HUF is required which is generally as follows:

a) Karta of the HUF
b) Kartas wife
c) Kartas son or sons
d) Kartas sons wife or sons wives
e) Kartas sons son or sons
f) Kartas sons sons wife or sons Sons wives
g) Kartas unmarried daughters
h) Kartas father
i) Kartas mother
The above list is not exhaustive and can further expand or reduce. The constitution of the HUF
would depend upon the way HUF has come into existence. If the HUF comes into existence on
receipt of inherited ancestral property by the Karta from his father, then all the members of his
family including his father, son, sons son, unmarried daughters become coparcener in such
property and have therefore to be included as the members of the HUF. However, if the HUF
comes into existence withOut any inherited property, but say by way of Gift, then in such cases,
the HUF of the Karta would include the Karta himself, his wife, his son or sons, his unmarried
daughters. The names of the members of the HUF are generally required to be mentioned in the
Account opening form.
3.
The third thing that has to be decided as to who will be the signatory to the account to be
opened in the name of the HUF. Generally it is the Karta of the HUF who operates the account.
Sometimes, Karta may not want to operate the account and in such cases, it can be operated
byany member or members of the HUF. There is no bar/restriction on any member or members
of the HUF operating the account, if authorised. Depending upon the signatories who will be
operating the account, a rubber Stamp is required to be prepared in the manner as follows: FOR
XY HUF

KARTA
If Karta is the sole signatory in the account or in case any other member or members operate the
account, then the stamp is required to be prepared in the following manner:
FOR

XY

HUF

MEMBER

It is better to prepare the stamp in the following way so that either the Karta or any member is
able to operate the account.

FOR

XY

HUF

KARTA / MEMBER

Now in the present new age banking, where banks are computerizing the operations, some
banks do not require any stamp to be affixed at all since the manner in which the cheque will be
signed is printed on the cheque itself.

Again, it is also possible that the account is signed not by Karta singly, but by any combination of
members which can be either two or more. Such joint signatures can be used a tool for control.

4.
After having decided the style and the signatory, the Account opening form has to be
filled in which is generally very simple and contains usual details. A copy of the Permanent
Account No. (PAN) card is required to be given while opening the account and the bankers also
insist on Photographs of those persons who are given the authority to sign the account.

5.
The funds for opening the account can be given out of the HUF funds. In case, the
account is being opened for the first time, the cheques received by way of Gift (in case the HUF
has been created by way of gift) can also be given for opening the Account. However, the
bankers are generally reluctant to take third party cheques for the purpose of opening the
account and prefer taking cheques from the membero1 the HUF or still prefer cash for opening
the account. In such cases, the Karta or any other member can give the required cash or cheque
as the case may be and later on whenthe account is opened, in the usual course, the money can
be returned back to the member who has given the same. However care must be taken that the
amount so taken by HUF (in cash) is less than Rs. 20000/- so as not to attract the provisions of
Section 269SS of the Income-tax Act,1961.

6.
After following the above procedure, the account is opened and the same can be
operated like any normal bank account.
7.
It is important to note that the Bankers do not allow any nomination in a HUF account and
it is, therefore, important that the account is operated by more than one person, so that in case
of any emergency/death of any member, the account can continue to be operated by the remaining signatories without any break.

HUF - DEMAT OR DEPOSITORY Accounts

1.
It is possible for the HUF to open a Demat account also and the formalities are same as that fr o
except that in case of Demat account, the Bankers insists on a separate agreement for dealing in shar
printed form. Such Demat account can be operated either by the Karta or a combination of Karta and any

2.
It is very important that the Demat Account which is opened in the name of HUF has either m
signed a declaration for appointment of nominees if the bank accepts nomination. This is in order to pro
the event of a death of a member of the HUF who may have been the sole signatory in the account. In s
not allow any transaction in the account and the shares etc held in the account may get frozen until a v
from the Court of law is produced.

3.
Another issue to be kept in mind while opening a Demat account in the name of HUF is to c1earli
account so that it doesnt resemble with that of an individual account in the same Bank. This is in view of
issued guidelines that the Demat Account has to be opened in the name of Natural persons and in case o
generally open the account in the name of Karta and the type of the account is classified as HUF accoun

HUF - Public Provident Fund ( PPF ) Account

1.
It may be noted that PPF accounts can no longer be opened in name of HUF. Initially when
the scheme was framed, it was possible for HUE to open a PPF account. The restriction on
opening account in th,e name of HUF were put into place w.e.f. 13th May, 2005 vide Notification
No. GSR 291(E) dated 13th May, 2005 from Ministry of Finance. However, this did not affect the
account which were already in existence as they could have continued till the maturity.

2.
Though the notification as above did not effect the accounts which were already opened in
the name of HUF, the limit of Rs. 70000/- which could be deposited by a person was made
applicable to the following types of account vide Notification No. GSR 6Z9(R) dated 4/10/2002:
1. Individual self account and account(s) on behalf of minor(s) of - which the individual is
guardian, taken all account together.
2. Hindu Undivided family account
3. AOP account as applicable in the State of Goa and Union territories of Dadra and Nagar
Haveli and Daman and Diu.
It may be noted that vide Notification No.956(E) dated 7th December,2010,reported in (2011) 330
ITR (St.)1, the Provident fund Scheme,1968 has been amended to provide that an account
opened on behalf of a Hindu undivided family prior to the 13th day of May, 2005, shall be closed
after expiry of fifteen years from the end of the year in which the initial subscription was made and
the entire amount standing at the credit of the subscriber shall be refunded, after making
adjustments, if any, in respect of any interest due from the subscriber on loans taken by him. In
the case of accounts opened on behalf of Hindu undivided family, where fifteen years from the end
of the year in which the initial subscription was made, has already been completed, they shall also
be closed at the end of the current year, i.e., the 31st day of March, 2011 and the entire amount
standing at the credit of the subscriber shall be refunded, after making adjustments, if any, in
respect of any interest due from the subscriber on loans taken by him.
Thus, in view of the Notification hereinabove, those HUF PPF accounts which have already
completed 15 years from the date of initial deposit as on 31/3/2011 and the entire amount has to
be refunded in the manner hereinabove.

Thus, the combined effect of the above is that HUF can no longer open PPF Account and no
deposit also can be made in the HUF account

HUF - Capital Gain Account

This is another type of Account which can be opened by HUF assesses in order to avail
exemption in respect of Capital gains arising to them under Section 54, 54D, 54F or 54G of the
Income-tax Act, 1961 .The account to be opened in such a case is governed by the Capital Gains
Accounts Scheme, 1988 which was notified by the Centra.l Board of Direct Taxes vide Notification
No. 724(E) dated 221Id June, 1988. The salient features of such an account are as follows:

1.
The said account can be opened with all scheduled Banks and In this regard, a
Notification No. 725(E) dated 22nd June,1988 has been issued

which authorizes all the branches of 28 banks as follows(except rural branches) to receive

deposits under the said scheme. The ljst of the Bank is as follows:

i)

State Bank of India

ii)

State Bank of Bikaner & Jaipur

iii)

State Bank of Hyderabad

iv)

State Bank of Indore

v)

State Bank of Mysore

vi)

State Bank of Patiala

vii)

State Bank of Saurashtra

viii)

State Bank of Travancore

ix)

Central Bank of India

x)

Bank of India

xi)

Punjab National Bank

xii)

Bank of Baroda

xiii)

UCO Bank

xiv)

Canara Bank

xv)

United Bank of mci

xvi)

Dena Bank

xvii)

Syndicate Bank

xviii)

Union Bank of India

xix)

Allahabad Bank

xx)

Indian Bank

xxi)

Bank of Maharashtra

xxii)

Indian Overseas Bank

xxiii)

Andhra Bank

xxiv)

Corporation Bank

xxv)

New Bank of India

xxvi)

Oriental Bank of Commerce

xxvii) Punjab & Sind Bank

xxviii) Vijaya Bank

It is further stated in the said notification that a rural branch in relation to a bank means a branch
which is situated and is functioning at a centre, the population whereof, in accordance with the
1981 census, is less than ten thousand.

2.

There are two types of Account that can be opened under this Scheme and they are

Account- A and Account-B. Account-A represents a Savings account and Account-B represents a
term deposit account.

3.
It is to be noted that the deposit under the scheme has to be made within the due date of
filing of return as applicable to the assessee in order to save the capital gains tax and therefore
care must be taken to adhere to the date of opening the account and placing the deposit under
the scheme.

4.
The withdrawals from this account are permitted for the purpose of utilization in
accordance with the respective Section under which the account has been opened.
5.
The account can however be closed only with the permission of the Assessing officer
who has the jurisdiction over the assessee by making an application in Form No. G.

HUF - Deduction from HUF Business Income

HUF being a separate assessable entity as per the provisions of Section 2(31) of the Income-tax
Act,1961 and a separate legal entity as well is very well capable of doing business in its own
name. There is no bar on HUF doing business. The business in such a case can be either carried
on in the name of the HUF or if it is required to give a separate name to the business, then in such
cases, the HUF can become proprietor of such a business and business name can be distinctive
and different from the name of the HUF. Whenever HUF does any business, it would have to
obtain Trade Licence, Profession Tax Registration etc which are generally required to be obtained
as per the Rules and Regulations prevailing in the State in which the business is being carried on.

The HUF while doing business can claim all the deductions which are available for being claimed
under the heading Income from business and profession under Chapter IV-D of the Income-tax
Act, 1961 which contains Sections 28 to Section 44DB of the Act except the Sections as follows:

1. Deduction u/s 33AC relating to Reserves for shipping business is available only to a company.

2. Deduction u/s 34A relating to uabsorbed depreciation and unabsorbed investment allowance
for limited period in case of certain domestic companies.

3. Deduction u/s 35DD relating to Amortization of expenditure in case of amalgamation or

demerger.

There are some other provisions also contained in Chapter IV-D of the Income-tax Act, 1961,
deductions in respect of which is not available to a HUF mainly because of the nature of expenses
which can only arise in case of assessees other than HUFs. For further details, it is better to refer
to Chapter IV-D of the Income-tax Act, 1961 as above. Normally all expenses which are incurred
for purposes of business can be claimed. Tax is on net income and on real income. Section 37 is
residuary section to take care of all unspecified expenses. Deduction for depreciation, rent,
interest, salary etc. are admissible.

Some of the issues arising out of the Computation of Income under the head Profits/gains of

Business/Profession are dealt with herein below:

1. Whether remuneration/salary paid to Karta/other members of the HUF is deductible from

the Business income of HUF?

The Karta of the family generally manages the affairs of the family including the business run by
the family. The other family members may also be engaged in assisting the Karta or may be
independently/actively engaged in the running of the family business. A question arises whether
during the course of their engagement, can Karta and/or other members of the family draw
remuneration/salary from the business and if so whether the same would be deductible from the
business income. The aforesaid issue was subject matter of appeal before the Apex Court in the
case of Jugal Kishore Baldeo Sahai vs CIT. (1967) EL SCR 4161= (1967) 63 ITR 2381 and the
Apex COurt after detailed reasoning allowed the appeal by holding the remuneration paid to Karta
to be deductible u/s 10(2) (xv) of the 1922 Act by holding as follows in Para 8
In our view, if a remuneration is paid to the karta of the family under a valid agreement which is
bonafide and in the interest of, and expedient for, the business of the family and the payment is
genuine and not excessive, such remuneration must be held to be an expenditure laid out wholly
at exclusively for the purpose of the business of the family and must be aif owed as an
expenditure under Section 10(2) (xv) of the.Act.

The Apex Court relied on its earlier case of Jitmal Bhuraa1 vs CIT reported in (1962) 44 ITR 887
wherein it was held that a Hindu Undivided family can be allowed to deduct salary paid to a
member of the family, if the payment is made as a matter of commercial or business expediency
and the services are rendered to the fanfily. In the case of Jitmal Bhuramal though the Honble
Court held that the deduction on account of salary could only be made while computing the profits
of the partnership to which the junior members of HUF were rendering the service and not in the
assessment of the HUF.

Thus, it can be concluded that the salary/remuneration drawn by the Karta/members of HUF are
deductible as a business expenditure provided the payment is genuine and reasonable.

2. Whether interest on loan taken from coparcener is deductible out of income of HUF

The Apex Court in the ese of CIT vs Gopal Bansilal Inani (2000) 245 ITR 2 in a very short
judgement held that such interest is not deductible. However, it must be noted that this decision
has to be understood in the facts of the case, which are available in CIT vs Venugopal Inani
[19991 239 ITR 514 (SC), which was followed in this case. It was not a case of complete partition
by metes and bounds recognised under section 171, so that separate accounts as between the
HUF and coparceners though acceptable in general law could not be accepted, because of the
deeming provision under section 171 requiring the assessment to be continued to be made in the
hands of the HUF in the absence of an order recognising the partition under section 171. The

decision as such has to be read in a limited context and cannot be applied in general.

3. Withdrawal of Development rebate in case of partial partition of HUF.

An interesting question arose in the case of CIT vs S.Balasubramnian (1998) 3 SCC 596 [=
(1998) 230 fiR 934] where the Assessee was a HUF and had claimed certain development
rebate on new plant and machinery installed for the purposes of business of the Joint family.
Thereafter the said plant and machinery was allotted on partial partition to the coparceners and
the coparceners sold the said plant and machinery within a period of 8 years and the question
arose whether in such cases there was a transfer of plant and machinery, so as to warrant
withdrawal of the development rebate allowed to the HUF assssee. The Honble Apex Court held
as follows:

i)

In so far as the transfer of assets on partial partition is concerned, the same cannot be
said to be a transfer within the meaning of Section 2(47) of Income-tax Act,1961 on
account of the fact that the essence of joint Hindu family property is unity of ownership and
community of interest. Shares df members are not defined. However, in view of the unity of
ownership and community of. interest of all coparceners in the joint Hindu family business,
the position on partition of joint Hindu family business, whether it be partial or complete is
very similar in law to the position on dissolution of partnership firm. On partition the shares
of thecoparceners in the joint family business become defined and their community of
interest is separated. Division of assets is a matter of mutual adjustment of accounts as in
the case of a dissolved partnership firm. The property which so comes to the share of the
coparceners, therefore, cannot be considered as transfer by the joint family to a
coparcener or the extinguishment of the right of the joint family in that property, the joint
family not having its own separate interest in that property which can be transferred.

ii)
Thereafter, the Honble Apex Court held that though in the present case, it cannot be said
that the HUf had transferred the assets within a period of eight years, however in the present
case, the coparceners had sold the assets to third party within the period of 8 years and therefore
this wa a case where the assessee had not used the machinery for his business for a period of
eight years even if the assessee is taken as a compendium. of joint hindu family-cum-coparceners
and thereafter it held that the development rebate was rightly withdrawn

Income Derived From Funds Of HUF -Whether

Individual Income Or Family Income
Often it is seen that family funds are invested in a business and the Karta is actively engaged in
the business and during the course of such active involvement earns some income by way of
remuneration, fees etc. A question which arises is. whether such income which is earned by the
Karta or any other member of a HUF is the individual income of Karta or is the family income. In
the case of P.N. Krishna Iyer vs CIT. (1969) 1 SCR 9431= (1969) 73 ITR 5391 the Apex Court
was confronted with a similar situation and after deliberations, the Apex Court held as follows in
Para 13:

13.
Income received by a member of a Hindu undivided family from a firm or a company in
which the funds of the Hindu undivided family are invested, even though the income may be
partially traceable to personal exertion of the member, is taxable as the income of the Hindu

undivided family, if it is earned by detriment to the family funds or with the aid or assistance of
those funds; otherwise it is taxable as the members separate income. .
Further, the Honble Apex Court in the aforesaid judgement held as follows:-

But this Court in VSD. Dhanwatey case has held that the question whether the income was the
income of the Hindu undivided family or the individual income was a finding on a mixed question
of law and fact, and the final conclusion drawn from the primary evidentiary facts was open to
challenge on the plea that the relevant principle had been misapplied by the Tribunal.

