HUF & TAX IMPLICATIONS

BY CA A. K. JAIN

Hindu Undivided Family is defined as consisting of a common ancestor and all his lineal male descendants together with their wives and unmarried daughters. Therefore, a HUF consists of all males & females in the family. Daughters born in the family are its members till their marriage and women married into the family are also members of the HUF.

In this context, “Hindu” mean all the persons who are Hindus by religion. Section 2 of the Hindu Succession Act, 1956, elaborately declares that it applies to any person, who is a Hindu by religion and it includes a Virashaiva, a Lingayat or a follower of Brahmo, Prathana or Arya Samaj, a Buddist, Jain or Sikh. In CWT In the case of Smt. Champa Kumari Singh (1972) 83 ITR 720, Supreme Court held that the HUF includes Jain Undivided Family. HUF is a separate entity for taxation under the provisions of sec. 2(31) of the I. T. Act. It means that the one person can be assessed as an individual and also as a Karta / Chief of his family.

HUF Formation - An HUF is automatically constituted with the marriage of a person. No formal action is required to create an HUF. The HUF being the result of birth, possession of joint property is only an appendage of the HUF and is not necessary for its constitution. So, one person cannot form an HUF. Family is a group of people related by blood or marriage. However, the property held by a single co-parcener does not lose its character of Joint Family property solely for the reason that there is no other male or female member at a particular point of time. Once the co-parcener marries, an HUF comes into existence as he alongwith his wife constitutes a Joint Hindu Family. This was held in the case of Prem Kumar v. CIT, 121 ITR 347 (All.)

It can be noted that, the technical status of an HUF continues even in the hands of females after the death of sole male member. Even after the death of the sole male member, the original property of the HUF remains in the hands of the widows of the members of the family and the same need not divided amongst them.

An HUF need not consist of two male members- even one male member is enough. The understanding that there must be at least two male members to form an HUF as a taxable entity is not applicable. - Gauli Buddanna v. CIT, 60 ITR 347 (SC); C. Krishna Prasad v. CIT 97 ITR 493 (SC) and Surjit Lal Chhabda v. CIT, 101 ITR 776 (SC). A father and his unmarried daughters can also form an HUF. CIT v. Harshavadan Mangladas, 194 ITR 136 (Guj.)

Nucleus of HUF - With several rulings it is now established that, nucleus or ancestral joint family property is not required for the existence of the HUF.

Karta - He is the person who manages the affairs of the family. Generally, the senior most male member of the family acts as Karta. However, any other male member can also act as Karta with the consent of the other member. Narendrakumar J. Modi v. Seth Govindram Sugar Mills 57 ITR 510 (SC).

Property - The HUF property may consist of ancestral property, property allotted on partition, property acquired with the aid of joint family property, separate property of a co-parcener blended with or thrown into a common family pool. The provisions of sec. 64 (2) of the Income Tax Act, 1961 have superseded the principles of Hindu Law, in a case where a co-parcener impresses his property with the character of joint family property.

Female members cannot merge her separate property with joint family property, but she can make a gift of it to the HUF. Pushpadevi v. CIT 109 ITR 730 (SC). Female members can also bequeath their property to the HUF, CIT v. G.D. Mukim, 118 ITR 930 (P & H).

Multiple Family Structures - An HUF can consist of several branches or sub-branches. For example, a person with his wife and sons constitutes an HUF. If the sons have wives and children, they also constitute smaller HUFs. If the grandsons also have wives and children, then they also constitute HUFs. It is irrelevant whether the smaller HUFs hold any property. Nucleus property can be acquired by partition of bigger HUF or by gifts from any member of the family or even by a stranger or by will with intention of the donor or the testator that the said gift or bequest will form the HUF property of the donee. An HUF can be composed of a large number of branch families, each of the branch itself being an HUF and so also the sub-branches of more branches. CIT v. M. M. 49 ITR 232 (Bom).

Tax planning through HUF -

(i) Increase the number of assessable units through the device of partition of the HUF.

(ii) Create separate taxable units of HUF through will in favour of HUF or gift to HUF.

(iii) Enter into family settlement / arrangement.

(iv) Payment of remuneration to the Karta and also to other members.

(v) Providing loans to the members of the HUF.

(vi) Gift to members.

