Taxes on goods and services are already there in our country in different forms like Excise Duty, VAT, Service Tax, Entry Tax, Entertainment Tax etc. All of these are different levies by Central or State Government and are having all together different set of taxable events, rates, procedures and compliances. Existing legal framework of these indirect taxes puts some challenges and issues before taxpayers like:

• Multiplicity of taxes.

• Cascading effect of taxes (tax on taxes).

• Classification issues.

• Excessive compliances.

• Fractured flow of Input Credits.

A single Goods and Services Tax (GST) was envisaged with a view to overcome all these issues of taxpayers. Ideally GST is a comprehensive Consumption Based Value Added Tax to be levied at all stages of supply of Goods and/or services, whereby Input Tax Credit on all types of business procurements (i.e. goods, services and capital goods) should be available without State Geographical Barriers.

Since the desired Constitutional Amendments has already been done and notifications for giving effect to provisions of the same have been issued, it is only a matter of time that the GST will be levied in the country. The Government at many point of times has disclosed its intention to levy GST as early as possible. It may be noted that as per constitutional amendment the Government will lose power to levy existing taxes on 15th September, 2017, hence it can be understood that GST will become reality in our country by September 2017.

In our country, instead of single comprehensive tax, GST is proposed to be levied on Dual Tier basis i.e. on all transactions of supply of goods and services, two taxes namely ‘State Goods and Services Tax’ (SGST) and ‘Central Goods and Services Tax’ (CGST) shall be charged. However, if such transaction takes place in the course of inter-state trade or commerce, then instead of two different taxes one single tax to be called as ‘Integrated Goods and Services Tax’ (IGST) shall levied, the rate of which shall be equivalent to sum total of SGST and CGST.

The GST is not only a tax reform, rather it is complete business reforms for number of reasons. It will greatly affect business practices and parameters. So apart from tax professionals it is important that the basic concepts of the GST should be known to businessman their finance, procurement and sales team.

Some of important aspects of the GST, on the basis of revised model GST law presented by the Govt. in November 2016, are summarised as under:

A. Taxable event

In the present regime levy of tax on goods are at the time of sale thereof or in case of services at the time of Provision of services. The term ‘Sale of Goods’ and ‘Provision of Services’, in the present respective legislations, normally creates charge when particular goods are sold by one person to another or some services are provided by one person to another for a consideration.

In the proposed tax regime, the taxable event will be Supply of Goods and Services. The term ‘Supply’ is much broader than existing charge of taxes i.e. Sale and Provision, it includes all commercial supplies such as Sale, Transfer, Barter, Exchange, Licence, Rental, Lease, Disposal etc. In the proposed GST law, it is not necessary that Supply should be there from one person to another, i.e. even self supplies can be under GST tax-net. Further the proposed law provides list of activities/ transactions whereby even if no consideration is charged the transaction will be treated as deemed supply, that means liability to pay GST will be there. For instance if a company situated in Jaipur sends some of its assets (stock or otherwise, on which ITC was taken at the time of purchase) from its Jaipur office to its Mumbai office to be used there, the liability to pay GST will arise on such transactions, despite the fact that neither there were two persons involved nor any consideration was there in such transaction.

B. Time of Supply

The term ‘Time of Supply’ signifies the point of time when liability to pay any tax arises. It will be altogether new concept for existing dealers of goods i.e. paying VAT on their sales. In the present Sales Tax law, time of supply is Sale of Goods i.e. directly linked to taxable event. However, in GST, unlike existing practices, tax on supply of goods shall be required to pay at the earliest of following two events:

i) Date of issue of the invoice by supplier or the last date when he is required to issue the invoice.

ii) Date on which payment is received by the supplier.

Further the model law provides the invoice is to be made at the time or before delivery of the goods. So for all practical purposes the tax will have to be paid at the time of earliest of all major commercial events i.e. Delivery of goods OR preparation of Invoice OR Receipt of advances. In the current practices payment of VAT/ CST or Excise duty doesn’t have any bearing on receipt of advances. Whereas in GST regime, even if the delivery has not been given or sales has not been completed, if the advance is received the tax liability has to be discharged. Provisions for time of supply for services are more or less similar to the present provisions of ‘Point of Tax’ in the Service Tax Laws.

Time of supply provisions for supply of goods on approval basis and Continuous Supply of Goods/ Services are separately given to provide deserving relief. All taxpayers have to modify their systems and procedure so that all relevant dates are captured to determine correct Time of Supply for all transactions and taxes be paid timely.

C. Place of Supply

The concept of place of supply is important to work out whether a particular transaction is Intra-State or Interstate. If a particular transaction is Intra-State, there will be levied two taxes i.e. SGST & CGST. Whereas if the transaction is in the course of Interstate Trade, one tax i.e. IGST will be levied. The rate of tax of IGST will be equivalent to sum total of SGST & CGST.

A particular supply shall be treated as Intra-State if the ‘Location of Supplier’ and the ‘Place of Supply’ are in same State. On the contrary if the ‘Location of Supplier’ and the ‘Place of Supply’ are in different states then the supply will be treated as Interstate. Further below mentioned transactions are specifically treated as Interstate transactions:

i) Import of Goods/Services in India.

ii) Supply where ‘Location of supplier’ is in India and the ‘Place of Supply’ is outside India. (Majorly being, export and some other supplies which cant be technically classified as Export due to non-realisation of consideration in convertible foreign exchange or supply to distinct person of same entity).

iii) Supply to/by a SEZ unit or developer.

iv) Any other supplies which are not an Inter-State Supplies.

Accordingly, any transaction with SEZ developer or unit will be Interstate transaction even if the both parties to transaction are in the same State. Further since Union Territories without State legislature (eg. Chandigarh) are not State any transaction originating from them shall be treated as Interstate Transaction and accordingly will attract levy of IGST.

The concept of Place of Supply is new to the Service Tax assessees. Whereas the dealers paying VAT & CST are used to with the concept of Intra and Interstate Sales, however provisions of classifying particular supply of goods as inter state or intra-state are fairly different from the present legal provisions.

In the GST Regime the concept of Place of Supply is very important, because if by any reason any taxpayer deposits the IGST instead SGST/CGST or vice versa, then as per provisions of proposed law, unlike present regime, one has to first deposit the correct tax and then only refund of the wrongly deposited tax can be claimed.

D. Input Tax Credit

One of the main motives of introducing GST was seamless flow of credit during the supply chain and hence mitigating cascading effect of taxes. Under GST regime normally credit of input tax on all goods and services, used or intended to be used for business, shall be allowed to the registered taxpayer, which is restricted under current tax regime in many ways and hence results into higher cost of goods and/ or services. However, a registered taxpayer shall be entitled to ITC if below mentioned conditions are satisfied:

a) He is in possession of Tax Invoice/ Dr. Note/Prescribed Tax paying document.

b) He has actually received the goods and/ or Services.

c) Tax charged in the invoice has actually been paid.

d) He has furnished required return under the GST Law.

Further, in case of ITC of Services there is requirement to pay value of supply along with tax to the supplier within three months from the date of issue of invoice by the supplier, failing which ITC shall be reversed along with interest liability in the manner yet to be prescribed.

In the present tax regime, so many litigations are going on the allowability of ITC on the conditions of matching of taxes paid by vendors on respective sale, however this matching concept is presently not there in excise and service tax. Whereas in GST regime provisions for invoice level matching of input tax credit has been provided in law for all supplies of goods and services. In result if a supplier does not deposit taxes into the credit of Government account, the recipient will not be allowed to avail the ITC despite the fact that he had paid such taxes to the supplier. Accordingly one needs to carefully select the vendor from whom such goods and/ or services are to be purchased/ procured. If a taxpayer does not select the vendor diligently for procuring inputs under GST regime, it can result into double payment of taxes, hence categorisation of vendors becomes necessary.

Further, as it is a destination based consumption tax, there is a set order of utilising input tax credit under GST regime, which is as under:

• IGST in order of IGST, CGST and SGST;

• CGST in order of CGST and IGST;

• SGST in order of SGST and IGST;

However, cross utilisation of credit between CGST and SGST shall not be available. Further, unlike CENVAT Credit there is no specific concept of availment and utilisation of credit under MGST Law. Alike, current indirect taxes, reversal of input tax credit is there when inputs, input services or capital goods are used partly for business and non-business purpose, or taxable and exempted supplies purposes.