The case of VSD.Dhanwatey was a constitution bench judgement reported at (1968) 68 ITR 365
w.herein the Apex Court took the view that the question was a mixed question of law and fact.
While deciding the case, the Honble Apex Court referred to the following doctrine of Hindu Law.

The general doctrine of Hindu law is that property acquired by a karta or a coparcener with the aid
or assistance of joint family assets is impressed with the character of joint family property. To put
it differently, it is an essential feature of self-acquired property that it should have been acquired
without assistance or aid of the joint famiy. property. The test of self-acquisition by the karta or
coparcener is that it should be without detriment to the ancestral estate. It is therefore clear that
before an acquisition can be claimed to be a separate property, it must be shown that it was made
without any aid or assistance from the ancestral or joint family property. The principle is based on
the original text of Yajnavalkya who while dealing with property not liable to partition, states:
Whatever else is acquired by the coparcener himself, without detriment to the fathers estate, as
a present from a friend or a gift at nuptials, does not appertain to co-heirs. Nor shall he, who
receives hereditary property which had been taken away, give it up to coparceners; nor what has
been gained by science. (Yajnavalkya 2, verses 119-120).
In the aforesaid case, though the Honble Apex Court ruled against the assessee, but one of
Judges (Justice Hegde) gave a dissenting and separate judgement by taking cognizance of the
fact that business concerns do not earn profits merely because capital is invested in them. Much
depends upon th persons who are in charge of business. Captains of industries and business
managers should possess business knowledge, tact, capability, drive and numerous other
qualilies.

Similar view was taken in the case of CIT vs D.C. Shah, (1969) 1 SCC 550 1= (1969) 73 ITR
692], wherein the Apex Court had followed the decision in the case of P.N. Krishna Iyer vs
CIT,(1969) 1 SCR 943 (supra) and held as follows:

Upon the particular facts of this case, it is manifest that there was no real or sufficient connection
between the investment of the joint family funds and the remuneration paid by the partnership to
Shri D.C. Shah. It follows that the remuneration of Shri D.C. Shah was not earned on account of
any detriment to the joint family assets and the amounts of remuneration received by Shri D.C.
Shah as the Managing partner of the two partnerships were not assessable as income of the
Hindu Undivided Family.

Again in the case of CIT WB vs Kalu Babu Lal Chand reported at (1959) 37 ITR 123, the Apex
Court was confronted with a situation where the Karta was appointed as Managing Director of a
Company which was promoted by the Karta and shares were issued in the name of Karta and
other members of the family from the funds provided by HUF. In the light of these facts, the Apex
Court ruled that the remuneration which was given to the Karta in his capacity as Managing
Director was to be assessed as HUF income. The Apex Court distinguished the judgements cited
in the case of Sardar bahadur Indra Singh vs CIT(1943) 11 ITR 16 on the ground that there was
an express provision in the Articles of Association in that case that the remuneration of the
Managing Director would be his personal Income. Further, the case of CIT vs Darsanram (1945)
13 ITR 419 was also distinguished as the joint family property having not been spent for earning
the Managing Directors remuneration. The apex Court in this case held that the acquisition of
business, flotation of the company and the appointment of the managing director were
inseparably linked together. The Apex Court relied on the Bombay High Court case of Haridas
Purusottam case reported in (1947) 15 ITR 124.

Gift by HUF to its Member

It is very well possible for the HUF to make gift to any member of the HUF to reasonable extent
with the consent of the members/coparcener. In case of gifts to members of the HUF, it is
advisable to have the gift deed drafted in such a way so as to incorporate the consent of all the
members in the gift deed itself so that there is no problem in the future challenging of the gift from
the members themselves. In this regard, the Punjab & Haryana High Court in Raghbir Singhs
case (1958) 34 ITR 719, held gift to the spouse of Karta to be valid primarily because the son, the
only other coparcener had no objection to it.
A draft of such a gift is given herein below:DECLARATION OF GIFT
I, DDR, Karta of DDR HUF, residing at Chowringhee Road,
Kolkata 700 071 do hereby solemnly affirm and declare as
follows:
1. That out of natural love and affection, I as a Karta of
DDR HUF made an absolute and unconditional gift of
Rs 100000/- (Rupees one lac only) to Miss CDR, my
daughter and coparcener of the family in order to
maintain and educate her.
2. That the said gift was made out of the funds belonging to
DDR HUF exclusively.
3. That the said gift was made by Cheque No. 444444 dated
11/08/2011 drawn on State Bank of India, Burra Bazar
Branch.
4. That Miss CDR accepted the said gift by signing the
acceptance on this gift1deed.
5. That the said gift was made after obtaining consent of all
the members of the HUF who have also signed this gift
as a token of acceptance of the gift being made herein.
6. That the HUF shall have no right, title, interest, claim or
demand whatsoever into or upon the said gifted money
or any part thereof any time hereinafter.
7. That DDR HUF is assessed to Income-tax vide PAN NO.
AECPT9561H

8. That the statements made hereinaboye are true to the best

of my knowledge and belief.
Declared at Kolkata
This 21st, day of April, 2014
ACCEPTED
(DDR)
DECLARANT
WITNESS AND CONFIRMATORIES TO THE DEED
1.
2.
3.

Gift To Minor Daughters Out Of HUF Property

Prior To Marriage
On the issue whether the Karta can gift the HUF property to minor daughters only on the occasion
or marriage or at any time, it was held that, the Karta of a HUF has inherent powers to make gifts
out of HUF property in reasonable quantity. The support for this proposition is derived from the
Apex Court case of CWT vs K.N. Shanmugasundaram, (1997) 11 SCC 252, wherein the Apex
Court referred to the following finding of the Madras High Court at Page 255:

Under the Hindu law the father or his representative can make a valid gift by way of reasonable
provision for the maintenance of the daughters, regard being had to the financial and other
relevant circumstances of the family, and by custom or convenience such gifts are made at the
time of marriage but the right of the father or his representative to make such a gift is not confined
to the marriage occasion and it is a moral obligation which continues to subsist till it is discharged.
Marriage is only a customary occasion for such a gift but the obligation can be discharged at any
time either during the lifetime of the father or thereafter. The High Court has further held that the
right of the father or his representative to make such a gift is not confined to the marriage occasion
and that there was no reason why a father should not have the power to make a gift of a
reasonable portion of the joint family property to his minor unmarried daughters who might get
married or continue to remain as spinsters and lead a life of celibacy. According to the High Court,
the need of a father in a Hindu undivided family to make a provision for the future maintenance of
his minor unmarried daughters is greater and more compelling than the one he may have to make
a provision for the maintenance of the daughter at the time of the marriage or thereafter. For a
daughter who gets married or who has already got married, has her husband who may provide for
her maintenance in addition to the support which she derives from her father after the marriage
while there is no such support from a person like the husband or other relative in the case of a
minor unmarried daughter of a Hindu father of an undivided family. The High Court further found
that having regard to the fact that the total assets of the assessee amounted to Rs 13 lakhs and
that the gift which each of the three minor daughters got would bear only 1/39 portion of the total
value of the assets of the assessee on one computation and only 1/55 portion of. the total value of

the assets by another computation it could not be said that the properties gifted to the minor
daughters do not bear a small or reasonable proportion of the total value of the properties owned
by the family of which the assessee is the manager. In view of the aforesaid findings, the High
Court has answered the questions referred to it against the Revenue and in favour of the
assessee.
After this the Honble Apex Court declined to interfere on the ground that the Gift of property in
small proportion to three minor daughters from HUF property was approved under the Income-tax
as well as Gift tax Assessment.

Thus, it can be concluded that the Karta can gift in reasonable quantity to the members of the HUF

Gift of HUF Property to Stranger or to any Person

who is a Alien to HUF
There are restrictions on Gift of Property belonging to HUF to strangers or to any person who is
alien to HUF.
1. The Honble Supreme Court in the case of Guramma vs Mallappa reported at AIR 1964 SC
510 held as follows : No authority has so far been placed before us to sustain a gift to a stranger even on the ground
of charity. It must be remembered that the manager has no absolute power of disposal over the
HUF property. The Hindu law permits him to do so only within such limits. We cannot extend the
scope of power on the basis of the wide interpretation given to the word pious purpose in Hindu
Law in a different context. In the circumstances, we hold that the gift to stranger of a Joint family
property by rhanager is void.

2.

In the case of Mukund Singh vs Wazir Singh, (1972) 4 SCC 178, at page 180 the Apex
Court was considering the validity of a gift made by a father to a stranger out of the
coparcenary property wherein the coparcenary consisted of father and his adopted son and
the Apex Court after detailed reasoning held that A gift Of coparceners property by a
member is void. There is nothing in Section 13 of the Hindu Adoptions and Maintenance
Act, 1956 which detracts from that rule.

Thus, gift by HUF to strangers is void. Interestingly the Rajasthan High Court in the case of
Commissioner of Income-tax vs Dwarka Dass and Sons(1995) 212 ITR 579 held cash gift of
reasonable amount(Rs.5000/-) out of HUF Property to strangers as valid. Thus it has been seen
that even though gifts have been held to be void by various courts of law, it is not uncommon to
find gifts by HUF. In such cases, precaution must be taken to ensure that the gift to
members/strangers by HUF are not termed as Partial Partition within the meaning of Section 171
of the Income-tax Act,1961 as discussed in later chapters

Clubbing Provisions In Case Of Gifts Received By

HUF
It is pertinent to refer to the provisions of Section 64(2) of the Act which read as follows:-

(1) Where, in the case of an individual being a member of a Hindu undivided family, any property
having been the separate property of the individual has, at ny time after the 31st day of December,
1969, been converted by the individual into property belonging to the family through the act of
impressing such separate property with the characterof property belonging to the family or
throwing it into the common stock of the family or been transferred by the individual, directly or
indirectly, to the family otherwise than for adequate consideration (the property so converted or
transferred being hereinafter referred to as the converted property), then, notwithstanding anything
contained in any other provision of this Act or in any other law for the time being in force, for the
purpose of computation of the total income of the individual under this Act for any assessment
year commencing on or after the 1st day of April, 1971,

(a)

the individual shall be deemed to have transferred the converted property, through the
family, to the members of the family for being held by them jointly;

(b)

the income derived from the converted property or any part thereof shall be deemed to
arise to the individual and not to the family;

(c)

where the converted property has been the subject-matter of a partition (whether partial or
total) amongst the members of the family, the income derived from such converted property
as is received by the spouse on partition shall be deemed to arise to the spouse from
assets transferred indirectly by the individual to the spouse and the provisions of subsection (1) shall, so far as may be, apply accordingly:

Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total
income of the individual, be excluded from the total income of the family or, as the case may be
the spouse of the individual.

Explanation 1.For the purposes of sub-section (2),

property includes any interest in property, movable or immovable, the proceeds of sale thereof
and any money or investment for the time being representing the proceeds of sale thereof and
where the property is converted into any other property by any method, such other property.
Explanation 2.For the purposes of this setion, income includes loss.

Thus, it is not possible for an individual being a member of HUF to convert his separate property
into property belonging to HUF in view of the clubbing provisions contained in Section 64(2) of the
Income-tax Act, 1956. In such a case, the income generated from such property would be
assessable as his individual income only and not as HUF income. However, the income which is
so generated remains with the HUF and HUF is free to invest this income and any income
generated out of such reinvested income is not liable for clubbing and remains with the HUF.
Thus, though the initial income is clubbed in the hands of the person who has given the gift,
income from income in future years is not to be clubbed.
In case of say shares which are gifted as such, the dividend on such shares is to be clubbed with
the person who has gifted the shares. However, if any bonus shares are issued on these shares
and any dividend is received on these bonus shares, the said dividend is income of HUF only.

Gifts received by HUF from Aliens / Strangers

Further, HUF can also receive gifts from any alien stranger. However, In this regard, it is pertinent
to note that till the enactment of Section 56(2) gifts were exempt from any tax in hands of the
donor as well as the donee. However, Section 56(2) (v) was introduced in the statute books w.e.f
1.4.2005 and reads as under:

Section 56(2) - In particular and without prejudice to the generality of the provisions of sub-section
(1), the following income shall be chargeable to income-tax under the head Income from other
sources namely:

(v)

where any sum of money exceeding twenty-five thousand rupees is received without
consideration by an individual or a Hindu undivided family from any person on or after the
1st day of September, 2004, but before the 1st day of April, 2006 the whole of such sum:
Provided that this clause shall not apply to any sum of money received
(a)
(b)
(c)

from any relative; or

on the occasion of the marriage of the individual; or
under a will or by way of inheritance; or

(d)

in contemplation of death of the payer.

Explanation.For the purposes of this clause, relative means

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

spouse of the individual;

brother or sister of the individual;
brother or sister of the spouse of the individual;
brother or sister of either of the parents of the individual;
any lineal ascendant or descendant of the individual;
any lineal ascendant or descendant of the spouse of the individual;
spouse of the person referred to in clauses (ii) to (vi).]

The above provisions of Section 56(2)(v) were operative only upto 31s1 March,2006 and from 1st
April,2006 a new sub-clause (vi) was added in Section 56(2) which reads as follows:

Section 56(2) (vi) - Where any sum of money, the aggregate value of which exceeds fifty thousand
rupees, is received without consideration, by an individual or a Hindu undivided family, in any
previous year from any person or persons on or after the 1st day of April, 2006 [but before the 1st
day of October, 2009], the whole of the aggregate value of such sum:
Provided that this clause shall not apply to any sum of money received

(a)

from any relative; or

(b)
on the occasion of the marriage of the individual; or
(c)
under a will or by way of inheritance; or
(d)
in contemplation of death of the payer; or
(e)
from any local authority as defined iii the Explanation to clause (20) of section 10; or
(f)
from any fund or foundation or university or other educational institution or hospital or other
medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g)

from any trust or institution registered under section 12AA.