Partition of HUF - The tax liability can be reduced by partition of the HUF. This can be easily done in a case where the partition results in separate independent taxable units. Suppose an HUF consists of father and two sons and there are two business establishments, a house property and other sources of income with the HUF. If the members of the HUF have no other sources of income then partition of the HUF can be done by giving one business establishment to each of the sons, house property to the father and dividing the other sources in such a manner so as to make the partition equitable. Such a partition of HUF will reduce the tax liability considerably. The position may, however, be different in a case where the members of the HUF have got high individual incomes. In such a case it is not advisable to break or partition the HUF. The HUF should be allowed to continue as a separate taxable unit.

In case, where the HUF has only one business establishment, which can not be physically divided, it may be converted into a partnership firm or a company. At present, rate of firm’s tax and the rate of tax in case of a company, is 30% flat, therefore conversion of HUF business into a partnership or a company is not advantageous. The incidence of, in such a case, can be better reduced by payment of remuneration to the members of the HUF. Partial partition of HUF is also a very effective device for reducing its tax liability. Partial partition is recognized under the Hindu Law. However partial partition of an HUF is no more recognised by the Income Tax Act. The provisions of sec. 171 partial partitions can still be used as a device for tax planning in certain cases. An HUF not hitherto assessed as undivided family can still be subjected to partial partition because it is recognized under the Hindu Law and such partial partition does not require recognition u/s. 171 of the Income Tax Act, 1961. Thus a bigger HUF already assessed as such, can be partitioned into smaller HUFs and such smaller HUFs may further be partitioned partially before being assessed as HUFs. Besides any HUF not yet assessed to tax can be partitioned partially and thereafter assessed to tax.

Legal aspects and partition of HUF-

(i) Assets distribution in the course of partition would not attract any capital gains tax.

(ii) No gift tax liability.

(iii) No clubbing of incomes u/s. 64.

Create Separate Taxable Units - It is now well settled law that there can be a gift or will for the benefit of a Joint Hindu Family .It is immaterial whether the giver is male or female, whether he or she is a member of the family or an outsider. What matters is the intention of the donor that the property given is for the benefit of the family as a whole. Suppose there is an HUF consisting of Karta, his wife, his two sons, daughter-in-law and grand children. A gift or will can be made for the benefit of the two smaller HUFs of the sons. The bigger HUF will continue as a separate taxable unit even after the death of the Karta. There may also be a case where the father or mother has self acquired properties. They have a son and his family but there is no ancestral property as a corpus of their family. Then, father & mother or both can leave their property for the benefit of their son’s family, through their respective wills.

Family Settlement / Arrangement - Family settlements / arrangements are also effective devices for the distribution of ancestral property. The object of the family settlement should be broadly to settle existing or future disputes regarding property, amongst the members of the family. The consideration for a family settlement is the expectation that such settlement will result in establishing or ensuring amity and goodwill amongst the members of the family. Since family arrangement does not involve transfer, it would not attract gift tax, capital gains tax or clubbing. By a family arrangement tax incidence is considerably reduced or it may even be nil. Suppose a family consists of Karta, his wife, two sons and their wives and children and its income is Rs. 6, 00,000/-. The tax burden on the family will be quite heavy. If by family arrangement, income yielding property is settled on the Karta, his wife, his two sons and two daughter-in-law, then the income of each one of them would be Rs.100,000/- which would attract no tax & if the assessment year is 2007-08, then the tax liability would be reduced form Rs. 100,000/- to nil.

Remuneration to the Karta & Members - The other important measure of tax planning for an HUF is to pay remuneration to the Karta and its members for the services rendered by them to the family business. The remuneration so paid would be allowed as a deduction from the income of the HUF and thereby tax liability of the HUF would be reduced, provided the remuneration is reasonable. The payment must be for service to the family for commercial or business expediency. Jitmal Bhuramal v. CIT 44 ITR 887(SC).

Loan to the Members - If the business, capital or investment of the HUF is expanding then such expansion can be done in the individual names of the members of HUF by giving loans to the members from the HUF. The HUF may or may not charge interest on the loans given. Where after partition of an HUF, two members became partners in three firms on behalf of their respective HUFs and they also became partners in a fourth firm, the funds were obtained by means of loans from other three firms, the share incomes of the members from the fourth firm was assessable as their individual income only. CIT v. Champaklal Dalsukhbhai, 81 ITR 293 (Bom.).