E. Compliances

Compliances under GST is the area whereby any organisation complies with its obligation in relation to payment of taxes and filing of different returns and statements. In GST regime normally a taxpayer is required to file minimum three monthly statements/ returns per registration apart from annual return. Further in case the taxpayer is supposed to deduce tax at source one additional return per month per registration is required to be filed. That means if any taxpayer is having three registrations and is required to deduct TDS, he shall be filing 147 statements/ returns in a financial year. Moreover in most places these statements requires invoice level entry, i.e. information contained in each and every invoice has to be uploaded in the monthly statements e.g. Name, Address, GSTIN of Recipient, description of goods/services, HSN code, Details of tax etc. Apart from filing of statement and returns, in case of post supply events, such as return and/or rejection of goods, difference in rates, quantity etc. the GST law specifies adjustments of the same in a particular manner through debit and/or credit notes, which in turn also reported through monthly statement/ returns.

F. Transition to GST

Migration or Transition to GST is a process of existing taxpayer to transit into GST regime from existing taxation regime. Among many, two most important aspects of transition are Input Tax Credit and Registration:

• Carry forward of complete and eligible Input tax credits paid on goods, input services and capital goods. The taxpayer might have been paid Sales Tax, Services Tax and Excise Duty on inwards supplies in the existing tax regime which are eligible to be carried forward. Further it may be possible that those eligible credit may not be reflected in the returns filed in the existing laws. Identification and proper compliances to carry forward the same are most important aspect of the Transitional phase.

• It is better to decide the place or places of registration in the proposed regime as soon as possible. It may be noted unlike existing service tax system whereby the taxpayer can take centralised registration, as per model GST law there will not be any system of centralised registration. Persons located in different States will have to take separate registration under GST. In addition to it, person having multiple business vertical in the same States will be having option to take different registration within same State. All registrations shall be treated as separate taxable person from adjudication and compliances point of view under proposed GST law.

In summary the GST is effecting most of aspects of business be it Procurement, Supplies, Geographical Presence etc. Accordingly, it is advisable to all business houses, specifically those who are multi-located or are having multi registration, to analyse their business structure in the light of proposed law and have a complete impact analysis of their business process. By this taxpayer can plan their business structure in optimum manner. In absence of proper planning there may be situations whereby investment in working capital may raise significantly.

1. What is Hindu Undivided Family

The expression “Hindu Undivided Family” has not been defined under the Income-tax Act or in any other statute. When we dissect – essentials are (1) One should be Hindu, Jains, Sikhs and Buddhists are considered as Hindus but not Mohammadans or Christians; (ii) There should be a family; i.e. group of persons – more than one and (iii) They should be undivided i.e living jointly and having commonness amongst them. All these three essentials are cumulative. It is a body consisting of persons lineally descended from a common ancestor and include their wives and unmarried daughters, who are living together, joint in food, estate and worship (not now necessary). The daughter, on her marriage, ceases to be a member of her father’s HUF and becomes a member of her husband’s HUF. However, after 1-9-2005, daughter married or unmarried, is a co-parcener like a son in her father’s family.

2. What is a Hindu Coparcenery? In what ways is it different from an HUF?

A Hindu Coparcenery is a much narrower body within Hindu Undivided Family. Generally speaking, it is a body of individuals who acquires interest by birth in the joint family property. They are the son, grandson and great grandson of the holder of the joint property for the time being. Since 1-9-2005 daughters married or unmarried are now included. The coparcenery, therefore, consists of a common male ancestor and his lineal descendants in the male line within 4 degrees, running from and including such ancestor. No coparcenery can commence without a common male ancestor though after his death, it may consist of collaterals such as brothers, uncles, nephews etc. The essence of coparcenery is community of interest and unity of possession.

3. Who can be co-parceners/members of an HUF ?

Birth of a male/female (after 1-9-2005) in a Hindu joint family makes him a co-parcener of the HUF. In view of this, all male members automatically become members of the HUF. In addition to that, if a child is adopted then he also becomes a member of the HUF. Moreover, upon marriage, wife becomes a member of her husband’s joint family. Female child remains a member till marriage. Only male can be a coparcener. This is changed now after 1-9-2005 daughters are coparceners like sons.

4. What is the difference between a co-parcener and a member?

A HUF, as such, can consist of a very large number of members including female members as well as distant blood relatives in the male line. However, out of this, coparceners are only those males (now daughters also) who are within 4 degrees in lineal descendent from the common male ancestor. The relevance of concept of coparcenery is that only coparceners can ask for partition. The other male/female family members : i.e. other than coparceners in an HUF, have no direct claim over HUF property, but can claim only through the coparceners.

5. How does an HUF come into existence?

The concept of Joint Family under Hindu Law as well as the HUF in Income-tax Act, 1961 is broadly the same. HUF is purely a creature of law and cannot be created by an act of parties (except in case of adoption and reunion). An HUF is a fluctuating body, its size increases with birth of a member in the family and decreases on death of a member of the family. Females go and come into HUF on marriage. If there is family nucleus, there need not be more than one male member to form an 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 an Hindu undivided family as an assessable entity must consist of at least two male members (refer Gowli Buddanna v. CIT (1966) 60 ITR 293(SC). Where a coparcener having a wife and minor daughters and no son receives his share of joint family properties on partition, such property, in the hands of the coparcener, belongs to the HUF of himself his wife and minor daughters. (refer N.V. Narendranath v. CWT (1969) 74 ITR 190(SC).

6. Can a single male constitute HUF?

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. 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 an Hindu undivided family can be made only when there are two or more members of the Hindu undivided family (refer
C. Krishna Prasad v. CIT (1974) 97 ITR 493(SC). Husband and wife can constitute HUF if property is received on partition. An individual who receives ancestral property at a partition and who subsequently acquires family, but has no issue, would hold that property only as the property of the family. Under the Hindu Law the wife of the coparcener is certainly a member of the family. Whatever be the school of Hindu Law by which a person is governed, the basic concept of a Hindu undivided family in the sense of who can be its members is just the same. Thus, in order to constitute a joint family it is not always necessary that there must be two male members. (refer CIT v. Parshottamdas K. Panchal 92002) 257 ITR 96 (Guj). In cases where the property held by the person who claims it to be his own, had in fact been held by a joint family earlier and is ipso facto capable of being held by other sharers as well in future if and when the family comes into existence and a son/daughter (after 1-9-2005), whether by birth or adoption, is added thereto, such property continues to retain the character of joint family property, even when the family is reduced to a single male member as in the case of a sole surviving coparcener. Though such a sole surviving coparcener may be assessable as an individual as he cannot be said to have a family, unless there are, in fact female joint family members in the family, the character of the property continues unaltered as joint family property though for the time being it is not shared with any other member of the family and may or may not be subject to any charge in favour of anyone else for any purpose. When the assessee got married and acquired a family that family constituted a Hindu undivided family and the ancestral property which the assessee had received at the partition became the property of that Hindu undivided family. In cases where the property even at the time it vested in the hands of the family had the character of ancestral property the absence of a son, who can claim partition, does not render what is joint family property, individual property. The test is not as to whether his issues are male or female. The test is whether the property was ancestral. Therefore an individual who receives ancestral property at partition and who subsequently acquires a family, but had no male issues would hold that property only a property of the Hindu undivided family (refer W. P. A. R Rajagopalan v. C.W.T (2000) 241 ITR 344 (Madras).

7. Can a son who is the sole surviving coparcener along with other females in the family after his father’s death constitute an HUF?

Yes. The HUF shall continue with the son as Karta and other female members as members.

8. Can a son being a member of HUF consisting of his father, himself and his brothers, form an HUF consisting of himself, his wife and minor son?

Under Hindu Law, there can be an HUF within an HUF. Therefore, a son can have his own smaller HUF while he continues to be a member of his father’s HUF. In his father’s HUF, he is a mere member – coparcener and in his own HUF, he is Karta.

9. Can there be an HUF with only female members?

Yes. Under Hindu Law it is not predicated of an Hindu joint family that there must be a male member. So long as the property which was originally of the joint Hindu family remains in the hands of the widows of the members of the family and is not divided among them, the joint family continues (refer
CIT v. RM AR. AR. Veerappa Chettiar (197)) 76 ITR 467(SC). However, after the enactment of the Hindu Adoptions and Maintenance Act, 1956 as well as Hindu Succession Act, 1956, this legal position does not seem to be correct. This is because such female members, upon such death would get their interest in the property absolutely and their absolute interest so crystallised cannot be divested by any subsequent event, for example remarriage or adoption.