ExplanationFor the purposes of this clause, relative means

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

spouse of the individual;

brother or sister of the individual;
brother or sister of the spouse of the individual;
brother or sister of either of the parents of the individual;
any lineal ascendant or descendant of the individual;
any lineal ascendant or descendant of the spouse of the individual;
spouse of the person referred to in clauses (ii) to (vi)

Thus, in view of the above it is important to keep in mind that the gifts which are received by HUF
must be exempt u/s 56(2) (vi) of the Income- tax Act, 1961, otherwise tax liability may arise.

In order to so plan this, the following things must be kept in mind:-

The proviso to Section 56(2) (vi) exempts the following types of gifts from being treated as income:

1. Gift from any relative is exempt. Further, explanation to this proviso defines the word relative
by referring to individuals. Therefore ordinarily speaking, the HUF seems to have been
excluded from this clause as there cannot be any relative of a HUF. However, the extended
meaning of this clause can be taken to mean that the relatives of members of HUF are covered
by this clause and therefore any gift from any relative of a member to HUF is exempt in the
hands of the HUF. However, this is a very liberal and extended meaning which must not be
taken in view of the fact that huge tax liability may entail upon the HUF. It is only a matter of
time before the Courts of law settle this controversy.in this regard, it is pertinent to refer to the
decision in the case of Goli Eswariah vs CGT (1970) 2 SCC 390 [=(170) 76 ITR 675 wherein
the Apex court held that when a coparcener throws is separate property into the common
stock, he makes no gift under Chapter VII of the Transfer of Property Act. In such a case there
is no donor or donee.
2. Secondly, gifts on the occasion of the marriage of the individual is exempt in the hands of
individual without any limit. This being not applicable to HUF is not discussed here.
3. Thirdly, gifts under a will or by inheritance are exempt under this clause and therefore, if a
HUF receives any gift by a will of any person, the same is exempt without any limit. HUF may
not ordinarily receive any gift by inheritance as such and therefore, the clause is not applicable
in the case of HUF.
4.
Fourthly, gifts in contemplation of death can be received by HUF in case a person makes
such a gift

HUF - Investment Options

As we have seen above, HUF is entitled to hold movable as well as immovable properties of all
kinds and this being so, the investment avenues for HUFs are also very wide. Investments can be
made in the name of the HUF or its Karta or its members.

The main investment options available to HUF are as follows:

1. Immovable

Assets

Immovable properties of all kinds like land, building, and any other types of immovable property
which is attached to earth.

All such immovable assets are capable of being registered in the name of the HUF.

2. Movable

assets

HUF is also entitled to own and hold all kind of movable assets such as:

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Shares and debentures

NSCs
Deep discount bonds
Investment in Units of Mutual funds
Zero coupon bonds
Indira Vikas Patras
Kisan Vikas Patras
Cash
Stocks and debtors forming part of business assets.
Life Insurance policies(in the name of Karta and/or member)

The above list is not exhaustive and in present age of globalization, more and more avenues are
opening up on a daily basis.
There is no bar on HUF in holding any kind of Movable and immovable assets. It has to be kept in
mind that sometimes the investment may be held in the name of the Karta though the beneficial
interest lies with the HUF, since the funds for such investment are given by HUF. In cases like this,
it is always better to make a statementto this effect in the Statement. of affairs of the HUF which is
filed with the Income-tax department. Burden to prove that property standing in the individual
name of any person is not his absolute property but property of the HUF would be on the HUF
because it is well settled that apparent is real unless otherwise proved. Hence documentary
evidence and proof deserve to be maintained

Concept of Multiple HUFs

The concept of Multiple HUFs was in practice in the States like Maharashtra and Gujrat where by
custom a person used to write the first name of his father in his name as middle name and an
unmarried daughter used to write the name of her father in her name as middle name and further
a married lady used to write the first name of her husband in her name as middle name. This
practice is still prevalent in those states.

The Multiple HUFs in such a scenario used to be created by creating several sub HUFs within the
bigger HUF of a say Hindu father.

A Hindu father say X having three sons namely A, B, and C used to create in all 7 HUFs as
follows:

1.

X HUF

2.

XA HUF

3.

XB HUF

4.

XC HUF

5.

XAB HUF

6.

XAC HUF

7.

XBC HUF

The HUFs so created are called Multiple HUFs since the membership in case of such HUF is
restricted to that branch of son who is a part of the HUF.

MULTIPLE HUFS - NOT POSSIBLE NOW

It is pertinent to note that the provisions of Section 171(9) of the Incometax Act, 1961 were
introduced in the Act only to curb the practice of creating multiple HUFs by making a partial
partition. So much so that one planner planned to cause more than 50 HUF with different
combinations and 50 separate assessments. Thus, it is no longer possible to create multiple
HUFs.
However, this doesnt mean that a family can not have more than one HUF. It is possible to have a

separate HUF with father as the Karta and another HUF with his son or sons as Karta or even with
daughters in view of the amendment made in the Hindu Succession Act.

MULTIPLE HUFs vs Bigger HUF/Smaller HUF

It may be noted that Multiple HUF are different from Bigger HUF/Smaller HUF which have been
explained in detail in Chapter 2 and it should be noted that only Multiple HUF is not possible these
days. The Bigger HUF as well as smaller HUF in the same family can still function without any
violation of law.
There can be a bigger family and smaller families on partition. To illustrate : M/s Mohonlal
Sohanlal (HUF) is carrying on wholesale business with a net income of Rs. 15 lacs after payment
of salary to the karta and adult male coparceners working on the shop. The bigger family is
headed by karta M, his wife W, five sons and three daughters, all married, with daughter in-laws
and grand children from the HUF. The family capital can be partitioned between the coparceners.
Whatever is received by each, M, W and three married daughters would receive as an individual
but the five sons would receive in the capacity of karta of HUF and form HUF with their respective
wife and children. Thus 5 HUF would come into assistance the family business can be converted
into partnership firm admitting all the sons and daughter-in-laws. M & W as partners and grand
children as beneficiary partners. The tax on 15 lakhs can be totally avoided or substantially
reduced, to create capital and promote/develop over short period.

Whether a Single Member can Constitute a HUF?

HUF as the term denotes is a family consisting of group of persons who are descendants of a
common ancestor. Therefore, it is little surprising as to how a single member can constitute a
HUF. The simple answer to this question is in the negative.

A single person claiming the status of HUF can be on account of the following events:

a) A HUF is reduced to a single member on account of death of all other members.

b) A bachelor individual receiving certain properties on partition of his fathers HUF claiming
the status of HUF either on receipt of this property or on partition or on marriage.

In a number of court cases, the issue has arisen and in one such case - CIT vs Vishnu Kumar
Bhaiya (Madhya Pradesh High Court) reported at 142 ITR 357(1983), the Honble court decided
that a single member, either male or female cannot constitute a HUF. It is pertinent to note here
that a Special Leave Petition (SLP) against this decision was granted by Supreme Court on
27/2/1984 as reported at Vishnu Kumar Bhaiya vs CIT (1984) 146 ITR (St) 187 and is still pending.
The said decision of Vishnu Kumar Bhaiya(upra) was again considered by the Honble Madhya
Pradesh High Court in the case of Balkrishna Goyal vs Commissioner of Wealth-tax(1995) 218

ITR 671. In the said case the assessee obtained property on partial partition which took place in
1955 among his grandfather, father and brothers. M that time, he was unmarried. Till the
assessment year 1978-79, the returns were filed by him in the status of an individual. He married
on February 24, 1978. Thereafter, he submitted his income-tax and wealth-tax returns for the
assessment year 1979-80 claiming status as Hindu, tindivided family in respect of the properties
obtained by him in partial partition. On these facts the following question was answered in the
negative i.e., in favour of the assessee by the Honble Court:

Whether on the facts and in the circumstances of the case, the Tribunal was justified in not
accepting the status of the assessee as Hindu Undivided family in the assessment years 1980-81
to 1983- 84?
In the aforesaid decision of the Balkrishna Goyal, the Honble M.P. High Court considered the full
bench decision of CIT vs Krishna Kumar (1983) 143 ITR 462.
The aforesaid decisions of the Honble Madhya Pradesh High Court in the case of Vishnu Kumar
Bhaiya (Supra) and Balkrishna Goyal (supra) was considered recently by the Bombay High Court
in the case of Dr Prakash B Sultane vs CIT (2005) 148 Taxmann 353 and the Honble Bombay
High Court applying the principles laid down by the Apex Court case of Gowli Buddanna vs CIT
(60 ITR 293) answered the following question in the negative i.e., in favour of the assessee and
against the revenue:

Whether, on the facts and in the circumstances of the case the Tribunal is justified in law in
holding that the income from assets received on partition dated 1-1-72 to the extent of Rs. 15,381
for assessment year 1981- 82 and Rs. 12,242 for assessment year 1982-83 was assessable in the
hands of the assessee individual ?

The above question was in respect of the following facts:-

The assessee is a doctor by profession. His income from profession was assessable in his hands
as an individual. The assessee was member of a bigger HUF which was partitioned on 1-1-72. At
the time of partition and right upto 22nd January, 1980 the assessee was a bachelor. During all
these years, the income from assets on partition was assessed in the hands of the assessee as
his individual income. When the assessee got married on 22nd January, 1980, the assessee
contended that immediately after his marriage, the income from the assets received by him on
partition was required to be assessed as HUF income, the HUF consisting of himself and his wife
Further, the Supreme Court in the case of Krishna Prasad vs CIT reported at 97 ITR 493 held as
follows:
Family always signifies a group. Plurality of persons is an essential attribute of a family. A single,
person male or female, doesnt constitute a family. A family consisting of a single individual is a
contradiction in terms. Section 2(31) of the Income-tax Act, 1961 treats a Hindu Undivided family
as an entity distinct and different from an individual. Assessment in the status of a HUF can be
made only when there are two or more members of the HUF.
Thus, in no unequivocal terms, it can be said that a single member cannot claim the status of
HUF. Oiie must not confuse between a sole coparcener and a single member. A HUF can very

well consist of a sole surviving coparcener and another member who may not be a coparcener. In
such a case, there are two members and not a single member in the HUF.
A sole surviving coparceners holds the ancestral property but would be assessed as an individual
in the absence of any other member / coparcener. However if he adopts a child, it would
immediately assessable as HUF because the adopted child would have equal share in the
ancestral property

Whether any Limit is placed on Number of

Members of a HUF?
We have seen already that the meaning of the term HUF and the way in which HUF comes into
existence. In the light of all this, the question whether any limit is placed on number of members of
a HUF has been beautifully explained by the Apex Court in the case of Surjit Lal Chhabda vs CIT,
(1976) 3 SCC 142, at page 148

Outside the limits of coparcenary, there is a fringe of persons, males and females, who constitute
an undivided or joint family. There is no limit to the number of persons who can compose it nor to
their remoteness from the common ancestor and to their relationship with one another. A joint
Hindu family consists of persons lineally descended from a common ancestor and includes their
wives and unmarried daughters. The daughter, on marriage, ceases to be a member of her
fathers family and becomes a member of her husbands family. The joint Hindu family is thus a
larger body consisting of a group of persons who are united by the tie of sapindaship arising by
birth, marriage or adoption:
The fundamental principle of the Hindu joint family is the sapindaship. Without that it is
impossible to form a joint Hindu family. With it as long as a family is living together, it is almost
impossible not to form a joint Hindu family. It is the family relation, the sapinda relation, which
distinguishes the joint family, and is of its very essence.
Thus it can be concluded that there is no limit on the number of members of a HUF.

Whether HUF- Can Be Constituted with only

Female Members?
An interesting question which has come up for discussion is whether HUF can consist of only
female members. This is in view of the fact that female members have no right to partition and
they are not treated as coparceners.

The circumstances in which female members constituting HUF comes into consideration are as
follows:

1.
A HUF consisting of husband, wife, daughters-when the husband dies.
The Supreme Court in the case of CIT vs Sandhya Rani Datta (2001) 248 ITR 201 has held that
the wife and daughter inheriting the property of a male Hindu do not form a HUF and that they
could not also do so by agreement amongst themselves by throwing their respective inherited
share in the hotchpotch, as such a course of action is contrary to the basic tenets of Hindu

made only when there are two or more members of the HUF.

Thus, in no unequivocal terms, it can be said that a single member cannot claim the status of HUF
between a sole coparcener and a single member. A HUF can very well consist of a sole surviving
member who may not be a coparcener. In such a case, there are two members and not a single member

A sole surviving coparceners holds the ancestral property but would be assessed as an individual in the
member / coparcener. However if he adopts a child, it would immediately assessable as HUF because th
have equal share in the ancestral property.

Whether any Limit is placed on Number of Members o

We have seen already that the meaning of the term HUF and the way in which HUF comes into existen
the question whether any limit is placed on number of members of a HUF has been beautifully explained
case of Surjit Lal Chhabda vs CIT, (1976) 3 SCC 142, at page 148

Outside the limits of coparcenary, there is a fringe of persons, males and females, who constitute an
There is no limit to the number of persons who can compose it nor to their remoteness from the comm
relationship with one another. A joint Hindu family consists of persons lineally descended from a comm
their wives and unmarried daughters. The daughter, on marriage, ceases to be a member of her fathe
member of her husbands family. The joint Hindu family is thus a larger body consisting of a group of pe
the tie of sapindaship arising by birth, marriage or adoption:

The fundamental principle of the Hindu joint family is the sapindaship. Without that it is impossible to fo
With it as long as a family is living together, it is almost impossible not to form a joint Hindu family. It is th
sapinda relation, which distinguishes the joint family, and is of its very essence.

Thus it can be concluded that there is no limit on the number of members of a HUF.

Whether HUF- Can Be Constituted with only

Female Members?
An interesting question which has come up for discussion is whether HUF can consist of only
female members. This is in view of the fact that female members have no right to partition and
they are not treated as coparceners.

The circumstances in which female members constituting HUF comes into consideration are as
follows:

1.

A HUF consisting of husband, wife, daughters-when the husband dies.

The Supreme Court in the case of CIT vs Sandhya Rani Datta (2001) 248 ITR 201 has held that
the wife and daughter inheriting the property of a male Hindu do not form a HUF and that they
could not also do so by agreement amongst themselves by throwing their respective inherited
share in the hotchpotch, as such a course of action is contrary to the basic tenets of Hindu

Personal law.

There may be different circumstances when female members are allowed to constitute HUF on
the happening of an event say adoption of a male child. This issue is though a separate issue
and the single issue at hand is whether HUF can consist of only female members to which the
answer is a clear no.