Gift of Assets to Members - Generally, the Karta of an HUF cannot gift or alienate HUF property but he can make certain gifts to the female members. Gift of immovable property within reasonable limits, can also be made by a Karta to his wife, daughter, daughter-in-law or even to a son out of natural love and affection. Gift of immovable property within reasonable limits can be made only for dutiful purpose e.g. marriage of a daughter etc.

If the HUF has surplus funds or property, then, the Karta can make gift of movable assets to his wife, daughter or daughter-in-law at one go or over a period of time. However, it may be noted that with effect from 1.10.98, the applicability of Gift Tax is no more in force. Therefore, no Gift Tax will be payable by a person making the gift from on or after 1.10.98. However, w.e.f. 1.10.2004 Gift received from other than relatives exceeds Rs.25,000/- then that amount is liable to Income Tax u/s. 57. It may be remembered that gift for marriage or maintenance of daughter is not liable to Gift Tax. Further clubbing provisions of sec. 64 would not be applicable if the gift in validly made in accordance with the rules of Hindu Law. Besides, if a gift made to the minor daughter of the Karta is valid then the provisions of sec. 60 of the Income Tax Act would not be attracted. CIT v. G. N. Rao, 173 ITR 593 (AP). Whereby, section 60 relates to transfer of income where there is no transfer of assets.

Other Tax Planning-

(i) Transfer of individual property to the family.

(ii) Family reunion after partition.

(iii) Inheritance by succession.

Partnership Firm & HUF - An HUF cannot become a partner in a firm. The Karta or a member of the HUF can represent the HUF in a firm. A female member can also represent HUF in a partnership firm, CIT v. Banaik Industries 119 ITR 282 (Pat.). Where remuneration was received by a member of HUF from a firm, where he was partner on behalf of HUF for managing firms business such remuneration was his individual income, CIT v. G. V. Dhakappa 72 ITR 192 (SC); Premnath v. CIT 78 ITR 319 (SC). However, income received by a member of HUF from a firm or company is taxable as the income of the HUF, if it is earned detriment to or with the aid of family funds, otherwise it is taxable as the separate income of the member, P.N. Krishna v. CIT 73 ITR 539 (SC). Members of HUF can constitute Partnership without affecting a partition or without disturbing the status of joint family. Ratanchand Darbarilal v. CIT 15 ITR 720 (SC). However, on viewing at the present rate of firm’s tax, conversion of HUF business into partnership is not advantageous.

Tapuriah Jain & Associates

Chartered Accountants

21,. Skipper House, 9, Pusa Road, New Delhi - 110 005

Tele : 91-11-28754012 & 13, Mobile : 91-98-100-46108, E-Mail : caindia@hotmail.com

----------------------------------------------------------------------------

LEGAL UPDATES

All HUF Assets Should Be Taken As Joint Property Unless Proven Otherwise : SC.

6th September, 2017 : The Supreme Court recently reiterated the principle that all assets in a Hindu Undivided Family would be presumed to be joint property belonging to all its members and that the burden to prove otherwise is on the family member asserting such claim.

“It is a settled principle of Hindu law that there lies a legal presumption that every Hindu family is joint in food, worship and estate and in the absence of any proof of division, such legal presumption continues to operate in the family. The burden, therefore, lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property,” the Bench comprising Justice R. K. Agrawal and Justice Abhay Manohar Sapre observed.

----------------------------------------------------------------------------

LEGAL UPDATES

All HUF Assets Should Be Taken As Joint Property Unless Proven Otherwise : SC.

6th September, 2017 : The Supreme Court recently reiterated the principle that all assets in a Hindu Undivided Family would be presumed to be joint property belonging to all its members and that the burden to prove otherwise is on the family member asserting such claim.

“It is a settled principle of Hindu law that there lies a legal presumption that every Hindu family is joint in food, worship and estate and in the absence of any proof of division, such legal presumption continues to operate in the family. The burden, therefore, lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property,” the Bench comprising Justice R. K. Agrawal and Justice Abhay Manohar Sapre observed.

The Court was hearing an Appeal challenging an order passed by the Karnataka High Court in a family dispute pertaining to ownership and partition of agricultural lands. The Apex Court upheld the High Court’s order which had declared the property as joint property of the family.

The Court opined that the Appellants had failed to prove that the property was self acquired and observed, “In order to prove that the suit properties described in Schedule ‘B’ and ‘C’ were their self-acquired properties, the plaintiffs could have adduced the best evidence in the form of a sale-deed showing their names as purchasers of the said properties and also could have adduced evidence of payment of sale consideration made by them to the vendee. It was, however, not done.