II. HUF PROPERTY

1. What is HUF and individual property of an Hindu?

Any property which is received from ancestors by way of partition or otherwise is HUF property. Any property received by the HUF by way of gift through Will, accretions to the existing properties, blended or properties thrown in common hotchpot or impressed with the Character of HUF property by any coparcener etc., are also HUF property. Character of the HUF property on partition in the hands of the coparcener, remains as HUF property.

Any property earned by an individual whether on account of own exertion or out of individual fund without investment of the HUF funds, earning of learning, service, personal qualifications, etc. is separate and individual property of an Hindu (refer K.S Suffiah Pillai v. CIT (1999) 237 ITR 11(SC). Self-acquired property of an Hindu will pass on to his/her legal heirs as per the rules of succession and the legal heirs receive the property as individual property. So also the share of the deceased coparcener in HUF, which otherwise devolves by survivorship to other coparcener goes by succession to legal heirs, which they hold as separate property, if such coparcener has left certain class of female relatives or a male relative who claims through such female relative specified in Class I of the first schedule to Hindu Succession Act, 1956.

2. Whether a family that does not own any property can have the character of Hindu joint family?

Yes, the concept of HUF is not related to possession of any property by the family nor the existence of such joint property is an essential precondition for constituting an HUF. This is because Hindus get joint family status by birth and joint property is simply an adjunct to the joint family.

3. What is the nature of property received by a male member after his marriage but before a male child is born?

There is considerable controversy on these aspects. There are divergent views expressed by different Courts from time-to-time. One view is that since an HUF, as known under Hindu Law, can consist of even husband and wife only, once such an HUF has come into existence upon marriage of a Hindu male, such family can receive property from any source and regard the same as HUF property. However, the other view is that in such a case, a distinction should be made between a property that already has characteristic of a joint property (for example, property received on partition) and other than such properties. In case of receipt of properties of the former kind, such family (that is consisting only of husband and wife) can receive and treat such property as joint Hindu family property. But in case of latter (that is, in the cases like gift or will), unless there are at least two coparceners in the family, such HUF cannot receive or treat such property as HUF property. In other words since in such family of husband and wife there is only one coparcener i.e., husband (wife being a mere member and not coparcener), if such HUF wants to receive and regard any property from an outside source as HUF property then it has to have another coparcener in the family i.e., son. The earlier view seems to a better one. Of course, a donor or testator must indicate that he gives it to the person’s HUF.

4. What is the nature of property received by an Hindu, who has only wife and daughters in his family, from his father?

This will depend upon whether the property received by such Hindu from his father is father’s individual property or property of father’s HUF. In case of the former, such Hindu will be receiving the property as a legal heir of the father and rules of succession as prescribed under Hindu Succession Act, 1956 will prevail. If the property is received from father’s HUF, then it can form part of HUF of such Hindu. But the share of the father in the HUF upon his death can go to his legal heirs which will be their individual property if the father has left behind him any female relative or a male relative claiming through such female relative, as in Class I of the schedule to that Act.
Of course by will he can give his share to son’s HUF.

5. Is property acquired by gift by the assessee with an intention of the donor that the money should be used for the benefit of his family, HUF property?

HUF can receive gifts from anybody including a stranger. In any case, as held by the Supreme Court, (ref
CIT v. Satyendra Kumar (1998) 232 ITR 360(SC) a gift by mother also can be a source of HUF property. In case of a gift whether from a father, mother, relative or a friend the intention of the donor is important. If there are express provisions to the effect in the deed of gift or Will that the son would take the property for the benefit of the family, that is decisive. The donor or testator dealing with self-acquired property may by evincing the appropriate intention, render to the property gifted the character of a joint family property or as the case may be a separate property in the hands of the donee vis-à-vis his male issue (refer
C. N. Arunachala Mudaliar v. C.A. Muruganatha Muddliar (1953) AIR 1953 SC 495 and CIT v. M. Balasubramanian (1990) 182 ITR 117 (Mad). It is necessary to take care while making the Will or the gift. Clause should be specific and the donee HUF should open bank account in the name of the HUF. Indication should be clear. (refer
CIT v. Maharaja Bahadur Singh & Others (1986) 162 ITR 343 (SC).

III. DOCTRINE OF BLENDING OR IMPRESSING WITH THE CHARACTER OF HUF

1. What is the doctrine?

If a coparcener makes a declaration blending his individual property with that of HUF or impresses such property with the character of HUF property or throws the property in the common hotchpot – such property becomes HUF property and loses the character of individual or separate property.

2. Can a coparcener blend his individual property into his smaller HUF wherein he is a Karta, while continuing to be a member of the bigger HUF consisting of his father, himself and his brothers?

A coparcener can be coparcener of two joint Hindu families. The blending is at his option, he may blend his property with either of the HUF’s. In that view of the matter, a coparcener can blend his individual property with his smaller HUF, wherein he is Karta, while continuing to be a member of the bigger HUF consisting of his father himself and his brother. (Refer
CIT v. MM Khanna (1963) 49 ITR 232 (Bom).

3. What will be the position where the HUF consists of only his wife and minor daughter?

The Supreme Court in Surjit Lal Chhabda v. CIT (1975) 101 ITR 776 on the above question stated: “Kathoke Lodge was not an asset of a pre-existing joint family. Doctrine of blending or impressing with the character of HUF party into the family hotchpot does not apply. The appellant has no son. His wife and unmarried daughter were entitled to be maintained by him from out of the income of Kathoke Lodge while it was his separate property. Their rights in that property are not enlarged for the reason that the property was thrown into the family hotchpot. Not being coparceners of the appellant, they have neither a right by birth in the property nor the right to demand its partition nor indeed the right to restrain the appellant from alienating the property for any purpose whatsoever. Their prior right to be maintained out of the income of Kathoke Lodge remains what it was even after the property was thrown into the family hotchpot : the right of maintenance, neither more nor less. Thus, Kathoke Lodge may be usefully described as the property of the family after it was thrown into the common stock, but it does not follow that in the eye of Hindu Law it belongs to the family as it would have if the property were to devolve on the appellant as a sole surviving coparcener. The property which the appellant has put into the common stock may change its legal incidents on the birth of a son but until that event happens the property in the eye of Hindu Law, is really his. He can deal with it as a full owner unrestrained by considerations of legal necessity or benefit of the estate. He may sell it, mortgage it or make a gift of it. Even a son born or adopted after the alienation shall have to take the family hotchpot as he finds it. A son born, begotten or adopted after the alienation has no right to challenge the alienation. It was held that income from the Lodge shall be chargeable to tax in the individual hand. It shall be assessable in the hands of the HUF on birth or adoption of the son (refer
S. K Bohra v. CIT (1988) 173 ITR 400 (Rajasthan). Position will be different after 1-9-2005, as daughter would be coparcener from the beginning.

4. Is it necessary for the HUF to have any ancestral property prior to receiving the property from one of the coparceners?

No, it is not necessary for the HUF. Even an empty hotchpot can receive and hold any property that is thrown into it by the coparcener. (Refer CIT v. S. Sivaprakasa Mudaliar (1983) 144 ITR 285 (Mad).

5. Can a female member of the family blend her individual property into the HUF?

Blending is a power given only to coparceners. Since females are not coparceners, a female member of a joint family cannot blend her individual property with HUF property. However, such an act shall be considered as a gift and it shall become property of the HUF. (Refer
Mallesappa v. Desai (AIR (1961) SC 1298) and Pushpa Devi v. CIT 91977) 109 ITR 730(SC). After 1-9-2005, daughter being a coparcener can throw her separate property into joint family hotchpot.