2.
Again, in the case of Sushila Dcvi Rampuria vs ITO (1960) 38 ITR 316, the Calcutta High
Court relying on the judgement of CIT vs Sarwar Kumar(1945) 13 ITR 361(All) held that it
cannot be denied that a Hindu female cannot be a coparcener under the Hindu law. But, for the
purpose of the Indian Income-tax Act, we are not concerned with the Hindu coparcenary, as has
been clearly pointed out by the Judicial Committee. What we are conceded with is a Hindu
undivided family. A female can be a member of a Hindu undivided family, which may even
consist entirely of females.
3.
Moreover, the Apex court in the case of Commissioner of Income-tax vs Veerappa Chettiar (Rm.
Ar. Ar.)(1970) 76 ITR 467 (SC) held that HUF can consist of all female members

Drawings / Expenses of HUF

HUF as has been seen earlier is an entity beonging to a family. The family in the instant case
consists of members constituting the HUF. In such a case drawings or expenses needed to
maintain the family can be met out of the current income of the HUF or the corpus funds. of the
HUF and there is no bar/limit on this. The expenses which can be met out of the Corpus of HUF
can be either recurring/casual and, one time expenses. In such cases, the essence is that the
expenses should be on account of or for the benefit of the family as a whole or any member of
the family. Expenses on education, maintenance and marriage of the members of the family is
the obligation of the family, even if the individual member may have his/her own income from
learning or earning.

The following nature of expenses can be generally classified under the heading of drawings:

a)

Expenses on rent

b)

Expenses on fooding of the family

c)

Expenses on education including higher education of the family members

d)

Expenses on Electricity bill

e)

Expenses on Motorcar

f)

Expenses on family get-together / entertainment

g)

Expenses on Travelling/holidays

h)

Expenses on capital assets like buying a Car, TV, and Refrigerator etc.

i)

Expenses on medical treatment of family members

j)

Expenses on marriages and other festival and ceremonies.

The above list is not exhaustive and can include other items of expenses also. The essence in such
cases is that the Corpus is spent for the purpose of enjoyment of the whole family.
In cases where the expenses are incurred not for the family members but for other persons, then there is
nothing untoward in such cases except that the same may be treated as gift in the hands of the person for
whose benefit the expense are incurred by the Assessing Officer u/s 56(2) (vi)/(vii)/(viia)of the Income-tax
Act, 1961 as has been specified elsewhere. Further, it has been held by CBDT that expenses incurred on
marriage on a female member of a HUF out of the HUF funds are not to he treated as gift. The detailed
circular in this regard is reported in Chapter dealing with Circulars issued in relation to HUFs. The
rationale for not treating expenditure on marriage as gift is that it is duty and not a voluntary act. Section
56(2)(vii) of the Income-tax Act,1961 specifically excludes marriage gifts from its ambit

Whether HUF can be a Shareholder / Subscriber

to the MOA (Memorandum Of Association) of a
Company
In the present age of globalization, it is often seen that HUF as an entity is required to promote a
company for the purpose of its own business or other activities. The question which arises is
whether a HUF can become a shareholder in a company or whether it can become subscriber to
the Memorandum of Association of a company for the purpose of promoting a company.

In this regard, it may be noted that Section 12 of the Companies Act,1956 dealing with the
Modes of forming incorporated company reads as follows:

Section 12.
Mode of forming incorporated company.- (1) Any seven or more persons, or
where the company to be formed will be a private company, any two or more persons,
associated for any lawful purpose may, by subscribing their names to a memorandum of
association and otherwise complying with the requirements of this Act in respect of registration,
form an incorporated company, with or without limited liability.

Thus, it is important to refer to the meaning of the word person. Though the income-tax Act,
1961 defines the word Person in Section 2(31) of the Act which is as follows:

Section 2(31).
Person includes

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) a local authority, and

(vii) every artificial juridical person, not falling within any of the preceding sub-clauses;

However, unfortunately, the Companies Act, 1956 is silent on the matter. We may therefore have
to refer to the definition as given in the General Clauses Act, 1897.

Section 3(42) of the General Clauses Act, 1897 defines the word person as follows:(42) person shall include any company or association or body of individuals, whether
incorporated or not:

The definition as given above is an inclusive definition and not an exclusive definition and
therefore it follows that the word person is of wide import.
Though Companies Act, 1956 doesnt directly refer to the HUF becoming shareholder or promoting a
company, however Section 11 of the Companies Act, 1956 dealing with the Prohibition of Association and
partnership exceeding certain number unless it is registered as a company refers to HUF in a negative
way. Section 11(3) of the Companies Act, 1956.

Whether HUF can be a Member of a Cooperative

Society?
In the present Age, We have seen that Cooperative Societies are also gaining wide acceptance
particularly in the field of acquisition of properties where the Cooperative Society is formed for
acquisition of the Property. A question which arises is whether HUF can become a member of
the Cooperative Society. In this regard, it is pertinent to refer to the following provisions of the
Cooperative Society As per Section 2(c) of Cooperative Societies Act,1912, member includes a
person joining in the application for the registration of a society and a person admitted to
membership after registration in accordance with the by-laws and any rules;.

Thus, it appears that any person joining in the application for registration of a society can be a
member of the Cooperative Society. The word person has not been defined the Cooperative
Societies Act, 1912 and therefore the definition as given under the eneral ClausesAct, 1897 will
apply and as we have seen in the case of Companies hereinabove, the definition being an
inclusive definition, the word person for the purposes of Cooperative Societies Act, 1912 can

be deemed to include Hindu Undivided family also and consequently it can be concluded that a
HUF can become member of a Cooperative Society.

However, several States have their separate Cooperative Societies Act and one such State is
Maharashtra where the provisions of Maharashtra Cooperative Societies Act, 1960 are
applicable and Section 22 of the Act specifically excludes certain categories of persons from
being a member and HUF is in the excluded category.

22. Person who may become member:

(1 )
Subject to the provisions of section 24, no person shall be admitted as a member of a
society except the following that is to say

(a) an individual, who is competent to contract under the Indian Contract Act, 1872;

(b) a firm, company or any other body corporate constituted under any law for the time being in
force, or a society registered under the societies Registration Act, 1860;

(c) a society registered, or deemed to be registered, under this Act;

(d) the State Government or the Central Government;I

(e) a local authority;

(f) also public trust registered under any law for the time being in force for the registration of such
trusts;
Thus in respect of the each State, it is better to check the provisions of the relevant State Cooperative
Societies Act prior to taking membership in any cooperative Society.

Whether HUF can be a Partner

Partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually partners
and collectively a firm, and the name under which their business is carried on is called the firm
name.

Thus, here also the word has been defined by including the word persons.

The word person again has not been defined in the Act. Here again, We have to, refer to the
definition as given in the General Clauses Act,1897 as we have seen in earlier case and the
same is reproduced again.

Section 3(42) of General Clauses Act, 1897

(42) person shall include any company or association or body of individuals, whether
incorporated or not:

The definition as given above is an inclusive definition and not an exclusive definition and
therefore it follows that the word person is of wide import. There is no clear cut answer to this
question and for this we have to refer to the established judicial pronouncements in this regard.
As we have seen that a partnership is a contractual relationship, while the relationship under the
Hindu law depends upon the status as a member of the family. A Hindu undivided family is a
fleeting body. Its composition changes by birth, death, marriage and divorce. Such a partnership
is likely to have a precarious existence. Hence one cannot lightly infer that a Hindu undivided
family can bind a partnership in such capacity. In a recent judgement of SC in the case of Rashik
Lal and Co. vs. Commissioner of Income-tax reported at (1998) 229 ITR 458, the Honhle
Supreme court held as under:
A firm is a compendious way of describing the individuals constituting the firm. A Hindu
undivided family directly or indirectly cannot become a partner of a firm because the firm is an
association of individuals. Under Hindu law, not all members of the joint family, hut only such o
its members as have, in fact, entered into partnership with the stranger, become partners. The
Partnership Act, 1932, contains various provisions regarding the relationship among partners. All
these provisions relating to mutual rights and liabilities are only applicable to the individual
partners who are members of the firm. There is no way that a Hindu undivided family-can intrude
into the relationship created by a contract between certain individuals. The only right of the Hindu
undivided family is possibly to call upon its nominee partner to render accounts for the profits
that he has made from the partnership business. But that is something between the nominee and
the Hindu undivided family, with which the partnership is not concerned. The specific provision in
section 13 of the Partnership Act, 1932, that a partner is not entitled to receive any remuneration
for taking part in the conduct of the business, has been interpreted to mean that every partner is
bound to attend diligently to the business of the firm. For doing his duties, he cannot charge his
co-partners any sum or remuneration, whether in the shape of salary, commission or otherwise,
on account of the trouble taken by him in conducting the partnership business. There, however,
can be a special contract to the contrary in which case, the provisions of that contract will prevail.
Section 40(b) of the Income-tax Act, 1961, will apply, even when there is such a special contract.
Any commission paid by a firm to its partner will not be permitted as deduction from. the
business income of the firm. If a claim is made by a partner that he is representing a Hindu
undivided family or any other body of persons, the position in law will not be any different. The
Hind,, undivided family is not and cannot be a partner in a partnership firm. The remuneration or
the commission that is paid to the partner cannot be claimed to be a remuneration or
commission paid to the Hindu undivided family. The partner may be accountable to the family for
the monies received by him from the partnership. But, in the assessment of the firm, the partner
cannot he heard to say that he has not received the commission as a partner of the firm, but in a
different capacity. The application for registration of a firm has to be made under section 184 of
the Income-tax Act. The very facts that individual shares of the partners have to he specified and
that such partners must personally sign the partnership deed and also the application for
registration go to show that even if a person joins a firm as a representative of a Hindu undivided
family or any other body or association, within the firm, his position is that of an individual. He
may have an agreement with a third party to divide the profits received from the firm, but that

agreement does not bind the firm nor does it alter the position of the partners under the
Partnership Act or the Income-tax Act. A partner does not act in a representative capacity in the
partnership. He functions in his personal capacity like any other partner. The provisions of the
Partnership Act and the income-tax Act relating to partners and partnership firms will apply in full
force in respect of such a partner. If any remuneration is paid or a commission is given to a
partner by a partnership firm, section 40(b) will apply even if the partner has joined the firm as a
nominee of a Hindu undivided family. The Hindu undivided family or its representative does not
have any special status in the Partnership Act. Although the partnership firm is not a legal entity,
it has been treated as an independent unit of assessment under the Income-tax Act. The
assessment of a firm will have to be made strictly in accordance with the provisions of the
Income-tax Act. The law has to be taken as it is. Section 40(b) applies to certain payments made
by a firm to its partners. Neither the firm nor its partners can evade the tax law on the pretext that
although in law he is a partner, in reality he is not so. He may have to hand over the money to
somebody else. That may be his position qua a third party. But the firm has nothing to do with it.
It has paid the commission to one of its partners. It cannot get any deduction in its assessment
for that payment, because section 40(b) of the Act expressly prohibits such deduction.

There has been several decisions earlier also in this regard and the courts have not yet settled
the issue whether it is possible for a HUF to become partner in the firm.

1.
The Supreme Court in Brij Mohan Das Laxman Das vs CIT [1997] 223 ITR 825 had
earlier held in the light of a subsequent Explanation introduced in section 40(b) with effect from
April 1, 1985, that a partner can have a dual role vis--vis the firm. While representing his joint
family as the Karta he can get interest for his personal funds invested in the firm. The decision
was followed in Suwalal Anaridilal Jam vs CIT [1997] 224 ITR 753 (SC) in a Bench presided over
by three judges, where no conflict was envisaged in exercise of such dual capacity of a partner
vis--vis the firm, with the caution that this legislative recognition of the theory of different
capacities an individual may hold-no doubt confined to clause (b) of section 40.

2.
In the case of CIT vs Trilok Nath Mehrotra and Others reported at. (1998) 231 ITR 278,
the question came up before the Honble Apex Court as to whether on the facts and
circumstances of the case , the Tribunal was justified in law in holding that salary could not be
assessed in the hands of the Hindu Undivided family. This was a case the member of the HUF
was a partner in the firm on behalf of the HUF. The member was paid salary as a managing
partner for the services rendered by him. The salary was held to be his individual income. In so
deciding, the Honble Apex Court observed as under:

Thus, there is a judicial conflict in this regard and for the purposes of Income-tax Act, 1961, a
partnership between an individual and HUF is still possible though in such cases, it is the Karta
who joins the partnership firm on behalf of HUF. Reliance in this regard can be placed on several
decisions of various High Courts. In the case of Commissioner of Income-tax vs Tej Cloth
Weaving Factory reported at (1989) 178 ITR 474, the Punjab & Haryana High Court had to deal
with a situation where three HI.Fs through their respective Kartas were partners in a partnership
firm. Again the fact that the Karta of HUF can be partner in the Partnership firm is time and again
discussed and impliedly approved by the Apex Court in the following decisions:
1.

V.D.Dhanwatey vs CIT (1968) 68 ITR 365.

2.

The CIT. Bangalore vs Shri D.C. Shah(1969) 1 SCC 550

3.

Jugal Kishore Baldeo Sahai vs CIT(1967) 1 SCR 416

4.

Jitmal Bhuramal vs CIT(1962) 44 ITR 887

5.

Mathura Prasad vs CIT(1966) 60 ITR 428

6.

CIT WB vs Kalu Babu Lal Chand (1959) 37 ITR 123

Can KARTA of a HUF enter into Partnership

with another Member of HUF
We have seen hereinabove that though HUF cannot be a partner in a partnership firm, but the
Karta can enter into partnership for the benefit of the HUF. A question arises whether in such a
case of a partnership, the other partner can be another member of HUF or not. In the case of
Chandrakant Manual Shah vs CIT (1992) 1 SCC 76[E (1992) 193 ITR 1], a similar question
arose albeit in a different context where the Karta of a Huf entered into partnership with another
member and the another member bought into Partnership by way of his capital contribution only
his skill and labour and the question arose whether in such a circumstance, the partnership was
a valid partnership. The Apex court ruled in favour of the assessee by holding that it is clear that
if a stranger can enter into partnership, with reference to his own property, with a joint hindu
family through its karta, there is no sound reason to withhold such opportunity from a coparcener
in respect of his separate and individual property. Further, the Apex Court also approved thfhe
separate and individual property need not be in monetary terms and it can be even skill and
labour and it observed in this regard as follows in the judgement:
As seen above, the definition of the term learning is very wide and almost encompasses within its
sweep every acquired capacity which enables the acquirer of the capacity to pursue any trade, industry,
profession or avocation in life. The dictionary meaning of skill, inter alia, is: the familiar knowledge of
any science; art, or handicraft, as shown by dexterity in execution or performance; technical ability and
the meaning of labour inter alia is: physical or mental exertion, particularly for some useful or desired
end. Whether or not skill and labour would squarely fall within the traditional jurisprudential connotation
of property e.g. jura in re pro pria, jura in r aliena, corporeal and incorporeal etc. may be a moot point but
it cannot be denied that skill and labour involve as well as generate mental and physical capacity. This
capacity is in its very nature an individual achievement and normally varies from individual to individual. It
is by utilisation of this capacity that an object or goal is achieved by the person possessing the capacity.
Achievement of an object or goal is a benefit. This benefit accrues in favour of the individual possessing
and utilising the capacity. Such individual may, for consideration, utilise the capacity possessed by him
even for the benefit of some other individual. The nature of consideration will depend on the nature of the
contract between the two individuals. As is well known, the aim of business is earning of profit. When an
individual contributes cash asset to become partner of a partnership firm in consideration of a share in the
profits of the firm, such contribution helps and at any rate is calculated to help the achievement of the
purpose of the firm namely to earn profit. The same purpose is, undoubtedly, achieved also when an
individual in place of cash asset contributes his skill and labour in consideration of a share in the profits of
the firm. Just like a cash asset, the mental and physical capacity generated by the skill and labour of an
individual is possessed. by or is a possession of such individual. Indeed, skill and labour are by
themselves possessions. Any possession is one of the dictionary meanings of the word property. In its
wider connotation, therefore, the mental and physical capacity generated by skill and labour of an
individual and indeed the skill and labour by themselves would he the property of the individual
possessing them. They are certainly assets of that individual and there seems to be no reason why they
cannot be contributed as a consideration for earning profit in the business of a partnership firm. They

certainly are not the properties of the HUF but are the separate properties of the individual concerned.