Not only that, the plaintiffs also failed to adduce any other kind of documentary evidence to prove their self-acquisition of the Schedule ‘B’ and ‘C’ properties nor they were able to prove the source of its acquisition.”

It, therefore, upheld the judgments passed by the lower Courts and observed, “In our considered opinion, it was, therefore, obligatory upon the plaintiffs to have proved that despite existence of jointness in the family, properties described in Schedule ‘B’ and ‘C’ was not part of ancestral properties but were their self-acquired properties. As held above, the plaintiffs failed to prove this material fact for want of any evidence. We have, therefore, no hesitation in upholding the concurrent findings of the two Courts, which in our opinion, are based on proper appreciation of oral evidence.”

Read Full Judgement:

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 11220 OF 2017

(ARISING OUT OF SLP (C) No.5664/2012)

Adiveppa & Ors. ...Appellant(s)

VERSUS

Bhimappa & Anr. ….Respondent(s)

J U D G M E N T

Abhay Manohar Sapre, J.

1) Leave granted.

2) This appeal is filed by the plaintiffs against the final judgment and order dated 22.08.2011 passed by the High Court of Karnataka Circuit Bench at Dharwad, in RFA No. 1793 of 2006 whereby the High Court dismissed the appeal and affirmed the judgment and decree passed by the Court of Principal Civil Judge (Senior Division), Bagalkot in O.S. No.85 of 2001.

3) In order to appreciate the short controversy involved in this appeal, it is necessary to state the relevant facts.

4) The appellants are the plaintiffs whereas the respondents are the defendants in a civil suit out of which this appeal arises.

5) The dispute is between the members of one family, i.e., uncle, aunt and nephews. It pertains to ownership and partition of agricultural lands.

6) In order to understand the dispute between the parties, family tree of the parties needs to be mentioned hereinbelow:

GENEALOGICAL TREE

Adiveppa (Died about 3-35 years back)

Yamanavva (Died about 10 years back)

Adiveppa

Yamanavva

(Wife)

Hanamappa                                                                                                               Bhimappa

(Son - Defendant No.1)

Gundavva

(Son - Died 6 years ago)

(Daughter-Defendant No.2)

Mangalavva

(Wife – Plaintiff No.3)

Adiveppa Yamanappa

( Son - Plaintiff No.1)                                                                      (Son - Plaintiff No.2)

7) As would be clear from the family tree, Adiveppa was the head of the family. He married to Yamanavva. Out of the wedlock, two sons and one daughter were born, namely, Hanamappa, Bhimappa and Gundavva. Hanamappa had two sons, namely, Adiveppa and Yamanappa.

8) Adiveppa - the head of family owned several acres of agricultural land. He died intestate. The dispute started between the two sons of Hanamappa and their uncle-Bhimappa and Aunt-Gundavva after the death of Adiveppa and Hanamappa. The disputes were regarding ownership and extent of the shares held by each of them in the agricultural lands.

9) Adiveppa and Yamanappa (appellants herein) filed a suit (O. S. No.85 of 2001) against - Bhimappa and Gundavva (respondents herein) and sought declaration and partition in relation to the suit properties described in Schedule ‘B’, ‘C’, and ‘D’.

10) The declaration was sought in relation to the suit properties in Schedule ‘B’ and ‘C’ that these properties be declared as plaintiffs’ self-acquired properties.

11) So far as the properties specified in Schedule ‘D’ were concerned, it was alleged that these properties were ancestral and hence the plaintiffs have 4/9th share in them as members of the family. It was alleged that since so far partition has not taken place by meets and bound amongst the family members, the suit to seek for partition.

12) The respondents (defendants) denied the plaintiffs’ claim and averred inter alia that the entire suit properties comprising in Schedule ‘B’, ‘C’ and ‘D’ were ancestral properties. It was alleged that during the lifetime of Hanamappa, oral partition had taken place amongst the family members on 28.10.1993 in relation to the entire suit properties (Schedule ‘B’, ‘C’ and ‘D’), pursuant to which all family members were placed in possession of their respective shares. It was alleged that the partition was acted upon by all the family members including the plaintiffs’ father (Hanamappa) without any objection from any member. It is on these averments, the respondents contended that the plaintiffs’ claim was misconceived.