6. What are the clubbing provisions in tax laws?

The clubbing provisions u/s. 64(2) of the Income -tax Act as well as section 4(1A) of the Wealth -tax Act shall apply. Under the Income-tax Act, the income arising from such converted property will be deemed to be income of the transferor individual. Moreover, on partition of such property, in case such property is allotted to the wife of such individual the income arising therefrom shall continue to be taxed in the hands of the transferor individual. Income in respect of the property allotted to minor children till majority shall be clubbed in the hands of the father, on account of overriding provisions contained u/s. 64(1A) of the Income tax Act. Similarly under the Wealth-tax Act the converted property is deemed to be the asset belonging to the individual and when such converted property has been the subject matter of partition, the converted property or any part thereof, which is received by wife of the individual on such partition shall be deemed to be the property belonging to such individual and as such will be includible in the wealth of such individual. Under Gift-tax Act such act is considered as a transfer and is liable to tax as gift in respect of the value excluding share of the transferor in the HUF. However, at present there is no gift tax.

IV. GIFTS TO AND FROM HUF

1. Can Hindu Undivided Family accept gifts from its members or coparceners or outsiders?

Yes. There is no restriction for a HUF to accept gifts from any source. However, the intention of the donor should be clear and gift should be genuine. The donee shall have to prove the identity and capacity of the donor as well as the genuineness of the gift. Friendship, relationship, closeness need be established. The Delhi High Court in
Sajjan Das & Sons v. CIT (2003)) 264 ITR 435 held mere identification of the donor and showing the movement of the amount through banking channel was not sufficient to prove the genuineness of the gift. Since the claim of gift was made by the assessee, the onus lay on him not only to establish the identity of the person making the gift but also his capacity to make a gift and that it had actually been received as a gift from the donor. Gift being by cheque and of movable property, no registration is necessary. However, gift declaration detailing complete information relating to the donor should be drawn and recorded. Gift cheque should go in a bank account in the name of the donee for realisation and subsequent utilisation.

However, section 56(2) Income-tax Act (v) puts restriction on the gifts made by a person to another. Gifts exceeding ₹ 50,000/- in the aggregate received by any person before 1-10-2009 becomes taxable in the hands of the donee. After 1-10-2009 not only sum of money but even gift of immovable property and any other property exceeding ₹ 50,000/- will be taxable in the hands of the donee. The valuation of immovable property will be the valuation adopted for stamp duty purposes. While for other property it will be the fair market value.

However, this provision does not apply in following situations:-

(a) Gift from a relative

(b) On the occasion of marriage of the individual

(c) Under a will or by way of inheritance.

The definition of relative is given in section 56(vi) proviso (e).

The “relative” include (i) Spouse of the individual (ii) Brother or sister of the individual (iii) Brother or sister of the spouse of the individual (iv) Brother or sister of either of the parent of the individual (v) Any lineal ascendant or descendant of the individual (vi) any lineal ascendant or descendant of the spouse of the individual (vi) Spouse of the person referred to in Clauses (ii) to (vi).

It therefore appears that gift can only be received under this exception by individuals mentioned in the definition and not by an HUF. The main provision regarding ₹ 50,000/- refers to individual or an HUF but the definition of relative only refers to individuals. Thus HUF cannot make a gift nor possibly receive gift falling on the definition of relative. The question will be whether gift received by an HUF from an individual can be considered as gift received from a relative as defined. Similarly, gift by an HUF to a member of an HUF will not also fall within the exception because the donor or donee if it is HUF will not fall within the exception.

However, the above position is now slightly changed by reason of Finance Act, 2012 which has extended the definition of a “relative” to include gift from any member of an HUF to HUF. Thus it is now clear that an HUF can receive a gift from its member exceeding ₹ 50,000/- without any liability to pay tax u/s. 56(2) of Income-tax Act.

However, the question still remains whether an HUF can give a gift to its member exceeding ₹ 50,000/- without making the member liable to tax U/s. 56(2). In other words can an individual receive gifts from his HUF. It is submitted that prohibition still remains, as “joint Hindu family” cannot be considered as a “relative” of member. The converse case is still not included in the amendment carried out by Finance Act, 2012 which is given retrospective effect from
1-10-2009. However the HUF can distribute its income to its member/members under the General Hindu Law principles as such distribution is not a gift. Further, the HUF can spend for marriage, education etc of its members also under general principle for Hindu Law as it is considered as part of its obligation towards its members.

2. Whether share of an Hindu can be bequeathed by Will ?

Yes, now there is a specific provision (section 30) under the Hindu Succession Act, 1956 by which any Hindu can dispose of, by will or other testamentary disposition any property which is capable of being so disposed of by him. It is specifically mentioned that the interest of a male Hindu in a Mitakshara coparcenary property shall be deemed to be property capable of being disposed of by such Hindu. After Amendment Act, 2005, even daughter who is now coparcener can make a will bequeathing her share in joint family property.

Similarly. prior to the coming into force of this Act, neither under the Mitakshara nor under the Dayabhaga Law a widow or other limited female heir could in any case dispose of by will any property inherited by her or any portion thereof whether the property was movable or immovable. The effect of section 14 of this Act inter alia is to abrogate that traditional limitation. She is now full owner of all property howsoever acquired and held by her and can dispose of it by will. The only qualification to this rule is that she cannot do so where she holds any property as ‘restricted estate’ as visualised under section 14(2). This is so because in any such case she is not and has not become full owner of the property.

3. Can an HUF give away its property by way of gift?

The above was considered only from Income tax point of view. However, under general principles of Hindu Law whether HUF can make a valid gift, the position is as under:

Although sons acquire by birth rights equal to those of a father in ancestral property both movable and immovable, the father has the power of making within reasonable limits gifts of ancestral movable property without the consent of his sons for the purpose of performing “indispensable acts of duty, and for purposes prescribed by texts of law, as gifts through affection, support of the family, relief from distress and so forth”. A “gift of affection” may be made to a wife, to a daughter, and even to a son. But the gift must be of property within reasonable limits. A gift of the whole, or almost the whole of the ancestral movable property to one son to the exclusion of the other sons, cannot be upheld as a “gift through affection” prescribed by the text of law. A Hindu father or other managing member has power to make a gift within reasonable limits of ancestral immovable for “pious purpose”.

The essence of a coparcenery under the Mitakshara School of Hindu Law is community of interest and unity of possession. A member of joint Hindu family has no definite share in the coparcenery property, but he has an undivided interest in the property which is liable to be enlarged by deaths and diminished by births in the family. An interest in the coparcenery property accrues to a son from the date of his birth. His interest will be equal to that of his father. So far as alienations of coparcenery property are concerned, it appears that such alienations were permissible in the eighteenth century. Although at the time of the judgment of the Privy Council in Suraj Bunsi Koer’s case, the Madras Courts recognised alienations by gift, as time passed, the courts of law declared alienations by gift of undivided interest in coparcenery properties as void. The rigour of this rule against alienation by gift has been to some extent relaxed by the Hindu Succession Act, 1956. The most significant fact which may be noticed in this connection is that while the Legislature was aware of the strict rule against alienation by way of gift, it only relaxed the rule in favour of disposition by a will of the interest of a male Hindu in Mitakshara coparcenery property. The Legislature did not, therefore, deliberately provide for any gift by a coparcener of his undivided interest in the coparcenery property either to a stranger or to another coparcener. Therefore, the personal law of the Hindus, governed by the Mitakshara School of Hindu Law, is that a coparcener can dispose of his undivided interest in the coparcenery property by a will, but he cannot make a gift of such interest. Hence, a gift by a coparcener of his undivided interest in the coparcenery property either to a stranger or to his relation without the consent of the other coparceners is void. (Refer
Thamma Venkata Subbamma v. Thamma Rattamma (1987) 168 ITR 760(SC).

Combined reading of the paragraph of Hindu Law and the case laws show that the position in Hindu Law is that whereas the father has the power to gift ancestral movables within reasonable limits, he has no such power with regard to the ancestral immovable property or coparcenery property. He can however, make a gift within reasonable limits of ancestral immovable property for “pious purposes”. However, the alienation must be by an act inter vivos, and not by will. This Court has extended the rule in paragraph 226 and held that the father was competent to make a gift of immovable property to a daughter, if the gift is of a reasonable extent having regard to the properties held by the family. A father can make a gift of ancestral immovable property within reasonable limits, keeping in view, the total extent of the property held by the family in favour of his daughter at the time of her marriage or even long after her marriage. (Refer
R. Kuppayee v. Raja Gounder (2004) 265 ITR 551(SC).