Can There Be A Partnership Between

Tw

In the case of Kshetra Mohan-Sannyasi Charan Sadhukhan vs CEPT, 1954 SCR 268 the Apex C
undivided family is no doubt included in the expression person as defined in the Indian Income Ta
Excess Profits Tax Act but it is not a juristic person for all purposes. The affairs of the Hindu undivided
and managed by its karta. When two kartas of two Hindu undivided families enter into a partnership agre
popularly described as one between the two Hindu undivided families but in the eye of the law it is a p
two kartas and the other members of the families do not ipso facto become partners. There is, however
individual members of one Hindu undivided family from entering into a partnership with the individual me
undivided family and in such a case it is a partnership between the individual members and it is wholly in
such a partnership as one between two Hindu Undivided Families.

Thus the Kartas of two HUFs can enter into Partnership and the beneficial interest in such Partnership c
HUF.

Effect Of Death Of Karta In Case Of Partnership

Firm
We have seen that it is the Karta of HUF who represents as a Partner in the Partnership firm
and it is not the HUF itself. In case ,the Karta dies a question arises whether the other members
of family when they are admitted to the Partnership join in the capacity of representative of the
family or join the partnership individually. The Apex Court in the case of Y.L. Agarzvalla vs CIT.
(1978) 3 SCC 426, : laid down the following tests in such cases:
(1 ) whether the income received was directly related to any utilization of family assets;

(2) whetiier the family had suffered any detriment in the process of the family funds; and

(3) whether the income was received with the aid and assistance of the family funds
And held that the affirmative answer to the above questions would lead to the income being that of HUF.

Whether HUF Can Be A Proprietor?

A question arises whether a HUF can become a proprietor of a concern. Proprietor is an owner of any
concern and there is no legal bar in such a case. In case it is proposed to make a HUF as a Proprietor of
any business concern, the best way would be to have a trade licence in such a name wherein it is clearly
indicated that the HUF is the Proprietor of business concern. Once the trade licence is obtained, the other
formalities like opening of the account can be done and then the business as usual can be carried on.

A Proprietorship concern is not governed by any specific law as such and therefore, there is no bar on
HUF becoming a Proprietor of any concern or firm. In such a case it is advisable to make a declaration of
the members as to carrying on business as its Proprietor. In the rubber seal it may be clarified that the
HUF is proprietor.
It may be noted that the bank account of the Proprietorship business of which HUF is the Proprietor can
be opened in any name which the HUF wants and the HUF can be the Proprietor of such business name.
For example suppose, if the name of the Business is SWAAGAT which is a proprietorship concern of

HUF namely Ramkumar ShyamKumar HUF, then the description can be as follows:-

For Swaagat

Per Pro Ramkumar Shyamkumar HUF

Proprietor

Whether HUF Can Be A Trustee / Settler?

It has often been debated whether HUF can settle a Trust by becoming a Settlor (i.e., a person who can
create a trust). In this regard, it is pertinent to refer to the provisions of the Indian Trust Act, 1882. Section
7 of the Indian Trust Act, 1882 defines a settlor as follows:
A trust may be created
a) by every person competent to contract
There is a sub-section (b) also to this section, which is not produced here as it is not relevant here.

A person competent to contract is defined by Section 11 of the Indian Contract Act, 1872 as follows:
Every person is competent to contract:
a)

who is of the age of majority according to law to which he is subject to

b)

who is of sound mind

c)

Who is not disqualified from contracting by any law to which he is subject.

Thus, it is important to note that it is only a person who is competent to contract can form a trust.
The definition of the word person under the Income-tax Act,- 1961 as defined in Section 2(31) of the Act
includes a Hindu Undivided family, but for the purposes of the Indian Trust Act, 1882, the definition of the
person as given in the Income Tax Act,1961 cannot be applied and in absence of a definition of the word
person in the Indian Trust Act,1882, the definitipn as given by the General Clauses Act,1897 has to be
applied. The word person has been defined by Section 3(42) of the General Clauses Act, 1897 as
follows:
Person shall include any company or association or body of individuals whether incorporated or not.
Thus, it can be seen that the definition of the word person as given in the General Clauses Act,1897 is an
inclusive definition and not an exclusive definition and it includes Company, Association as well Body of
Individuals whether incorporated or not.
In view of the above, a HUF being competent to contract and being an Association of Persons can very
well settle a Trust. Reference in this regard can be had to the decision of the Apex court in the case of
CIT vs Ratilal Nathalal(1954) 25 ITR 426 wherein the Apex Court was dealing. with a case of a settlement
of a Trust by HUF.
Moreover, it is important to note that the rights of alienation of the trust property vested with the karta are
limited to that for the benefit of the members of the HUF and therefore, it essentially follows that any trust

which is settled by a HUF should be for the benefit of its members and the adult members should pass a
resolution of forming the Trust.

Trustee
According to Section 10 of the Indian Trust Act, Every person capable of holding property may be a
trustee; but where the trust involves the exercise of discretion, he cannot execute it unless he is
competent to contract.
We have seen as above that the word lrustee has not been defined in the Trust Act and therefore
following the general meaning as above, a HUF can become trustee of a trust.

Rights of Karta to alienate the Properties of HUF in a Trust

However, it is important to note that the rights of alienation of the trust property vested with the. Karta are
limited to that for the benefit of the members of the HUF and therefore it essentially follows that any trust
which is settled by a HUF should be for the benefits of its members only. A number of court cases have
time and again dealt upon this issue. In this regard, the Apex Court in the case of Moti La! Chhadami
La! fain vs CIT, 1991 Supp (1) SCC 229 1=(1991) 190 ITR 1], while dealing with a case where the Karta
of a HUF had settled some properties belonging to HUF in a Trust whose sole trustee was the karta held
as follows in Para 22.
22. We are of the opinion that the view of the High Court proceeds on an unduly narrow construction of
the deeds of 1947 and 1960. We have pointed out that, under the deed of 1947, the karta of the assessee
family is the sole trustee to execute the objects of the Trust. It appears to have been overlooked that
while a registered conveyance to the trustees by the owner of immovable property is necessary where the
trustees are persons other than the author, this requirement does not arise where the author of the trust is
to be the sole trustee. While a trust is not complete until the trust property is vested in trustees for the
benefit of the cestui que trust, this can be done by the settlor, where he is himself the trustee, by a
declaration of trust, using language which, taken in connection with his acts, shows a clear intention on
his part to divest himself of all beneficial interest in it and to exercise dominion and control over it
exclusively in the character of a trustee. Section 6 of the Indian Trusts Act, makes this clear beyond all
doubt. In the present case there is a deed which makes clear the unequivocal intention to utilise the
income from the properties in the manner set out in the deed of trust.
Thus, in the aforesaid case though on the date when the properties were settled, there was no registered
document by which the property was transferred, but the Apex Court held the settlement to valid in view
of the fact that settler was the sole trustee and the intention was clear and unequivocal.

HUF - Aliyasantana Law

There are two major schools of law as far as HUF is concerned i.e., the Mitakshara law and the
Dayabhaga Law.
However in some parts of the Country in the Southern India, there are other schools of law also prevailing
and the same also merits attention.
The gist of such laws with the communities in which they are prevailing is outlined herein below:
Section 3(1) (b) of the Hindu Succession Act, 1956 defines Aliyasantana law as the system of law
applicable to persons who, if this Act had not been passed, would have been governed by the Madras
Aliyasantana Act, 1949, or by the customary Aliyasantana law with respect to the matter for which
provision is made in this Act.
Aliyasantana law is a law wherein the law of inheritance is through the females as against males in the
Mitakshara Law. This law is prevalent in some communities of Karnataka and Kerala along the coastal

belts. The joint Hindu family under this law is also known as Tarwad and the Karta under this law is
known as karnavan.
Section 7(2) of the Hindu Succession Act, 1956 also states as follows:
When a Hindu to whom the Aliyasantana 1aw would have applied if this Act had not been passed, dies
after the commencement of this Act, having at the time of his or her death an undivided interest in the
property of a Kutumba or Kavaru, as the case may be, his or her interest in the property shall devolve by
testamentary or intestate succession, as the case may be, under this Act and not according to the
Aliyasantana law.

HUF - Marumakkattayam Law

Section 3(1) (h) of the Hindu Succession Act, 1956 defines Marumakkattayam Law as the
system of law applicable to persons

i) who, if this Act had not been passed, would have been governed by the Madras
Marumakkattayam Act, 1932, The Travancore Nayar Act, the Travancore Ezhava Act, the
Travancore Nanjinad Vellala Act, the Travancore Kshatriya Act, the Travancore Krishnanvaka
Marumakkattayee Act, the Cochin Marumakkattayee Act, or the Cochin Nayar Act with respect to
the matters for which provision is made in this Act, or
ii) who belongs to any community, the members of which are largely domiciled in the state of
Travancore-Cochin or Madras (as it existed immediately before the 1st November, 1956) and
who, if this Act had not been passed, would have been governed with respect to the matters for
which provision is made in this Act by any system of inheritance in which descent is traced
through the female line.

But does not include the Aliyasantana law.

Marumakkattayam law is a law wherein the law of inheritance is through the females as against
males in the Mitakshara Law. This law is prevalent in some communities of Tamilnadu and
Kerala. The joint Hindu family under this law is also known as Tarwad and the Karta under this
law is known as karnavan.

Section 7(1) of the Hindu Succession Act, 1956 also states as follows:

When a Hindu to whom the marumakkattayam or nambudri law would have applied if this Act
had not been passed, dies after the commencement of this Act, having at the time of his or her
death an interest in the property of a tarwad, tavazhi or illom, as the case may be, his or her
interest in the property shall devolve by testamentary or intestate succession, as the case may
be, under this Act and not according to the marummakkattayam or nambudri law.

The Apex Court in the case of N. Venugopala Ravi Varnia Rajah v. Union of India, (1969) 1
SCC 681, at page 683[(=(1969) 74 ITR 49] observed as follows in relation to
Marumakkattayam law:

Marumakkattayam law applied originally by usage to a section of the Hindus inhabiting the
South-Western coastal region in India. Some centuries ago a section of the Hindu inhabitants of
North Malabar were converted en masse to Islam, but they still continued to remain governed by
the Marumakkattayam law especially in maters of property relations among members of the
family. The law administered by the Courts to these communities is, subject to express statutory
provisions, a body of customs and usages which have received judicial recognition.

Moreover, the Apex Court in the aforesaid case also observed as follows citing points of
distinction between Mitakshara and Marumakkattayam law:The Mitakshara law of joint family is founded upon agnatic relationship; the undivided family characterised
by community of interest and unity of possession among persons descended from a common ancestor in
the male line. The principal incident of Marumakkatta yam law is that it is matriarchate: members of the
family constituting a Marumakkattayarn tarwad are descended through a common ancestress in the
female line with equal rights in the property of the family. .Under the customary Marumakkattayain law no
partition of the family estate may be made, but items of the family property may by agreement be
separately enjoyed by the members. On death the interest of a member devolved by survivorship.
Management of the family property remained in the hands of the eldest male member, and in the absence
of a male member a female member. A tarwad may consist of two or more branches known as
thavazhies: each tavazhi or branch consisting of one of the female members of the tarwad and her
children and all her descendants in the female line. Every tarwad consisted of a mother and her children
male and female living in commensality, with joint rights in property.

Power of KARTA in relation to HUF

The powers of Karta are very wide in relation to HUF and as Karta he can do the following acts:-

1. He can borrow and lend money on behalf of HUF

The Karta has absolute power to contract debts for the ordinary purpose of family business.
Such debt must however have been incurred in the ordinary course of the business. Even in
case of those HUFs where no business is being carried upon, the debts incurred by the Karta
are binding on the HUF provided they have been incurred bona fide and for the benefit of the
family. Artide 240(2) of Mullas Hindu law says that the Karta has implied authority to borrow
money for family purposes. Further when the Karta of a Hindu Undivided family borrows money
or signs a promissory note for the purpose of borrowing money for the benefit of family, the other
members of the Hindu Undivided family may be sued on the note itself even if they are not the
parties. However, in such cases of suit, the members are liable only to the extent of their share in
the joint family property as against the Karta who is personally liable on the promissory note.

2. He can invest the money of HUF.

The Karta has absolute to invest the money and funds belonging to HUF in such manner as he
may deem fit provided it is done in ordinary course in good faith and for the benefit of the family.

3. He can enter into any agreement on behalf of the HUF

The Karta has the power to enter into any agreement or contract on behalf of the family and such
contracts/agreements ar binding on the HUF. This power effectively means that the Karta has
the right to compromise any dispute on relating to the family provided the power is exercised in a
bonafide manner to the utmost benefit of the whole family.

4. He has the right to receive the Income of the HUF

The Karta of HUF has the power/right to receive the entire income accruing to the family from
whatsoever sources. The members of the family who collect income on behalf of the family must
handover the same to the Karta to be kept and managed by the Karta for the benefit of the
family.

5. He has the right to represent the HUF.

The Karta of the joint Hindu family has a right to represent the family in all legal, religious, social
and other matters on behalf of the family.

6. He can buy and sell properties on behalf of the HUF

As far as buying of properties is concerned, the Karta has absolute power to do so provided it is
in the interest of the family. However, selling a property involves alienation of the joint family
property and such a power must be exercised with the consent of all the coparceners and Karta
has no absolute power to do so. However, in certain circumstances involving legal necessity or
for meeting religious obligations, the Karta is authorized/empowered to exercise the power
relating to alienation of the property. In such cases, it must be shown that the circumstances
existed so as to necessitate the alienation without concurrence of all other coparceners.

7. He can gift any property belonging to the HUF.

This power of alienation by way of gift also must be exercised with the concurrence of all the
coparceners except under certain circumstances of legal necessity, religious obligations as
discussed hereinabove.