13) The Trial Court framed the issues and parties adduced their evidence. By judgment/decree dated 15.07.2006, the Trial Court dismissed the suit. It was held that the plaintiffs failed to prove the suit properties specified in Schedule ‘B’ and ‘C’ to be their self-acquired properties. It was also held that so far as the properties specified in schedule ‘D’ are concerned, though they were ancestral but were partitioned long back pursuant to which, the plaintiffs through their father-Hanamappa got their respective shares including other members.

14) The plaintiffs felt aggrieved and filed first appeal before the High Court. By impugned judgment, the High Court dismissed the appeal and affirmed the judgment/decree of the Trial Court giving rise to filing of this appeal by way of special leave before this Court by the plaintiffs.

15) Heard Ms. Kiran Suri, learned senior counsel, for the appellants and Mr. Anand Sanjay M. Nuli and Mr. R. S. Jena, learned counsel for the respondents.

16) Having heard the learned counsel for the parties and on perusal of the record of the case including the written submissions filed by the learned counsel for the appellants, we find no merit in this appeal.

17) Here is a case where two Courts below, on appreciating the entire evidence, have come to a conclusion that the plaintiffs failed to prove their case in relation to both the suit properties. The concurrent findings of facts recorded by the two Courts, which do not involve any question of law much less substantial question of law, are binding on this Court.

18) It is more so when these findings are neither against the pleadings nor against the evidence and nor contrary to any provision of law. They are also not perverse to the extent that no such findings could ever be recorded by any judicial person. In other words, unless the findings of facts, though concurrent, are found to be extremely perverse so as to affect the judicial conscious of a judge, they would be binding on the Appellate Court.

19) It is a settled principle of law that the initial burden is always on the plaintiff to prove his case by proper pleading and adequate evidence (oral and documentary) in support thereof. The plaintiffs in this case could not prove with any documentary evidence that the suit properties described in Schedule ‘B’ and ‘C’ were their self-acquired properties and that the partition did not take place in respect of Schedule ‘D’ properties and it continued to remain ancestral in the hands of family members. On the other hand, the defendants were able to prove that the partition took place and was acted upon.

20) In order to prove that the suit properties described in Schedule ‘B’ and ‘C’ were their self-acquired properties, the plaintiffs could have adduced the best evidence in the form of a sale-deed showing their names as purchasers of the said properties and also could have adduced evidence of payment of sale consideration made by them to the vendee. It was, however, not done.

21) Not only that, the plaintiffs also failed to adduce any other kind of documentary evidence to prove their self-acquisition of the Schedule ‘B’ and ‘C’ properties nor they were able to prove the source of its acquisition.

22) It is a settled principle of Hindu law that there lies a legal presumption that every Hindu family is joint in food, worship and estate and in the absence of any proof of division, such legal presumption continues to operate in the family. The burden, therefore, lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property. (See-Mulla - Hindu Law, 22nd Edition Article 23 "Presumption as to co-parcenary and self acquired property"- pages 346 and 347).

23) In our considered opinion, the legal presumption of the suit properties comprising in Schedule ‘B’ and ‘C’ to be also the part and parcel of the ancestral one (Schedule ‘D’) could easily be drawn for want of any evidence of such properties being self-acquired properties of the plaintiffs. It was also for the reason that the plaintiffs themselves had based their case by admitting the existence of joint family nucleolus in respect of schedule ‘D’ properties and had sought partition by demanding 4/9th share.

24) In our considered opinion, it was, therefore, obligatory upon the plaintiffs to have proved that despite existence of jointness in the family, properties described in Schedule ‘B’ and ‘C’ was not part of ancestral properties but were their self-acquired properties. As held above, the plaintiffs failed to prove this material fact for want of any evidence.

25) We have, therefore, no hesitation in upholding the concurrent findings of the two Courts, which in our opinion, are based on proper appreciation of oral evidence.

26) Learned counsel for the appellants took us through the evidence. We are afraid we can appreciate the evidence at this state in the light of what we have held above. It is not permissible.

27) It was also her submission that the Trial Court has recorded some findings against the defendants in relation to their rights in the suit properties and the same having been upheld by the High Court, the appellants are entitled to get its benefit in the context of these findings.

28) We have considered this submission but find no merit in the light of what we have held above. At the cost of repetition, we may observe that if the plaintiffs failed to prove their main case set up in the plaint and thereby failed to discharge the burden, we cannot accept their any alternative submission which also has no substance.

29) In the result, we find no merit in the appeal. It fails and is accordingly dismissed.