4. Whether the gift above reasonable limit or to stranger is void or voidable?

It has been laid down by their Lordships of the Privy Council in
Hanuman Kamat v. Hanuman Mandur that the alienation by a manager of a joint Hindu family was not necessarily void but was only voidable if objections were taken to it by the other members of the joint Hindu family. The Lahore High Court in Imperial Bank of India v. Maya Devi, AIR 1935 Lahore 867 observed : “Where however the gift is not for religious purposes, or consists of the whole or large portion of the joint family property, the transaction is voidable, but only at the instance of the other coparceners. No person who is a stranger to the family and does not possess a right to have the transaction defeated on other grounds (e.g. under section 53, T.P. Act), has a locus standi to intervene and impugn it merely because it was in excess of the authority which the Karta possessed to deal with it for family purposes”. When gift is not void but only voidable it can be challenged by the members of the family and not the strangers. (Refer
CIT v. Motilal Ramswaroop (1970) 76 ITR 43 (Rajasthan), R.C. Malpani v. CIT (1995) 215 ITR 241 (Gauhati), Raghuban Chaman Prasad Narain Singh v. Ambica Prasad Singh – AIR 1971 SC 776, CIT v. K.N. Shanmughasundaram (1998) – 232 ITR 354, CIT v. Bharat Prasad Anshu Kumar – (2001) 249 ITR 755 (Delhi).

V. KARTA/MANAGER, MEMBERS, THEIR RIGHTS AND OBLIGATIONS

1. Who can become Karta of an HUF?

An adult male member who manages the affairs of the HUF is known as Karta or Manager of the family. Only a coparcener can become Karta. Generally, the senior most male adult member of the family is made Karta of HUF. However, such senior member may give up his right of management and a junior member may by consent, be appointed as Karta. Where a junior member is in custody, control or possession of the property or the eldest member is not working in the interest of the family or is working against the interest of the family, junior member may be recognised as Karta.

Coparcenership is a necessary qualification in order to become the Karta of a joint Hindu family. The effect of the Hindu Women’s Rights to Property Act (XVIII of 1937) is merely to confer upon the widow an interest in the share of the husband and the estate created in that interest is the interest of a Hindu widow. She is also entitled to claim partition of the properties but all these rights either individually or cumulatively do not have the effect of conferring upon the widow the status of a coparcener in the family. Nor do they clothe her with a right to represent the other members of the family as Karta of a joint Hindu family. Under Hindu Law the widow could not become the Karta of a joint Hindu family

(Refer V.M.N. Radha Ammal (1965) 57 ITR 510). However, a minor can act as Karta of the joint family through his natural guardian, his mother, in certain exceptional circumstances, for example, where whereabouts of the father are not known at the time. However, after 1-9-2005, daughter married or unmarried is now made a coparcener and can become Karta of her father’s family.

2. What are the rights of a coparcener or member?

No coparcener is entitled to any special interest in the coparcenery property nor is he entitled to exclusive possession of any part of the property. As observed by their Lordships of the Privy Council, “there is community of interest and unity of possession between all the members of the family”. A member of a joint Mitakshara family cannot predicate at any given moment what his share in the joint family property is. His share becomes defined only when a partition takes place. As no member, while the family continues joint, is entitled to any definite share of the joint property it follows that no member is entitled to any share of the income of the property. The whole income of the joint family property must be brought according to the theory of an undivided family, to the common chest or purse and there dealt with according to the modes of enjoyment by the members of an undivided family.

3. After the marriage of female member after 1-9-2005 whether the daughter would continue to be a member of her father’s family and also would become member of her husband’s family ?

Yes. She continues to be a coparcener of her father’s HUF. A very peculiar position will arise inasmuch as such daughter upon her marriage will automatically become only a member of her husband’s family while she will continue to be coparcener in her father’s family.

4. Can such female member demand partition of her father’s HUF as well as her husband’s HUF ?

As after 1-9-2005 daughter continues to be a coparcener of her father’s family, having all the rights and privileges as of a coparcener, she can demand partition of her father’s HUF property. However, as far as her husband’s HUF is concerned, she is a mere member of the family and not a coparcener and as such cannot demand partition of her husband’s HUF property. But would be entitled to a share in case of partition between her husband & her sons or between her sons.

5. What is property of sole surviving coparcener and its incidents?

When the family is reduced to only one male coparcener with female members only, such coparcener is called as sole surviving coparcener. Though for purposes of assessment a sole surviving coparcener is assessed in the status of a Hindu undivided family, his powers are wide and unrestricted and akin to that of an individual. He is free like an individual to alienate the property in whatever manner he likes. Therefore, when he alienates the property he disposes of the same with the powers vested in him as that of an individual. (Refer
Attorney General v. Arunachalam Chettiar (1958) 34 ITR (ED) 42 (PC), M.S.P. Rajah vs. CGT (1982) 134 ITR 1(Madras), CIT v. Anil J. Chinai (1984) 148 ITR 3 (Bombay), CIT v. N. Kannaiyiram (1999) 240 ITR 892 (Madras). Position would be different after 1-9-2005, if he has a daughter as she will be a coparcener & he will not be sole surviving coparcener.

VI. MITAKASHARA LAW OF INHERITANCE

1. Under Hindu Mitakashara Law, a joint family consists of father, son and grandsons and in joint family property all of them are coparceners – now also daughters, after
1-9-2005. In the estate of the joint family, all the coparceners would have equal share. Wife also would have share equal to that of the husband and the sons. Provided that she cannot claim the share unless there is partition between husband & her sons or partition between sons. The grand sons would share equally in the share belonging to the son i.e., their father. If there is a partition of a joint family, shares will be allotted to the various coparceners according to Hindu Law. However, radical change is introduced in the aforesaid legal position of a joint Hindu family by provisions of Hindu Succession Act. Section 6 . More particularly as amended by Act of 2005 provides that a coparcener of a joint Hindu family dies following consequences will
follow :-

(1) Daughter (married or otherwise) is made a coparcener same as a son to claim partition.

(2) Will have same rights as a son with all incidents of coparcenery.

(3) Property devolves as per section 8, Hindu Succession Act where sons, daughters, wife, mother are equal shares Class I. Hence not only daughter is made coparcener to have her own share in HUF, further on death of father intestate, she is one of heirs in father’s separate portion. Deceased’s share will devolve on heirs as per section 8 while deemed partition takes place of all coparcenery properties to heirs, entitled including daughter.

Share in the joint family does not go by survivorship to the other coparceners of the joint family but will go to her sons by intestate succession as listed in section 8 of the Act. Similarly, a coparcener (including daughter now) is now entitled to make a Will with regard to his/her share in the joint Hindu family and his share will, therefore go according to the provisions of the Will.

2. Restrictions on Hindus power to make a Will

There are no restrictions with regard to the power of a Hindu making a Will with regard to his individual property. As regards his/her share in the joint family property under section 30 of Hindu Succession Act, if he/she is a coparcener, he/she will be entitled to make a Will of his/her share in the joint family property. His/her share in the joint Hindu family will go by testamentary succession if he/she and section 15 if female has made a Will or by intestate succession as provided in section 8, if a male. So far as restrictions are concerned, there does not appear to be any restriction on the power of a Hindu to make a Will. However, it may be noted that section 22 of the Hindu Adoption and Maintenance Act, 1956 creates an obligation on the heirs receiving the estate of the deceased either by intestacy or by way of testamentary succession to maintain the dependents of the deceased out of the estate received if such dependents have not received any share in the estate by testamentary or intestate succession.

So far as female Hindus are concerned, there is no restriction on them regarding making of the Will of their individual properties and now daughters married or unmarried. However, though wives are entitled to a share in the joint family property when partition takes place between father and son or between sons, they being not entitled to a share, in absence of such partition they cannot make a Will with regard to their share in the joint family property unless she has received it. The status of women is altered radically by Hindu Succession (Amendment) Act, 2005, whereby daughters whether married or unmarried are coparceners and entitled to a share in the joint family properties. Wife and daughter can also ask for partition of her share. The amendment applies to agricultural property also. Amendment Act applies as from 9-9-2005. However, transactions such as partition which is by a deed of partition duly registered or decree of Court prior to 20-12-2004, will not be affected by the amendment.

