Query No. 1 (Impartible Estate of HUF)

What is the Law laid down by Hon. Supreme Court in respect of impartible estate of HUF property?


Section 6 of the Hindu Succession Act, 1956 as it stood before its substitution by the Hindu Succession (Amendment) Act, 2005 w. e. f. September 9, 2005 is reproduced as under:

“When a male Hindu dies after the commencement of this Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property, shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act.

PROVIDED that if the deceased has left him surviving a female relative specified in Class I of the Schedule or a male relative specified in that Class who claims, through such female relative, the interest of the deceased in the Mitakashara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship.

Explanation 1: For the purpose of this 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 the fact whether he was entitled to claim partition or not.

Explanation 2: Nothing contained in the proviso to this section shall be construed as enabling a person who has separated himself from the coparcenary before the death of the deceased or any of his heirs to claim on intestacy a share in the interest referred to therein.”

On the basis of the then existing section, the Supreme Court in
State of U.P. v. Raj Kumar Rukmini Raman Brahma [AIR 1971 SC 1687]
pointed out that an estate, which is impartible by custom, cannot be said to be the separate or exclusive property of the holder of the estate. “If the holder has got the estate as an ancestral estate and he is succeeded to it by primogeniture, it will be part of the joint estate of the undivided Hindu family.” The Supreme Court further held that right of maintenance and right of survivorship would still remain,

Query No. 2 (Deduction u/s. 35AD)

The assessee is a partnership firm carrying on medical profession. At present it is carrying on Gynic Branch only for the last several years. It decided to set up 200 bedded multi-specialty hospital and accordingly started the project in May, 2012 under the same partnership firm as a separate unit in order to avail under section 35AD @ 150% of eligible capital expenditure:

(a) Whether this unit can claim deduction under this section though the place of business and the nature of services will be different? No old machinery etc. will be transferred to new building/unit.

(b) Whether the income of both the units owned by the firm will be consolidated for the purpose of applicability of section 115JC or separate treatment?

(c) Can there be any difficulty to claim deduction under section 35AD in case if old unit (Gynic) is also shifted to new Hospital? The new unit may start operation by April-May, 2015.


a) Yes, the partnership firm can claim deduction under section 35AD @ 150% on capital expenditure incurred for setting up and operating hospital anywhere in India with more than 100 beds for patients. From the fact, it is clear that no old machinery would be transferred to new building/unit, hence, it would not be set up by splitting up or the reconstruction of a business already in existence. The expression “splitting up of the business already in existence” indicates a case where the integrity of a business earlier in existence is broken up and different sections of the activities previously conducted are carried on independently. [see
CIT v. Hindustan General Industries Ltd. – 137 ITR 851 (Del.)]. The term “reconstruction” implies that the identity of the business should not be lost and substantially the same business should be carried on by substantially the same persons as per the Supreme Court in
Textiles Machinery Corporation Ltd. v. CIT [107 ITR 195].

b) Yes, income of both the units would be consolidated of the assessee firm and if tax payable is less than Alternate Minimum Tax (AMT), then the assessee firm will have to pay AMT on adjusted total income. While calculating Adjusted Total Income, the deduction claimed under section 35AD to be added after reducing depreciation allowable under section 32 on such capital asset, at the rate prescribed in Rule 5 of the Income-tax Rules, 1961.

c) No difficulty as explained above

Query No. 3 (Charitable Trust)

Clause 3 of Finance Bill 2015 proposes amendment to section 2(15) of Income-tax Act, 1961 wherein certain proposals are being incorporated to restrict the activities of Charitable Trusts rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. What is the impact of such proposal?


The present definition in section 2(15) was substituted by Finance Act, 2008 and the first proviso was added to state that the advancement of any other object of general public utility will cease to be a “charitable purpose” if it involves any “trade, commerce or business” and aggregate receipts from such activities exceed rupees twenty five lakh. Thus, the proviso is very widely worded and implies that even smallest commercial activity will render the entire organisation not charitable.

Now, to mitigate the impact of the above proviso, the bill proposes that as regards the advancement of any other object of general public utility is concerned, there is a need to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organisation as part of actual carrying out of the primary purpose of the trust or institution.

It is, therefore, proposed to amend the definition of charitable purpose to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless –

(i) Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) The aggregate receipt from such activities, during the previous years, do not exceed twenty per cent of the total receipts of the trust or institution undertaking such activity or activities, for the previous year.

Thus now instead of rupees twenty five lakhs amount percentage of total receipts to be considered for deciding whether the trust / organisation is non-charitable.

Query No. 4 (Charitable Trust)

(a) As we are charitable organisation / trust involved in education related activities. We are paying service tax on the fees collected from students. However, no Cenvat on input services is available while making payment of service tax as the head of organisation is of strong opinion that it will invite unnecessary audit queries and attention from the service tax department. The Cenvat credit for F.Y. 2012-13 works out to around
Rs. 20,00,000/-. Section 13 of the Income- tax Act, 1961 provides for protection of property of the Trust and hence not claiming Cenvat of
Rs. 20,00,000/- is a violation of the section?

(b) In charitable organisation, the trustees have given full authority to Director General and consequently Director General is also very vigilant in sanctioning any payments. Out of abandon caution and moral, ethical responsibility, Director General would like that payment made to him or his relative should be approved by the trustees. Whether his contention is right?

(c) A charitable trust involved in medical related facilities have received part income tax refund from department and that also without interest. The head of the organization is not in favour of writing a letter asking for part refund as well as interest on refund fearing any harassment from Income-tax Department. Whether such stand would invite section 13 of the Income tax Act, 1961?


(a) Section 13 of the Income-tax Act, 1961 provides for withdrawal of exemption granted to charitable trust granted under section 11 of the Act.

Section 13(1)(c ) read with section 13(3) provides for withdrawal for exemption where a part of the income of a charitable or religious trust or institution enures or is used or applied directly or indirectly for the benefit of:

i) The author of the trust or the founder of the institution;

ii) Any person who has made a substantial contribution to the trust or institution i.e., any person whose total contribution up to the end of the relevant previous year exceeds
Rs. 50,000/-

iii) Where such author, founder or person is a Hindu Undivided Family, a member of the family;

iv) Any trustee of the trust or manager (by whatever name called) of the institution;

v) Any relative of any such author, founder, person, member trustee or manager as aforesaid;

vi) Any concern in which any of the person referred to above has substantial interest.

Explanation 1 to section 13 states “relative” in relation to an individual and Explanation 3 to said section defines “substantial interest” in a concern.

In view of the above, if CENVAT credit of Rs. 20/- lakhs or part of the income tax refund or interest on the said refund not claimed by the Trust, the trustee/s would be liable under section 36A of the Bombay Public Trust Act, 1950 for not protecting the property of the trust. However, the trust can not lose the exemption under section 3 of the Act as the amount is receivable from the Government.

In fact Article 265 of the Constitution provides that “no tax shall be levied or collected except by authority of law’. Therefore, section 237 of the Income tax Act, 1961 specifically provides that if any person satisfies the AO that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of excess. Similarly, section 244 provides for interest on refund where no claim is needed.

Thus, it is a right of the assessee (trust) to claim refund as well as interest from Department and Department is bound to issue refund along with interest.

b) The contention of the Director General of the trust is correct as he is covered by section 13(3)(cc)of the Act.

CA. H.N. Motiwalla

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