8. He can make admission on behalf of HUF.

In the case of Gannmani Anasuya v. Parvatini Amarendra Chowdhary, (2007) 10 SCC 296,
at page 303 [AIR 2007 SC 23801 the Apex court in this regard held as follows:

An admission made by a party can be used against him. When such

admission is made by a karta of the Hindu Undivided Family, who is managing the family
property as well as family business affairs, the same would be a relevant fact

9. He can receive remuneration from the HUF for kartaship.

In the case of Jugal Kishore Baldeo Sahai v. CIT. (1967) 1 SCR 416 63 ITR 238 ]the Apex Court
held that if a remuneration is paid to the karta of the family under a valid agreement which is
bonafide and in the interest of, and expedient for, the busjness of the family and the payment is
genuine and not excessive, such remuneration must be held to be an expenditure laid out wholly
and exclusively for the purpose of the business of the family and must be allowed as an
expenditure under Section 10(2)(xv) of the Act.

Thus, Karta can receive remuneration from the HUF which can be a deductible expenditure u/s
37 of the Income-tax Act, 1961.

10. He has power to alienate ancestral property.

In the case of Laxmappa v. Balawa Kom Tirkappa Chavdi (Smt), (1996) 5 SCC 458 [AIR 1996
sc 34971 it was held that a Hindu father is bound to maintain his unmarried daughters, and on
the death of the father, they are entitled to be maintained out of his estate. The position of the
married daughter is somewhat different. It is acknowledged that if the daughter is unable to
obtain maintenance from her husband, or, after his death, from his family, her father, if he has
got separate property of his own, is under a moral, though not a legal, obligation to maintain her.
The High Court has concluded that it was clear that the father was under an obligation to
maintain the plaintiff-respondent. Seemingly, the High Court in doing so was conscious of th
declaration made in the gift deed in which she was described as a destitute and unable to
maintain herself. In that way, the father may not have had a legal obligation to maintain her but
all the same there existed a moral obligation. And if in acknowledgment of that moral obligation
the father had transferred property to his daughter then it is an obligation well- fructified. In other
words, a moral obligation even though not enforceable under the law, would by
acknowledgment, bring it to the level of a legal obligation, for it would be perfectly legitimate for
the father to treat himself obliged out of love and affection to maintain his destitute daughter,
even impinging to a reasonable extent on his ancestral property. It is duly acknowledged in
Hindu law that the Karta of the lamily has in some circumstances, power to alienate ancestral
property to meet an obligation of the kind.

The, list given above is not exhaustive and the Karta has very wide powers in relation to the
HUF. The only condition in exercise of the powers is that the powers must be exercised bonafide
and for the purposes of family. The family purpose ordinarily constitutes maintenance, education,
marriage, shraddha and other pious obligations of the family.

While dealing with Powers of Karta, the Apex Court in the case of Sarda Prasad vs Jumna
Prasad, (1961) 3 SCR 875 (AIR 1961 SC 1074] held that Under the Hindu law the Karta of a
Hindu joint family represents all the members of the family and has the power and duty to take
action which binds the family in connection with all matters of management of the family
property.

However, it is important to note that in relation to the exercise of the powers as above, the Karta must
prove that the powers were exercised neutrally and for the benefit of the HUF.

Managing Members in relation to HUF

The word Managing Member is also very widely used in relation to HUF. Managing member is a
member of the HUF who manages the entire affairs of the HUF. A Karta is by default the
Managing Member of the HUF. However, sometimes, it may happen that the Karta being the
seniormost coparcener is not in a position to act and manage the affairs of the HUF and in this
case, he appoints any member of the HUF as the Managing Member who runs the HUF based
on guidance and directions received from the Karta and he therefore, in his such capacity is
referred to as the Managing Member. In the case of Mudit vs Ranglal (1902) 29 Cal 797, it was
held that a Senior Member may give up his right of, management, and a junior member may be
appointed as manager.

In the case of Sunil Kumar v. Ram Parkash, (1988) 2 SCC 77 fAIR 1988 SC 5761 , at page 86
the Apex Court held as follows re power of. Karta/managing member

Managing Member and his Powers

In a Hindu family, the karta or Manager occupies a unique position. It is not as if anybody could
become Manager of a joint Hindu family. As a general rule, the father of a family, if alive, and in
his absence the senior member of the family, is alone entitled to manage the joint family
property. The Manager occupies a position superior to other members. He has greater rights
and duties. He must look after the family interests. He is entitled to possession of the entire joint
estate. He is also entitled to manage the family properties. In other words, the actual possession
and management of the joint family property must vest in him. He may consult the members of
the family and if necessary take their consent to his action but he is not answerable to every one
of them.
The legal position of karta or Manager has been succinctly summarised in the Maynes Hindu
Law (12th Edn. para 318) thus:
318. Managers legal position. The position of a karta or manager is sui generis; the relation
between him and the other members of the family is not that of principal and agent, or of
partners. It is more like that of a trustee and cestui que trust. But the fiduciary relationship does
not involve all the duties which are imposed upon trustees.
The managing member or kart has not only the power to manage but also power to alienate joint family
property. The alienation may be either for family necessity or for the benefit of the estate. Such alienation
would bind the interests of all the undivided members of the family whether they are adults or minors. The
oft-quoted decision in this aspect, is that of the Privy Council in Hunoomanpersaud v. Babooee. There it
was observed at p. 423: That power of the manager for an infant heir to charge an estate not his own is,
under the Hindu law, a limited and qualified power. It can only be exercised rightly in case of need, or for
the benefit of the estate. This case was that of a mother, managing as guardian for an infant heir. A
father who happens to be the Manager of an undivided Hindu family certainly has greater powers to
which I will refer a little later. Any other manager however, is not having anything less than those stated in
the said case. Therefore, it has been repeatedly held that the principles laid down in that case apply
equally to a father or other coparcener who manages the joint family estate

Whether a Female can become a Karta?

It is important to note that even daughters have become coparceners in the light of amendments
made by the Hindu Succession ( Amendment) Act, 2005 and thus there would be no bar on even
seniormost female members who are daughters in the family becoming Karta. Though the Apex
Court in the case of CIT vs Seth Govindram Sugar Mills (1965) 57 ITR 510 had held in the light
of the Hindu Succession Act as it existed at that time that a female cannot be a Karta.

The Nagpur High Court in the case of CIT Vs Seth Laxmi Narayan Raghunathdas 11948] 16
ITR 313 (Nag.), while considering an issue as to whether a widow can be Karta of her husbands
HUF, held as under
According to the Dayabhaga Laze, the foundation of a coparcenary is first laid on the death of
the father. The property of the deceased, separate as well as ancestral is inherited by his male
heirs as coparcenary property and is held by them as coparceners. On the death of any one of
the coparceners, his heirs succeed to his share in the coparcenary property and they become
members of the coparcenary. Such heirs, in default of male issue, may be his widow or widows
or his daughter or daughters. These too, though fethales, get into the coparcenary, representing
the share of their husband or father as the case may be. A coparcenary under the Dayabhaga
Law may thus consist of males as well as females. It is, therefore, obvious that under the
Dayabhaga Law a widow becomes a coparcener and she can consequently become the Karta of
the coparcenary or the joint family, although she or any other coparcener does not possess the
right of survivorship, particularly if she is the only hiember sui juris left in the family.

It is true that under the Mitakshara Law, no female can be a coparcener with male coparceners,
presumably, because she does not possess the right to take by survivorship, but we do not think
that either this right or the status of a coparcener is a sine qua non of competency to become the
manager of a jOint Hindu family of which she is admitted as a member.

Based on the above discussion, the Nagpur High Court held that a widow was competent to
become the Karta of the Hindu undivided family consisting of herself and her two minor sons

In another situation also where the HUF consists of a Hindu mother as well as her minor sons, in
such a situation though even under the latest amendments made to the Hindu Succession Act,
the mother is not a coparcener and the minor members being not capable of becoming Karta,
the Hindu mother can act as a Manager to the HUF for the purpose of assessment and recovery
of the taxes as has been .held by the Calcutta High Court in the case of Sushila Devi vs ITO
(1960) 38 ITR 316.
Another important point which has emerged out of the recent amendments made by the Hindu
Succession (Amendment) Act, 2005 is that a female member of a joint Hindu family having acquired the
status of a coparcener can characterize the ancestral property received by her from her paternal
ancestors as the status of a HUF property even after her marriage and thus She can therefore form a
HUF from this ancestral property with her children being coparceners of this HUF

Tax Planning TIPS for HUF

The following Tax planning tips can be useful to the HUF assesses. The tools given herein below
are not exhaustive and there can be other tax planning tools also.

1. GENERAL TAX BENEFIT OF UP TO RS 200000 /- FOR. A.Y. 2014-15 BEING THE

MAXIMUM AMOUNT NOT CHARGEABLE TO TAX.
HUF is an important tool of assessment under the frame work of Income Tax Act, 1961 and as
such when effectively used, it can serve as a best way to manage the joint family for the benefit
of all those in the family. Now that even daughters have become coparceners in the joint family,
it augurs well for the entire family and therefore, it is foremost that in respect of all ancestral
property which is inherited by a Hindu, the status of HUF is claimed in respect of the said
properties so that it can be used as a corpus for the benefit of the entire family and for meeting
the expenses of the entire family.

The creation of HUF is very easy as we have seen elsewhere and therefore it is important that
every Hindu family creates a unit of HUF and the joint family ancestral property is cloned with the
HUF properfy status.

The above not only gives the family a right to enjoy tax free income of upto Rs. 200000/-Being
the maximum amount not chargeable to tax for A.Y. 2014-15, but also lets the family accumulate
another sum equal to Rs. 100000/- by way of investment in the specified savings instruments to
claim deduction u/s 80C of the Act as has been specified elsewhere. Moreover, a further
deduction in respect of Section 8OCCF can also be claimed as per details given Chapter

2. DEDUCTION I-N RESPECT OF MEDICAL INSURANCE PREMIUM U/S 80D OF THE

INCOME-TAX ACT, 1961.
If the HUF is having a senior citizen as its member and any insurance premium is being paid by
such senior citizen, then it is better to pay this premium from the HUF to avail of the higher
deduction of Rs 20000.

Further, the provisions of Section 80D has been amended by Finance Act, 2007 to provide that
the payment for medical insurance premia can be made by any mode other than cash. Thus, it is
important that the payment should not be made by cash so as to loose the benefit of deduction
under this Section. However, the payment can be made by any other mode like Credit card,
ECS, Direct debit instructions etc.

3. DEDUCTION IN RESPECT OF MEDICAL TREATMENT ETC U/S 8ODDB OF THE

INCOME-TAX ACT, 1961.
If the HUF incurs any expenditure in respect of any member of its family for the purposes of
medical treatment of the diseases as specified in Section 8ODDB, then it is eligible for a
maximum deduction of Rs. 40000/- (Rupees 60000/- if the member is a senior citizen) from its

total income. Thus, it is better to incur the medical expenses of a family member from the joint
Hindu family property so as to claim deduction under this section.

4. INVESTMENT IN THE NAME OF HUF

Now a days the income by way of Short term capital gains is eligible for a concession rate of tax
@ 15% and the certain types of long term Capital gains are totally exempt from tax. It is
advisable to let the Investments be made in the name of HUF assessee to avail of the
concessional rate of tax in the Joint family and for the benefit of entire family.

5. REMUNERATION TO KARTA ETC

Karta and other members working for the HUF business can be provided salary or working
remuneration, which would be deductible and net taxable income can thus be reduced. Interest
can also be provided to members on their own deposits.

6. GENERAL EXEMPTION UNDER THE WEALTH-TAX ACT 1957

It may be noted that the limit of Rs. 30 lacs is available to HUF assesses also in respect of the Wealth of
the family. Moreover, the family can claim exemption in respect of One House or part of House or a plot
of land not exceeding 500 sq meters. For further details, the Chapter dealing with HUF-Wealth tax Act,
1957 can be referred to

HUF - Meaning Of Important Term- Ancestral

The word Ancestral is derived from the word Ancestor. Ancestor has been defined by the
Websters dictionary as one from whom a person is descended, a forefather. Thus, the word
Ancestral in relation to HUF means anything which has been received by the HUF from
Ancestors or forefathers.

In the light of recent amendments made by the Hindu Succession (Amendment) Act, 2005, all
property inherited by a male or female Hindu from his/her father, fathers father or fathers
fathers father is ancestral property. The essential feature of the ancestral property is that in the
Hindu school governed by Mitakshara Law, children, grand-children and great-grand children of
a person acquire interest in the ancestral property by birth. The ancestral property never looses
its ancestral character and all children whenever born acquire interest in the ancestral property
simply by birth.

Any person inheriting property from his/her three immediate paternal ancestors holds it with
his/her sons, Sons son, and sonssons son as coparcenary property.

It may be noted that the Joint property is the essence of the notion of joint hindu family. It
consists of the following interalia:

a) the ancestral property

b) accretions to the ancestral property
c) acquisition to the ancestral property with the joint funds
d) Self acquired property which is thrown into the common hotchpot by the individual member.

HUF - Meaning Of Important Term-Stridhan

All the gifts of jewellery and appliances given to a woman by her parents or her in-laws at and
during the marriage are hers. This is called stridhan or womans wealth. Stridhan has also been
defined as that portion which belongs exclusively to woman. Any property, valuable, jewellery &
ornaments, cash etc given to a lady at the time of her marriage or during the marriage ceremony,
any property conferred on her by way of a will by her parents, any gift given to her by her
parents, and in-laws are all part of the womans property and are commonly known as Stridhan.
She is the rightful and absolute owner of all such property and her husband or his other relatives
have no right over such property and belongings, in the case of B.i. Govindappa v. B.
Narasimhaiah, (1991) 4 SCC i06(=AIR 1991 SC 1969], the Apex Court held that there can be no
manner of doubt that a 1-lindu woman is the full owner aid entitled to deal with her stridhan
property as she likes. She can also put any restriction or curtailment of her rights by her own
consent and free will in her stridhan property

Stridhan has been defined in the Hindu law as consisting among other things, the following:

1.

Gifts made by mother to her daughter

2.

Gifts made by father to her daughter

3.

Gifts made by brothers to her sister

4.
law

Gifts made out of love and affection by mother in law or father in law to their daughter in

5.
Gjft made before the nuptial fire at the time of marriage by any person attending the
marriage.
6.
Gifts made at the time of the ceremony when the bride leaves her parents house for her
in-laws house.

7.

Gifts made by husband to her wife at the time of marriage

The above list is not an exhaustive list and can contain other gifts also which are essentially
connected with the marriage of a Hindu daughter. Some of them are:

1.

Gifts from relations

2.

Gifts made after marriage by Husbands relations or parents relations.

3.

Gifts made a husband to his wife on the occasion of his taking another wife.