VII. EFFECT OF THE SPECIAL MARRIAGE ACT, 1954

1. Ambit of sections 19 and 21 of the Special Marriage Act

It is open to person of any community in India to solemnise a marriage under the Special Marriage Act, 1954, but it has certain consequences with regard to the mode of succession to their properties and their joint Hindu family. Section 19 of the Act lays down that the marriage solemnised under this Act of any member of an undivided family who professes Hindu, Buddhist, Jain or Sikh religion shall be deemed to effect his severance from such family. Thus, automatic severance from the family would take place.

Further, section 21 provides that notwithstanding any restrictions in the Indian Succession Act with respect to its application to members of certain community, succession to property of any person whose marriage is solemnised under this Act and to the property of the issue of such marriage shall be regulated by the provisions of the said Act. Thus the parties to the marriage would lose their personal law of succession and would be governed by the Indian Succession Act.

2. Effect of Marriage Laws (Amendment) Act, 1976

However, this position was not a welcome situation and accordingly an amendment has been effected by Marriage Laws (Amendment) Act, 1976 with effect from May 27, 1976 wherein section 21A has been introduced in the Special Marriage Act, 1954.

Under this new section, where marriage is solemnised under the said Act of any person who professes Hindu, Buddhist, Sikh or Jain religion with a person who professes Hindu, Buddhist, Sikh or Jain religion, section 19 and section 21 shall not apply. The result of this amendment would be that if both the parties to the marriage under this Act are Hindus etc., there will be no severance from the joint family nor will they lose their personal law of succession.

PARTITION

1. What is partition?

Partition is the severance of the status of Joint Hindu Family, known as Hindu Undivided Family under tax laws. Under Hindu Law once the status of Hindu Family is put to an end, there is notional division of properties among the members and the joint ownership of property comes to an end. However, for an effective partition, it is not necessary to divide the properties in metes and bounds. But under tax laws for an effective partition division by metes and bounds is necessary. There should be physical partition of the property and not the notional partition. Partition under Hindu Law, can be total or partial. In total partition all the members cease to be members of the HUF and all the properties cease to the properties belonging to the said HUF. Partition could be partial also. It may be partial vis-à-vis members, where some of the members go out on partition and other members continue to be the members of the family. It may be partial vis-à-vis properties where, some of the properties are divided among the members other properties continue to be HUF properties. Partial partition may be partial vis-à-vis properties and members both. However, tax laws do not recognise partial partition of property or/and persons after 30-3-1978 on insertion of sub-swction (9) to Section 171 of the I.T. Act. This restriction was put to avoid creation of multiple HUFs which was a misuse.

2. How a partition can be effected and what is its effect?

To constitute a partition all that is necessary is a definite and unequivocal indication of intention by a member of a joint family to separate himself from the family. What form such intimation indication or representation of such interest should take would depend upon the circumstances of each case. A further requirement is that this unequivocal indication of intention to separate must be to the knowledge of the persons effected by such declaration. A review of the decisions shows that this intention to separate may be manifested in diverse ways. It may be by notice or by filing a suit. Undoubtedly, indication or intimation must be to members of the joint family likely to be affected by such a declaration.

Partition is word of technical import in Hindu Law. Partition in one sense is a severance of joint status and coparcener of a coparcenery is entitled to claim it as a matter of his individual volition. In this narrow sense all that is necessary to constitute partition is a definite and unequivocal indication of his intention by a member of a joint family to separate himself from the family and enjoy his share in severalty. Such an unequivocal intention to separate brings about a disruption of joint family status at any rate in respect of separating member or members and thereby puts an end to the coparcenary with right of survivorship and such separated member holds from the time of disruption of joint family as tenant in common. Such partition has an impact on devolution of share of such member. It goes to his heirs displacing survivorship. Such partition irrespective of whether it is accompanied or followed by division of properties by metes and bounds covers both a division of right and division of property. A disruption of joint family status by a definite and inequivocal indication to separate implies separation in interest and in right although not immediately followed by a de facto actual division of the subject matter. This may at any time, be claimed by virtue of the separate right. A physical and actual division of property by metes and bounds follows from disruption of status and would be termed partition in a broader sense. (Refer
Kalyani v. Narayanan – AIR 1980 SC 1173).

3. Can there be an oral partition?

Yes. It is not necessary to affect partition by a written partition deed. It can be effected orally and be acted upon. Even a partition of an immovable property can be by an oral agreement (Refer
Popatlal Devram v. CIT (1970) 77 ITR 1073 (Orissa), Padam Lochan v. State of Orissa 84 ITR 88 (Orissa).

“Partition in the Mitakshara sense may be only a severance of the joint status of the members of the coparcenery that is to say what was once a joint title, has become a divided title though there has been no division of any properties by metes and bounds. Partition may also mean what ordinarily is understood by partition amongst co-shares who may not be members of a Hindu coparcenery… For partition in the latter sense of allotting specific properties or parcels to individual coparceners, agreement amongst all the coparceners is absolutely necessary. Such a partition may be effected orally, but if the parties reduce the transaction to a formal document which is intended to be the evidence of the partition, it has the effect of declaring the exclusive title of the coparcener to whom a particular property is allotted by partition and is thus within the mischief of section 171(1)(b) (Refer
Nani Bai v. Gita Bai – AIR 1958 SC 706, Rishan Singh v. Zila Singh – AIR 1988 SC 881, Hansraj Agarwal v. CCIT (2003) 259 ITR 265 (SC). No particular method is prescribed – AIR 1964 SC 136.

4. Does a partition take place at the time of death of a coparcener?

A partition is an act effected inter vivos between the parties agreeing to the partition. A death of a coparcener cannot bring about an automatic partition and on such a death, the other surviving members continue to remain joint. However, under the provisions of section 6 of the Hindu Succession Act, there is a deemed partition for a limited purpose of determining the share of the deceased coparcener for the purpose of succession under the Act. The right of a female heir to the interest inherited by her in the family property gets fixed on the death of a male member under section 6 of the Act but she cannot be treated as having ceased to be a member of the family without her volition as otherwise it will lead to strange results which could not have been in the contemplation of Parliament when it enacted that provision and which might also not be in the interest of such female heirs. The female heir shall have the option to separate herself or to continue in the family as long as she wishes as its member though she has acquired an indefeasible interest in a specific share of the family property which would remain undiminished whatever may be the subsequent changes in the composition of the membership of the family. (Refer
State of Maharashtra v. Narayan Rao Sham Rao Deshmukh (1987) 163 ITR 31(SC).

5. Can a widow or wife claim partition?

A widow steps in the shoes of her husband. Earlier on account of the Hindu Women’s Right to Property Act, 1937 and now being an heir in Class I can claim the partition on the death of her husband. There can be a valid partition between a widowed mother and son. (Refer
Ram Narain Paliwal v. CIT (1986) 162 ITR 539 (P & H), CIT v. Mulchand Sukmal Jain (1993) 200 ITR 528(Gauhati).
However, a wife during the lifetime of her husband cannot claim a partition but in case there is a partition, she shall get share equal to that of her son and husband. (Refer :
Kundanlal v. CIT (1981) 129 ITR 755( P&H).

6. Is partition a transfer?

Partition is not a transfer. Each coparcener has an antecedent title to the joint Hindu family property. Though its extent is not determined until partition takes place. That being so, partition really means that whereas initially all the coparcenes had subsisting title to the totality of the property of the family jointly, that joint title is transformed by partition into separate title of the individual coparceners in respect of several items of properties allotted to them respectively. As this is the true nature of a partition, the contention that partition of an undivided Hindu family property necessarily means transfer of the property to the individual coparceners cannot be accepted. (Refer
Ajit Kumar Poplai and Another AIR (1965) SC 432). Partition does not give a coparcener a title or create a title in him, it only enables him to obtain what is his own in a definite and specific form for purposes of disposition independent of the wishes of his formal co-shares (Refer Girija Bhai v. Sadha Shiv Dund Raj AIR 1916 PC 104).

In view of the unit of ownership and community of interest of all coparceners in a joint Hindu family business the position on partition of the joint Hindu family business, whether it be partial or complete, is very similar in law to the position on dissolution of a partnership firm. On partition the shares of the coparceners in the joint family business become defined and their community of interests 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 coparcener, 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. (Refer
CIT v. S. Balasubramanian (1988) 230 ITR 934 (SC). The partition does not effect any transfer as generally understood in the Transfer of Property Act. (Refer CIT v. N. S. Jetty Chettiar (1971) 82 ITR 599).