HUF - Meaning Of Important TermMitakshara

Mitakshara is one of the schools belonging to Hindu law. The Wikipedia dictionary defines
Mitakshara as follows:-

The Mitakshara is a legal treatise on inheritance, written by Vijnaneshwara a scholar in the

Western Chaiukya court in the 12th century. It became one of the most influential texts in Hindu
law, and its principles regarding property distribution, property rights, and succession are still in
practice across most of India except for West Bengal and Assam where the Dayabhaga system
is practiced. A salient feature is the principle of division of ancestral property held by the Hindu
joint family. Partition of such landholding among offsprings is possible even with the father still
living unlike the Dayabhaga system.

The Mitakshara School exists throughout India except in the State of West Bengal and Assam.
The Yagna Valkya Smriti was commented on by Vigneshwara under the title Mitakshara. The
followers of Mitakshara arc grouped together under the Mitakshara School. Mitakshara school is
based on the code of Yagnavalkya commented by Vigneshwara. Inheritance is based on the
principle of propinquity i.e. the nearest in blood relationship will get the property.

The school is followed throughout India except Assam and West Bengal state. Sapinda
relationship is of blood. The right to 1 lindu joint family property is by birth. So, a son immediately
after birth gets a right to the property.

The system of devolution of property is by survivorship. The share of coparcener in the joint
family property is not definite or ascertainable, as their shares are fluctuating with births and
deaths of the co-parceners.
there are four Sub-Schools under the Mitakshara School:

i.

Dravida School : (Madras school)

ii.

MAHARASHTRA SCI-IOOL: (BOMBAY SCHOOL)

iii.

BANARAS SCHOOL:

iv.

MITHILA SCHOOL

HUF - Meaning Of Important TermDayabhaga

Dayabhaga is one of the schools belonging to Flindu law. The Wikipedia dictionary defines
Dayabhaga as follows:-

A Dayabhaga is a legal treatise dealing with various aspects of hindu law. It was written by
Jimutavahana and Ilemadri, and has much influenced the Hindu civil code of modern India. The
provisions relating to property rights are followed in West Bengal arid Assam. Unlike the
Mitakshara system, ancestral property of the Ilindu joint family can be partitioned among
offspring generally after the fathers death, but in special circumstances (eg. father renouncing
the world or deviating from I)harma) the son has a right before the fathers death.Right to
Stridhan is an absolute right, the wife having the right to sell, mortgage or use without even the
husbands consent. Right of unmarried sons and daughters over the Stridhan is recognised.The
owner has absolute right of disposing property at will.Ownership is determined according to
Shastras. It exists in West Bengal and Asam only. The Yagna Valkya smriti is commented on by
Jimootavahana under the title Dayabhaga. It has sub-school. it differs from Mistakshara School
in many respects. Dayabhaga School is based on the code of Yagnavalkya commented by
Jimutvahana, Inheritance is based on the principle of spiritual benefit. it arises by pinda offering
i.e. rice bali offering to deceased ancestors. Sapinda relation is by pinda offerings.

The right to I lindu joint family property is not by birth but only on the death of the father. The
system of devolution of property is by inheritance. The legal heirs (sons) have definite shares
after the death of the father. Each brother has ownership over a definite fraction of the joint
family property and so can transfer his share. The widow has a right to succeed to husbands
share and enforce partition if there are no male descendants. On the death of the husband the
widow becomes a coparcener with other brothers of the husband. She can enforce partition of
her share.
Marriage under Flindu Law is not a contract but a sacrament and wife is treated as better half and is in a
commanding position. With western culture, education and awareness amongst women, divorce/ partition
ids on an increase. Right to adopt male/female has been conferred. Mother/ father is natural guardian till
minority

Meaning of the term Coparcener of HUF

The word coparcener has been used very widely in relation to the Hindu law and the HUF. In
relation to HUF property, a coparcener is a person who acquires a right in the ancestral property
by birth and a person who has a right to demand partition in the HUF property. Prior to the
amendments made by the Hindu Succession (Amendment) Act,2005, only male members of a
family had a right to the Ancestral property by birth and they were only entitled to demand
partition in the HUF Property and thus only male members were called coparceners. Under the 1
lindu law, it has also been said that the male members upto three lineal descendants are
coparceners meaning a family consisting of father, his son, sons son and sons grandson are

coparceners in the Hindu property. The genesis of coparcenary thus is a common male ancestor
with his lineal descendants in the male line within three degrees excluding him e.g. his son, sons
son and sons grandson. This genesis is so long as the male ancestor is alive and after his
death, the three degrees can consist of collaterals such as brothers, uncles, nephews and
cousins etc. lhis position is 1so subject to the amendments made by Hindu succession
(amendment) Act, 2005 whereby even daughters have been included within the term
coparceners and all references to son shall equally apply to daughters also.

Any member other than the above who were not entitled to right in the HUF property by birth or
who did not have a right to demand partition were not coparceners and were simply members
who had a right of maintenance out of the 1-hindu family property.

However, with the amendments made by the 1 hindu Succession (Amendment) Act, 2005 a
daughter has also been given equal rights as son and she has also become a coparcener in the
Hindu property and she has also got rights over the Hindu property to demand partition.

Form the above it follows, that all the, coparceners are members of 1 IUF, but not the vice versa
i.e., a member of HUF may not necessarily be a coparcener say a daughter in law in the Ilindu
family.

As we have seen in earlier Chapters, Coparcener in relation to a Joint 1-lindu family means a
person who is entitled to demand partition of his share in the Coparcenary property.

We have seen in earlier Chapters that there are two kinds of Schools governing the HUFs and
they are Mitakshara law and tlie I)ayabhaga law.

The coparcenary can be further understood by way of an example as below:

If say a person X who has acquired property by his own labour i.e., he is holding self acquired property
has a son Y, then the said son Y doesnt acquire any interest in the self acquired property during the life
time of the father X,but on death of X, Y inherits the self acquired property of his father. Supposing if he
has a son Z or a daughter /Z at the time he inherits the said property, the property becomes a Joint hindu
family property in the hands of Y with his son Z or daughter ZZ. Supposing, a son A is born to Z, then the
said A also becomes coparcener. This is way coparcenary is created

Power of Coparcener of HUF

1. Power to demand partition

The Coparcener has the power to demand partition qua his share in the joint hindu family property. Th
once it is demanded, the Karta is supposed to act upon the same. However, it may be noted that in the c
CG1, (2000) 8 SCC 249, at page 258 [AIR 2000 SC 3195] the Apex Court held that in the case
coparceners do not have exclusive rights on any specific property of the family, the property allotted
specified only on partition In the said case the Apex Court further clarified as follows:

A member of a 1-lindu undivided family who, as mentioned earlier, has no definite share in the family
cannot be said to diminish directly or indirectly the value of his property or to increase the value of t
coparcener by agreeing to take a share lesser than what he would have got if he had gone to court
partition his share in the family property is indeterminate. He becomes entitled to a share in the famil
partition. Therefore there is no question of his either diminishing directly or indirectly the value of his own
the value of the property of anyone else.

2. Power to dispose off the share of joint family property

The Coparcener has also right to dispose of his share of the coparcenary property by way of a will to any

3. The senior most Coparcener has the right to be appointed as the Karta of the family

Difference between a Coparcener and a Member

A Coparcener is a member of HUF who can claim partition whereas a Member cannot claim partition. Th
between the Coparcener and the Member. Thus it follows that all the coparceners are members of HUF
true. Wife cannot claim a partition, but if there is a partition between her husband and children, she ge
steps in the shoes of her deceased husband and can claim partition.

In the, case of Sathyaprema Manjunatha,Gowda v. CED, (1997,) 1OSCC 684, at page 687 [(1997) 227 ITR 1 1 co
body than a joint family and consists of only those persons who have taken, by birth, an interest in the property of
being and who can enforce a partition whenever they like. It commences with a common ancestor and includes a h
only those males in his male line who are not removed from him by more than three degrees. Thus while a son, a
grandson is a coparcener with the holder of the property, the great-great-grandson cannot be a coparcener with hi
by more than three degrees from the holder.Hindu Undivided Family is a concept and coparcenary is not one of th
Law. But for the purposes of taxation under the Act, as in other tax measures, like the Income Tax Act, they are tre

Whether Husband / Wife Can Constitute A HUF?

It is always a question of debate as to whether a HUF can consist of only Husband and wife without any
that the Apex Court had decided in the case of Gowli Buddhana( 60 FIR 23) that a temporary red
coparceners/members of a HUF cannot invalidate the HUF, therefore following the judgement, it is quite
valid HUF can consist of only husband and wife.

However, there is an important difference in so far as. the first time constitution of a new HUF by Husband and wif
reduced to only two members consisting of Husband and wife on account of death of another member. The judgm
(Supra) had more to do with the later event and not the earlier event. Ihus, from the point of view of 1 hindu law, th
Husband and wife may not be held to be valid, however for the purposes of Income-tax Act, 1961, the HUF as a u
consist of only Husband and Wife and is recognized as such.

HUF - Recovery Provisions

The HUF being a separate unit of taxation under the Income-tax Act,1961 being eligible for all the
assessee is also subjected to the recovery provisions under the Income-tax Act,1961 as contained i
income-tax Act,1961. It is therefore important to understand as to who are responsible for the tax liability
is also important to understand whether the liability of members of FIUF in regard to tax liability of HUF
the assets of 1-IUF or is unlimited as we have seen in case of Partnership firms.

The tax liabilities in this regard are to be seen from two angles. llie first is general tax liability upon regula
second is tax liability upon partition as envisaged u/s 171 of the Income-Tax Act, 1961. in respect of tax l
assessees upon partition, Section 171(6),(7) and (8) contain specific provisions as to who are liable for s
briefly enumerated herein below:-

Section 171(6)

Notwithstanding anything contained in this section, if the Assessing Officer finds after completion of the
undividd family that the family has already effected partition, whether total or partial, the Assessing office
recover the tax from every person who was a member of the family before the partition, and every such p
and severally liable for the tax on the income so assessed.
Thus, Section 171(6) in no uncertain terms states that any member of the HUF is jointly and severally liab
HUF assessees.

Section 171(7)

For the purposes of this section, the several liability of any member or group of members there u
according to the portion of the joint family property allotted to him or it at the partition, whether total or pa

Thus, Section 171(7) clarifies that the several liability shall be in proportion to the allotment of the asset to

Thus, it has been clarified by Section 171(7), that in case the liability is proposed to be realized from the
officer has to realize it from the members in propotion to the assets received by the particular member on
or total. Once it is collected from the individual members in proportion to the assets received by the
realization if any demand remains, the same can be collected from any member with whom any asset is

Section 171(8)

The provisions of this section shall, so far as may be, apply in relation to the levy and collection of any
other sum in respect of any period up to the date of partition, whether total or partial of a Hindu undivide
relation to the levy and collection of tax in respect of any such period.

Thus, Section 171(8) specifies the quantum of tax liability which is capable of being realized in relation to

Now regarding the general tax liability the provisions are contained in the Income-tax Act, 1961 and the
Income-tax Act, 1961 and in case any amount is due from HUF, the HUF is liable for the said tax lia
important to note that Part V of the Second Schedule contains Rule 73 containing provisions regarding
the defaulter and the Explanation to this rule says that for the purposes of this rule, where the defaul
family, the karta thereof shall be deemed to be the defaulter. In this regard, it is pertinent to note that the
73 was inserted by Taxation Laws (Amendment) Act, 1975 w.e.f. 1/10/1975.

Prior to insertion of this explanation, the Karta was not capable of being treated as a defaulter as decid
the case of Kapurchand vs Tax Recovery Officer(1969) 1 SCR 691[ =(1969) 72 ITR 623] wherein the
with a situation where the lRO intiating proceedings for arrest of Karta for default in payment of tax by HU
Court held that there is no provision in the Act which deems the manager to be the assessee, for the pur
recovery of tax, when the income of the Hindu undivided family of which he is the manager is assessed
provision enabling the Income Tax Officer or the Tax Recovery Officer to treat the manager of the Hind
assessee in default under the provisions of the Act. Section 160 provides for treating a person as a repre
Section 161 prescribes the liability of a representative assessee. Section 179 makes a special pro
DirectOrs of private company in liquidation to be jointly and severally liable for the payment of tax wh
from the assets of the private company in liquidation. The Legislature has made no such provision for r
to the personal property of the manager of the Hindu undivided family, or by his arrest and detention fo
paying the tax due.

However, the effect of the aforesaid judgment was diluted in view of the insertion of explanation belo
hereinabove.

Thus, in relation to any tax liability of HUF, if the question of arrest arises, Karta is deemed to be a defau

In nut shell, the tax liability of all the members of HUFs in relation to HUF is limited to the extent of the property/ass
It doesnt extend beyond and individual property of the member is not amenable to the recovery of taxes against th

Maintenance of Accounts by HUF

Earlier there were no provision regarding maintenance of accounts. Now the provisions relating to
maintenance of accounts are contained in. Section 44AA of the Income-tax Act, 1961 and Section
44AA (2) of the Income-tax Act, 1961 deals with the provisions as are related to HUF assessees.

Section 44AA (2) of the Act says that every person carrying on business or profession shall:

i.)

if his income from business or profession exceeds Rs. 120000/- or if his total sales,
turnover or gross receipts, as the case may be, in business or profession, exceeds Rs.
1000000/- in any of the three years inimediately preceding the previous year, or

ii)

where the business or profession has been newly set up in any previous year, if his
income from business or profession is likely to exceed Rs. 120000/- or his total sales,
turnover or gross receipt as the case may be in business or profession are or is likely to
exceed Rs. 1000000/- during such previous year;

iii)

where the profits and gains from business are deemed under the following sections i.e.,
a)

Section 44AE-Profits and gains of business of plying, hiring or leasing goods

carriages

b)

Section 44BB- Profits and gains in connection with the business of exploration
etc of mineral oils

c)

Section 44AD-Profits and gains of business on presumptive basis.

and if the HUF assessee claims the income to be lower than the deemed income to be
computed in accordance with the above provisions,

the HUF has to keep and maintain such books of accounts and other documents as may enable
the Assessing Officer to compute his total income in accordance with the provisions of the Act.

There has been sweeping changes in the provisions relating to presumptive taxation as contained
in Section 44AD, 44AE, 44AF by the Finance (No.2) Act 2009 w.e.f. 1/4/2011. In this regard, the
amended provisions of Section 44AA dealing with the Maintenance of Accounts are reproduced
herein below:

[ Maintenance of accounts by certain persons carrying on profession or business.]

44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the
profession of accountancy or technical consultancy or interior decoration or any other profession
as is notified by the Board in the Official Gazette shall keep and maintain such books of account
and other documents as may enable the Assessing Officer to compute his total income in
accordance with the provisions of this Act.