7. Can there be an unequal partition?

Yes. It is at the sweet will of the coparceners and members as to whether to allot on partition in accordance with the share specified under the Hindu Succession Act or to allot lower or more to anyone or more persons. The partition in the family could not be considered to be a disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property. A member of a Hindu undivided family has no definite share in the family property before division and he cannot be said to diminish directly or indirectly the value of his property or to increase the value of the property of any other coparcener by agreeing to take a share lesser than what he would have got if he would have gone to a court to enforce his claim (Refer
CGT v. N.S Getti Chettiar 91971) 82 ITR 599(SC). In the light of the said law, it can be a sound tool of tax planning by giving larger share to the less financially sound coparcener and lesser share to the affluent.

8. Whether physical division by metes and bounds is necessary?

Hindu Law does not require division of joint family property physically or by metes and bounds. However, partition as defined under Explanation to Section 171 of the Act means – (i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition: or (ii) where the property does not admit of a physical division, then such division as the property admits of but a mere severance of status shall not be deemed to be a partition). Hence physical division of the property as the property admits of is an condition precedent for recognition of partition u/s. 171 of the Act.

Income Tax law introduces certain conditions of its own to give effect to the partition under s. 171 of the Act. The ITO can record a finding that a partition has taken place only if the partition in question satisfies the definition of the expression “partition” found in the Expln. to s. 171. A transaction can be recognised as a partition under s. 171 only if where the property admits of a physical division, a physical division of the property has taken place. In such a case a mere physical division of the income without a physical division of the property producing the income cannot be treated as a partition. Even where the property does not admit of a physical division, such division as the property admits of should take place to satisfy the test of a partition under s. 171. Mere proof of severance of status under Hindu law is not sufficient to treat such a transaction as a partition. If a transaction does not satisfy the above additional conditions, it cannot be treated as a partition under the I.T Act even though under Hindu law there has been a partition – total or partial (Refer
Kalloomal Tapeshwari Prasad v. CIT (1982) 133 ITR 690 (SC), CIT v. Venugopal Inani (1999) 239 ITR 514. In case of single property like house or chawl division by plan is valid, so also allotting different portions of a single building is valid.

The family business can be partitioned by making necessary entries of division of capital of the family. Such division must, of course be effective so as to bind the members. For an asset like family business or share in partnership, there cannot be said to be any other made of partition open to the parties if they wish to retain the property and yet hold it not jointly but in severalty and the law do not contemplate that a person should do the impossible (Refer
Chandas Haridas and Another v. CIT (196) 39 ITR 202 (SC), CIT v. Shio Lingappa Shankarappa and Brothers (1982) 135 ITR 375(Bom.). Where however, division was not effected of the property the claim was rejected (Refer
Kaluram & Co. v. CIT (2002) 254 ITR 307). It is also open to parties to allot whole house to one member on his undertaking to pay money value of the shares to due to other members and the amount paid to other coparcenes will be available to the members addition to his cost of his share if the house is later sold. See
Lalitaben Hariprasad v. CIT – 180 Taxman 213, 224 CTR 306, 320 ITR 698 (Guj.). Similar Gujarat decision Vimalbhai Nagindas Shah v. CIT 140 ITR 29 (partial partition), CIT v. Vajubhai Chunilal, CIT v. 120 ITR 21(Guj.).

9. What shall be the nature of the property received on partition?

The nature of the joint family property on partition shall be as that of joint family property as and when the recipient person is married. Hence the character of the property shall remain that of the joint family property. Such property shall be assessed as individual property, as long as the recipient is unmarried or is reduced to a single person.

The property which devolves on a Hindu u/s. 8 of the Hindu Succession Act would be individual property. Thus individual property shall continue to be individual property on inheritance and HUF property on partition shall be that of the joint Hindu family subject to the existence of family during the relevant assessment year (Refer
CWT v. Chander Sen (1986) 161 ITR 370(SC), CIT v. P.L Karuppan Chettiar 91992) 197 ITR 646(SC), CIT v. Arun Kumar Jhunjhunwala 7 Sons (1997) 223 ITR 43).

10. Whether an order u/s. 171 is required when an HUF has not been hitherto assessed?

Section 171(1) of the Act starts with the expression “a Hindu Family hitherto assessed as undivided”. Hence, if an HUF has not been assessed to tax, sec. 171 shall be inapplicable. Section 171 of the Income-tax Act, 1961, has no application to a case of a Hindu undivided family which has never been assessed before as a joint family i.e. as an unit of assessment. In other words, this section has application to a Hindu undivided family which has been assessed before as a joint family and if the Hindu undivided family has never been assessed to tax, this section has no application (Refer
Additional CIT v. Durgamma (P) (1987) 166 ITR 776 (AP), CIT v. Kantilal Ambalal (1991) 192 ITR 376(Gujarat), CIT v. Hari Kishan 920010 117 Taxman 214.
In such a case even partial partition will be valid.

11. What are the rights of daughters and female members not entitled to share on partition ?

Female members who have right of maintenance and marriage have a charge on the joint Hindu family property in respect of the said right. Hence, at the time of partition amount of such expenses deserve to be quantified provided and only balance to be shared by the persons entitled to share on partition. In lieu of such maintenance and other expenses, the female members can be allotted shares at the time of partition so that the divided properties are free of encumbrances (Refer
State of Kerala v. K.P Gopal (1987) 166 ITR 111(Ker.-FB). This position is changed since 1-9-2005 as daughters are made coparceners and are entitled to a share.

12. What is notional partition and whether such concept exist under the Income-tax Act ?

When a Hindu male dies on or after 17th June, 1956 having at the time of his death an interest in coparcenery property, leaving behind a female heir of the class one category, then his interest in the coparcenery property shall devolve by succession and not by survivorship. The interest of the deceased will be carved out over devolution, though there is no actual partition. Such an act is considered as a notional partition under the Hindu Law. The concept of notional partition is non-existent under the Income-tax Act. The Income-tax Act recognises only an actual partition and not the notional partition.

13. Stamp Duty on Deed of Partition.

The question arises as to what stamp duty is payable when partition takes place.

So far as Gujarat is concerned under Entry 43 of the Schedule 1 to Gujarat Stamp Act, 1958 is as follows:

Partition : Instrument of as defined by section 2(m):

“The same duty as a Bond (No. 14) for the amount of the market value of the separated share of shares of the property.

N.B : The largest share remaining after the property is partitioned (or if there are two or more shares of equal value and not smaller than any of the other shares, then one of such equal shares) shall be deemed to be that from which the other shares are separated.

The duty on bond mentioned in Entry 14 is 25 paise for every 100 Rupees or part thereof, if the value does not exceed 100 crores but if it exceeds ₹ 10 crores it would be 50 paise instead of 25 paise.

The Hindu Succession Act, 1956 – with effect from September 1, 2005

6. Devolution of interest of coparcenery property.-

(1) On and from the commencement of the Hindu Succession (Amendment) Act, 2005 in a joint Hindu family governed by the Mitakshara law, the daughter of a coparcener shall–

(a) By birth become a coparcener in her own right in the same manner as the son;

(b) Have the same rights in the coparcenery property as she would have had if she had been a son;

(c) Be subject to the same liabilities in respect of the said coparcenary property as that of a son, and any reference to a Hindu Mitakshara coparcener shall be deemed to include a reference to a daughter of a coparcener.

Provided that nothing contained in this sub-section shall affect or invalidated any disposition or alienation including any partition or testamentary disposition of property which had taken place before the 20th day of December, 2004.

(2) Any property to which female Hindu becomes entitled by virtue of sub-section (1) shall be held by her with the incidents of coparcenery ownership and shall be regarded, notwithstanding anything contained in this Act or any other law for the time being in force in, as property capable of being disposed of by her by testamentary disposition.

(3) Where a Hindu dies after the commencement of the Hindu Succession (Amendment) Act, 2005 his interest in the property of a Joint Hindu family governed by the Mitakshara law, shall devolve by testamentary or intestate succession as the case may be under this Act and not by survivorship and the coparcenery property shall be deemed to have been divided as if a partition had taken place and –

(a) The daughter is allotted the same share as is allotted to a son,

(b) The share of the pre-deceased son or a pre-deceased daughter, as they would have got had they been alive at the time of partition, shall be allotted to the surviving child of such pre-deceased son or of such pre-deceased daughter and,

(c) The share of the pre-deceased child of a pre-deceased son or of a pre-deceased daughter, as such child would have got had he or she been alive at the time of the partition shall be allotted to the child of such pre-deceased child of the pre-deceased daughter, as the case may be.

Explanation – For the purposes of this sub-section, the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not………………

(5) Nothing contained in this section shall apply to partition, which has been effected before the 20th day of December, 2004.

Explanation – For the purposes of this section “partition” means any partition made by execution of a deed of partition duly registered under the Registration Act, 1908 or partition effected by a decree of a court.

14. Property of a female Hindu to be her absolute property

(1) Any property possessed by a female Hindu, whether acquired before or after the commencement of this Act, shall be held by her as full owner thereof and not as a limited owner.

Explanation – In this sub-section, “property” includes both movable and immovable property acquired by a female Hindu by inheritance or devise, or at a partition, or in lieu of maintenance or arrears of maintenance, or by gift from any person, whether a relative or not, before, at or after her marriage, or by her own skill or exertion, or by purchase or by prescription, or in any other manner whatsoever, and also any such property held by her as stridhana immediately before the commencement of this Act.

(2) Nothing contained in sub-section (1) shall apply to any property acquired by way of gift or under a will or any other instrument or under a decree or order of a civil court or under an award where the terms of the gift, will or other instrument or the decree, order or award prescribe a restricted estate in such property.

Posers & impact of Hindu Succession Amendment Act, 2005

Daughter married/unmarried is made coparcener and is entitled to a share and claim partition. Following questions arise :

I. Consequences of daughter becoming a co-parcener of her father’s HUF

Another major issue which can now be dealt with is the impact of the Amendment Act, 2005 qua the position of daughters of a father who is co-parcener in an HUF.

The amended section 6 provides that in a joint Hindu family governed by Mitakshara Law, the daughter of co-parcener shall be co-parcener in the same manner as a son. The question arises whether the section applies only to a daughter born after the Amendment Act which came into force on 9-9-2005 or equally applies to daughter born before that date and who is a daughter married or unmarried of her father who is a
co-parcener.

It is obvious that amended section 6 is prospective and not retrospective. In other words by the amendment daughter does not become co-parcener from any earlier date. However, the question remains whether in an HUF which is continuing, a coparcener who has a daughter before 9-9-2005 is included now as coparcener. It is submitted that though the amendment is not retrospective it is retroactive meaning thereby it includes earlier events like birth of a daughter but operates with effect from 9-9-2005. A prospective legislation can draw for its application earlier events to which amendment applies from the date of its coming into force. It is submitted that the amended section would equally apply to a daughter born before 9-9-2005 and she becomes coparcener not from the date of her birth but only from 9-9-2005.

In such a situation the proviso to section 6 applies and induction of the daughter into coparcenery will not affect or invalidate any disposition or alienation including any partition or testamentary disposition of property which has taken place before 20-12-2004. Thus a limited retrospective operation is given to amended Section 6 up to 20-12-2004. Therefore, daughter does not get any rights nor can she challenge any disposition including partition which has taken place before 20-12-2004. Unfortunately there are divergent views taken by various High Courts in India on the correct interpretation of amended Section 6 as to whether it applies to daughter born before 9-9-2005.

Bombay High Court reversing earlier decision in the case of
M/s. Vaishali Satish Ganorkar v. Satish Keshorao Ganorkar reported in AIR 2012 Bom. 101, held by Full Bench in the case of Badrinarayan Shankar Bhandari v. Omprakash Shankar Bhandari reported in AIR 2014 Bom. 151, that the Act of 2005 will apply to all daughters born even prior to 9-9-2005 provided on that day the father of the daughter is alive.

Reference may be made to the judgment of Orissa High Court in the case of
Pravat Chandra Pattnaik & Ors v. Sarat Chandra Pattnaik & Anr. Reported in AIR 2008 Orissa 133
holding that the provisions are prospective but it did not accept the contention that only daughter born after 9-9-2005 would be treated as coparcener. Further Bombay judgment refers a judgments of Karnataka High Court in the case of
Pushpalatha N.V. v. V. Padma – AIR 2010 Karnataka 124 where it considered that the section is retrospective in the sense that it applies to daughter born earlier. However, the Kerala High Court took the view a daughter could get the right, even if born after 1956 when the Hindu Succession Act was enacted.

II. Distinction between ancestral property and Joint family property

Another interesting point which can be dealt with in this article is the difference between ancestral property and joint family property. As the word “ancestral” indicates it is the property received by the person from his father, grandfather etc. The said ancestral property will assume the character of joint Hindu family if the recipient has wife and children or only wife. Till then he can deal with it fully. However as soon as he marries the ancestral property becomes joint family property.

It may be noted that such ancestral property would be HUF property in the hands of the recipient. However, if the father has given his individual property to the son by will or gift it may not assume the character of joint family property in son’s hands unless the father has so indicated. Even courts have held that by reason of section 8 of the Hindu Succession Act individual property received on the death of the father will become the individual property of the son. This was held by the Supreme Court in the case of
CWT v. Chander Sen 161 ITR 370 (SC) Thus there are basically two sources of joint family property (1) property received from ancestors by the son from his father etc. and (2) property received on partition of an existing joint family property. However if the chest of the HUF is zero, by gift from an outsider, such property will also become HUF property.

Reference may be made to the Mulla Hindu law 19th Edition Vol. 1 page 369 which states “Ancestral property is a species of coparcenery property. As stated above if a Hindu inherits property from his father it becomes ancestral in his hands as regards his son. In such a case, it is said that the son becomes a coparcener with the father as regards the property so inherited and the co-parcenery consists of the father and the son”.

In other words every ancestral property received by a male Hindu from his ancestors becomes joint family property. However individual property of the ancestor may either become joint family property in the hands of the son or his individual property depending on the wording of the will or gift by the father or grandfather. However, property received from any other collateral relation or even mother will not become joint family property in his hands except when it is so intended and so mentioned in the will or gift deed.

The above distinction between Mitakshara co-parcenery property and joint family property has been recognised by the Supreme Court in
Hardeo Rai v. Shakuntala Devi – AIR 2008 SC 2489.

Incidentally certain other questions consequential on daughter becoming coparcener would arise.

I. Can unmarried or married daughter become karta of her father’s HUF ?

The first question is whether a married daughter can become karta of the father’s HUF on the death of her father if she is the eldest child. The basic concept of karta is that the male head of the family becomes a karta. A peculiar situation would arise when a married daughter belonging to another family can become the karta of the father’s HUF while she cannot be a karta of her husband’s joint family. However, the logical answer would be that she can be a karta. The basic Hindu Law would be modified in such a situation. It is also held since long that mother can be a guardian/karta of the her minor sons.

II. Whether children of married daughter become co-parcener of new father’s HUF?

Another interesting question is whether the children of the married daughter would become coparceners of father’s HUF. Again logically the answer should be in the affirmative but it would negate the fundamental concept of Hindu Law, because the children of the daughter cannot at the same time become coparceners in their father’s HUF and also in the maternal grandfather’s HUF. It is submitted that a limited effect has to be given to the Amendment Act and it cannot disturb the basic concept of an HUF having as its members, son, son’s wife, and son’s children. Making children of the daughter coparcener in the father’s HUF would be repugnant to the basic concept of an HUF. Similarly it is submitted that husband of the married daughter does not become member of her father’s HUF though son’s wife, becomes member of the father’s HUF. On the same reasoning ,the answer to the earlier question could be that Amendment Act should be given on limited application which should stop by making her daughter married or otherwise a coparcener in the father’s family. And not her children or husband. However on the death of the daughter there would be deemed partition and her share would devolve to her heirs as per her will and as on intestacy.

III. Whether sister married or unmarried can become coparcener?

A peculiar question arises as whether if the father is dead and the HUF continues with his sons their sister becomes a coparcener if the father dies before 9-9-2005.

It is submitted that daughters becomes coparceners only if their father is alive on 9-9-2005 as sisters are not covered by Section 6.

(1) Partition before 30-12-2004 is not affected by 2005 Act, but such partition is required to be registered. Does it mean that partition deed should be executed before 20-12-2004 or that it should be registered before 20-12-2004, though a document can be registered within 4 months of its execution and within 8 months with penalty?