(2)
Every person carrying on business or profession not leing a profession referred to in subsection (1) shall,
(i)
if his income from business or profession exceeds one lakh twenty thousand
rupees or his total sales, turnover or gross receipts, as the case may be, in business or
profession exceed or exceeds ten lakh rupees in any one of the three years immediately
preceding the previous year; or
(ii)
where the business or profession is newly set up in any previous year, if his income
from business or profession is likely to exceed one lakh twenty thousand rupees or his
total sales; turnover or gross receipts, as the case may be, in business or profession are or
is likely to exceed ten lath rupees, during such previous year; or

(iii)
where the profits and gains from the business are deemed to be the profits and
gains of the assessee under 44AE or section 44BB or section 44BBB, as the case may be,
and the assessee has claimed his income to be lower than the profits or gains so deemed
to be the profits and gains of his business, as the case may be, during such 1[previous y

The following clause (iv) shall be inserted after clause (iii) of sub-section (2) of
section 44AA by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2011:
(iv)
where the profits and gains from the business are deemed to be the profits and
gains of the assessee under section 44AD and he has claimed such income to be lower
than the profits and gains so deemed to be the profits and gains of his business and his
income exceeds the maximum amount which is not chargeable to income-tax during such
previous year,
keep and maintain such books of account and other documents as may enable the Assessing
Officer to compute his total income in accordance with the provisions of this Act.

(3)
The Board may, having regard to the nature of the business or profession carried on by
any class of persons, prescribe, by rules, the books of account and other documents (including
inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section
(2), the particulars to be contained therein and the form and the manner in which and the place at
which they shall be kept and maintained.

(4)
Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules,
the period for which the books of account and other documents to be kept and maintained under
sub-section (1) or sub-section (2) shall be retained.]

Implications of amendment in Section 44AA w.e.f. 1/4/2011

1.

It may be noted that w.e.f. 1/4/2011, the provisions of Section 44AF are no longer
applicable and therefore w.e.f. A.Y. 2011-12, the special provisions for computation of
profits & gains from retail business no longer being applicable, the applicability of
maintenance of accounts in respect of retail business is to be determined according to the

criteria as specified in clause (iv) as above since the provisions of Section 44A1) has been made
applicable to all types of Assessees including those engaged in Retail trade. This is the reason
that reference to Section 44AF in Section 44AA has therefore been deleted w.e.f. 1/4/2011.

2.

Secondly, the reference to Section 44AD in Section 44AA (2) (iii) has been omitted and
has separately been provided in Section 44AA (2) (iv) in view of the amendment made in
Section 44AD of the Income- tax Act, 1961 which has been replaced by a new section
w.e.f. 1/4/2011.

What books are required to be maintained

The Act though has not specified what are the books which are required to be maintained, the
following books of accounts and other documents must be maintained taking clue from Rule 6F of
the Income-tax rules,1962 which prescribes the books to be maintained by certain professionals:

Cash book

2.

Bankbook

3.

General Ledger

4.

Debtors and creditors Ledger

5.

Journal

6.

Bank Statement

7.

Sales and purchase invoices

8.

General expenses bills and invoices

9.

Stock register

The books may be maintained manually or electronically in a Computer. In case the books are
maintained in a Computer, adequate safeguard to protect the data must be in place for preserving
the same for future reference.

Audit of Accounts by HUF

The provisions relating to Audit of accounts are as follows as far as Income-tax Act, 1961 is
concerned:-

1.
Audit under Section 44AB of the Income-tax Act, 1961 which is more popularly known as
Tax Audit.

This is governed by Section 44AB Of the Income-tax Act, 1961 and the provisions of this Section
are as follows:-

1.
Audit of accounts of certain persons carrying on business or
profession.
44AB. Every person,

(a)
carrying on business shall, if his total sales, turnover or gross receipts, as the case may
be, in business exceed or exceeds sixty lakh rupees in any previous year [***J; or

(b)
carrying on profession shall, if his gross receipts in profession exceed fifteen lakh rupees
in any [previous year; or

(c)
carrying on the business shall, if the profits and gains from the business are deemed to
be the profits and gains of such person under section 44AE or Secti6n 44BB or section 44BBB,
as the case may be, and he has claimed his income to be lower than the profits or gains so

deemed to be the profits and gains of his business, as the case may be, in any 1[previous year,]
[***]

The following clause (d) shall be inserted after clause (c) of section 44AB by the Finance (No. 2)
Act, 2009, w.e.f. 1-4-2011:

(d)

carrying on the business shall, if the profits and gains from the business are deemed to

be the profits and gains of such person under section 44AD and he has claimed such income to
be lower than the profits and gains so deemed to be the profits and gains of his business and his
income exceeds the maximum amount which is not chargeable to income-tax in any previous
year,

get his accounts of such previous year [***] audited by an accountant before the specified date
and furnish by that date the report of such audit in the prescribed form duly signed and verified
by such accountant and setting forth such particulars as may be prescribed:

Provided that this section shall not apply to the person, who derives income of the nature
referred to in [***] section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as
the case may be, the date on which the relevant section came into force, whichever is later:

Provided further that in a case where such person is required by or under any other law to get
his accounts audited [***], it shall be sufficient compliance with the provisions of this section if
such person gets the accounts of such business or profession audited under such law before the
specified date and furnishes by that date the report of the audit as required under such other law
and a further report by an accountant in the form prescribed under this section.

Explanation.For the purposes of this section,

(i)

accountant shall have the same meaning as in the Explanation below sub-section (2)
of section 288;

(ii)

specified dateA, in relation to the accounts of the assessee of the previous year
relevant to an assessment year, means the 30th day of September of the assessment
year.

Thus, the audit is required to be done only in case of those HUFAssessees whose total sales,
turnover or gross receipts in the business exceeds Rs. 60 lacs in any previous year.

2.
It has been further provided that if the income of HUF Assessee is claimed to be lower
than that a specified under the deeming provisions of Section 44AE or 44BB, then also the
accounts are required to be audited as per the provisions of Section 44AB of the Income-tax

Act,1961.

Out of the above, Audit u/s 44AF is very popular which deals with an assessee vho is engaged in
retail trade in any goods or merchandise and who declares a sum equal to less than 5% of total
turnover as Income from Business or profession. In such cases, the audited accounts are
required to be submitted In case the audited accounts are not submitted, the Assessing officer
has in such cases, the power to compute the Income from Business or profession @ 5% of the
total turnover. The said Section 44AF is now proposed to be withdrawn w.e.f. 1/4/2011 since the
assesses engaged in Retail business are now proposed to be governed by Section 44AD.

There are other provisions as well under the Income-tax Act, 1961 regarding certificates to be
attached with the return of Income which are not discussed here.
In view of the amendments made in Section 44AF w.e.f. 1/4/2011, the provisions relating to tax audit in
respect of the HUF assesses engaged in Retail business shall be governed by the provisions of audit u/s
44AB with respect to Section 44AD of the Income-tax Act,1961. Section 44AD has been totally recast
w.e.f. 1/4/2011

Applicability Of The Accounting Standards On

HUF
The Institute of Chartered Accountants of India has specified various Accounting Standards which are
required to be followed by the Members of the Institute when they carry out audit of accounts of any
person.
As on date, there are 32 Accounting Standards which have been notified by the Institute in relation to the
audit of accounts. However, out of the 32 Accounting Standards as above, there are some Accounting
Standards which are mandatorily required to be followed only in respect of listed Companies.
The applicability of Accounting Standards in relation to HUF Assessee comes into picture only when
accounts are required to be audited under any law. In case the accounts are audited, then the following
Accounting standards are required to be followed mandatorily. For this purpose, the HUF assessees have
to be divided into three categories: 1

1. General category HUF (Also known as Level III enterprises for the purpose of Accounting
Standards)
The Accounting Standards dealt with herein below are applicable to all types of HUF whose Accounts are
being audited and they are :-

AS-1

Disclosure of Accounting policies

AS-2

Valuation of Inventories.

AS-4

Contingencies & events occurring after the balance sheet date

AS-5 Net profit or loss for the period, prior period items and changes in Accounting policies.
AS-6 Depreciation Accounting

AS-7 Construction contracts

AS-8 Accounting for Research and development(AS 8 is withdrawn from the date AS 26,
Intangible Assets, becoming mandatory for the concerned enterprise)
AS-9

Revenue Recognition

AS-10 Accounting for fixed assets

AS-11 Effects of changes in foreign exchange rates
AS-12 Accounting for government grants
AS-13 Accounting for investments
AS-14 Accounting for amalgamations
AS-15 Employee benefits
AS-16 Borrowing costs
AS-19 Leases(there are certain exemptions regarding disclosure requirements)
AS-22 Accounting for taxes on income
AS-26 Intangible assets
AS-28 Impairment of assets
AS-29 Provisions, contingent liabilities and contingent assets (there are certain exemptions
regarding disclosure requirements)

2. Special HUF (Also known as Level II enterprises for the purpose of Accounting
Standards)

The Accounting standards dealt with herein below are applicable to only those HUFs whose

1. turnover for the immediately preceding accounting period on the basis of audited financial
statements exceeds Rs. 40 lacs but does not exceed Rs. 50 Crores. Turnover for this
purpose doesnt include other income.
2. Borrowings, including public deposits are in excess of Rs. 1 crore but not in excess of Rs. 10 crores
at any time during the accounting period.
1. All the accounting standards as specified above
3. Special HUF (Also known as Level I enterprises for the purpose of Accounting
Standards)
Further in respect of those HUFs whose turnover for the immediately preceding accounting period on the

basis of audited financial statements exceeds Rs. 50 Crores or whose borrowings including public
deposits is in excess of Rs. 10 Crores at any time during the accounting period, all the Accounting
Standards are applicable. However, there are certain Accounting Standards which by their very nature
are applicable only in case of Listed Companies and therefore, they are not applicable to HUFs falling
under Level I enterprise

Whether Merger Of Two HUF is Possible?

A Question may arise whether it is possible to merge two HUFs.

We have seen earlier that HUF consists of all persons who are lineally descendants of common
ancestors and consists of their wives and unmarried daughters. We have seen earlier that the
coparcenary under the old law consisted of only male members and included male members
upto three generations i.e., sons, grandsons arid great-grandsons.

Sometimes, it happens that on a total partition of a bigger HUF consisting of the above persons,
the joint family is partitioned and the coparceners form their own HUF out of the joint
family/ancestral property so received.

It may very well therefore be possible for them unite later on bybringing the properties together
again by merging the HUFs so that the conditions of the Hindu Law is not violated as regards the
coparceners and the members who can form the HUF. Such a merger is also known as Reunion
in the terminology of Hindu Law.

1.

Reunion under the Hindu law

The effect of merger or reunion is that it restores the orginal status of Joint Hindu Family. The
reunion can be by way of an agreement or even oral reunion which reflects the intention of the
parties to reunite. In the case of Bhagwan Dayal Vs Reoti Devi reported at AIR 1962 SC 287, the
Honble Apex Court observed as under:

It is also well settled that to constitute a reunion there must be an intention of the parties to
reunite in estate and interest. It is implicit in the concept of a reunion that there shall be an
agreement between the parties to reunite in estate with an intention to revert to their former
status of members of a joint Ilindu family. Such an agreement need not be express, but may be
implied from the conduct of the parties alleged to have reunited. But the conduct must be of such
an incontrovertible character that an agreement of reunion must be necessarily implied
therefrom. As the burden is heavy on a party asserting reunion, ambiguous pieces of conduct
equally consistent with a reunion or ordinary joint enjoyment cannot sustain a plea of reunion.
The legal position has been neatly summarized in Maynes Hindu Law, 11th edn., thu at p. 569
As the presumption is in favour of union until a partition is made out so after a partition the
presumption would be against a reunion. To establish it, it is necessary to show, not only that the
parties already divided, lived or traded together, but that they did so with the intention of thereby
altering their status and of farming a joint estate with all its usual incidents. It requires very
cogent evidence to satisfy the burden of establishing that by agreement between them, the
divided members of a joint Hindu family have succeeded in so altering their status as to bring

themselves within all the rights and obligations that follow from the fresh formation of a joint
undivided Hindu family.
Thus in case of reunion, it is better to have an agreement to avoid future misunderstandings, otherwise a
cogent evidence is required to establish the reunion.

Residential Status of the HUF under I.T. Act.1956

The Assessment of income under the Income-tax Act, 1961/Wealth-tax Act, 1957 is always
based on the Residential Status of a Person.

The Residential status of a person under the Income-tax Act, 1961 is determined according to
Section 6 of the Income-tax Act, 1961. The Income-tax Act, 1961 recognises three types of
status in respect of any person and they are:-

1. Resident

2. Non-Resident

3. Not Ordinarily resident

The Residential Status of HUF is governed by Section 6(2) and 6(6) of the Income-tax Act, 1961
which reads as follows: -

Section 6(2)
A Hindu Undivided family, firm or other association of persons is said to be resident in India in
any previous year in every case except where during that year the control and management of
its affairs is situated wholly outside India.

Thus, a HUF is deemed to be a resident of India unless the control and management of its affairs
is situated wholly outside India. In relation to HUF, we have seen that the Control and
management is vested with Karta and therefore if the Karta of the HUF stays outside India and
controls and manages the affairs froxt outside India, the HUF would be (a) turnover for the
immediately preceding accounting period on the basis of audited financial statements exceeds
Rs. 40 lacs but does not exceed Rs. 50 Crores. Turnover for this purpose doesnt include other
income.
(b) Borrowings, including public deposits are in excess of Rs. 1 crore but not in excess of Rs. 10
crores at any time during the accounting period.

1. All the accounting standards as specified above

3. Special HUF (Also known as Level I enterprises for the purpose of Accounting
Standards)

Further in respect of those HUFs whose turnover for the immediately preceding accounting period on the
basis of audited financial statements exceeds Rs. 50 Crores or whose borrowings including public
deposits is in excess of Rs. 10 Crores at any time during the accounting period, all the Accounting
Standards are applicable. However, there are certain Accounting Standards which by their very nature
are applicable only in case of Listed Companies and therefore, they are not applicable to HUFs falling
under Level I enterprise.

Coparcener Property under HUF

Mitakshara law divides the coparcenary property into the following two kinds:-

a) Obstructed heritage

b) Unobstructed heritage

When a person acquires interest in a property by birth it is called unobstructed heritage because
the right to the property is not obstructed by the existence of the owner. As against this , when a
person acquires interest in a property not by birth but upon death of the last owner, it is called
obstructed heritage.

The following are generally recognised as coparcenary property as per Mysore High Court in
Commissioner of Income-tax vs Sita l3hateja (1)r.) (Mrs.) (1973) 91 ITR 173:
(i)

ancestral property;

(ii)

property allotted at a partition;

(iii)

property jointly acquired by coparceners;

(iv)

property acquired with the aid of coparcenary property

(v)

separate property of a coparcener thrown into family hotchpot and treated as

coparcenary property ; and

(vi)

Separate property of a coparcener blended with coparcenary property.

The above information is based on current changes in Income tax,

which will be helpful while dealing with such prospect, probably
you can play a vital role in guiding or advising your client on
HUF related issues.
I hope the information which is provided is just a gist one has to
refer latest Income tax byelaws. While dealing with
HNI OR ULTRA HNI CLIENT
Kindly keep updating yourself on taxation issue.
Kindly send your feedback

Pradeep Patil
Retd.DOLIC
Founder of DISHA