……...................................J.

[R.K. AGRAWAL]

…...……..................................J.

[ABHAY MANOHAR SAPRE]

----------------------------------------------------------------------------

Eldest Woman Member Can Be Karta Of Hindu Joint Family, Rules Delhi HC

1st February, 2016 : At a time when women are fighting for their right to enter temples, the Delhi high court has ruled in a landmark verdict that the eldest woman member of a Hindu undivided family can be its karta (manager of the family and its properties).

Extending the meaning of Section 6 of the Hindu Succession Act, which brings women on a par with men with regard to inheritance in a Hindu undivided family (HUF), Justice Najmi Waziri said the rights of a female family member cannot be curtailed when it comes to management of the property.

“It is a rather odd proposition that while females can have equal rights to inheritance in an Huf property, this right can nonetheless be curtailed when it comes to management of the same. The clear language of Section 6 of the Hindu Succession Act does not stipulate any such restriction,” the high court said in its verdict dated December 22, 2015, which was made public last week.

The verdict came on a suit filed by the eldest daughter of a north Delhi business family, seeking entitlement as the karta on death of her father and three uncles. Ordinarily, a first-born male among the co-parceners of the Huf property is - by virtue of birth - entitled to be its karta.

The karta has superior powers over other family members in matters concerning management of properties and other family affairs. The title is usually given to the senior-most male member of an HUF.

Justice Waziri noted that female members of Hufs were earlier prevented from becoming its karta because they did not possess the necessary qualification of co-parcenership. However, with the amendment in the Hindu Succession Act-2005, equal rights of inheritance have been given to Hindu males and females.

“The impediment, which prevented a female Huf member from becoming its karta, was that she did not possess the necessary qualification of co-parcenership... Now that this disqualification has been removed by the 2005 amendment, there is no reason why Hindu women should be denied the position of a karta,” Justice Waziri observed.

Relatives opposing the daughter’s claim had argued that Section 6 of the Hindu Succession Act defines a woman’s rights only with regard to the inheritance of property, not its management. They argued that the undefined rights will have to be gleaned from ancient customs as well as ancient Hindu texts – which do not specifically confer such a right on women.

“If the male member of an Huf, by virtue of being the first-born and the oldest, can be a karta, so can a female member. The court finds no restriction in the law preventing the eldest female co-parcener of an Huf from being its karta,” the court said, declaring the petitioner as the manager of the family business.

----------------------------------------------------------------------------

Whether Oral Arrangements made between Coparceners is binding force under Hindu Law - YES: ITAT

Hyderabad, May 04, 2014: The issues before the Bench are - Whether registration of a family arrangements is sine qua non for its authenticity; Whether under the Hindu Law an oral arrangement made between the coparceners of the family members have binding force and Whether in view of the provisions of section 64(2) every income from a property which belongs to an individual would be taxable in the hands of such individual and not in the hands of HUF if there is no proper transfer. And the verdict goes in favour of assessee.

The assessee is an individual filed his Return of Income for the impugned assessment year the same was processed under section 143(1) of the Act and later on the selected for scrutiny. During the course assessment proceedings the AO observed that assessee has claimed exemption of 54F of the Act. The AO framed the assessment. However, observing that the assessee has manipulated the capital gain reopened the assessment under section 147 of the act. During the course of re-assessment proceedings the AO observed that land on which exemption of 54F was claimed was belonging to assessee and subsequently transferred to HUF. Accordingly the AO issued notice under section 147 to all the coparceners of the HUF. Except the assessee the other coparceners could not file any return and informed the AO that they could not file any Income Tax Return originally as there were under impression that they were not liable to capital gain tax since there status is HUF and the sale consideration received by them in the capacity of coparceners was utilized by them in acquiring residential house in their individual names, they are not liable to Capital Gain Tax. The AO on going through the details of sale consideration shared between the family members noted that they have distributed the sale consideration among their family members under the guise of HUF.

In this back drop of the facts the AO took a view that without there being a proper transfer of the Individual property to HUF and as per the provision of section 64(2), income from a property, which has been thrown by an individual into the common hotch-pot of the HUF is taxable in the hands of that individual and not in the hands of HUF, therefore, the distribution done by the assessee and his family members is patently wrong and hence exemption of 54F is not available to the assess- CIT (A) affirmed the order of AO - Matter reached to the ITAT wherein the AR’s of the assessee argued that there was an oral agreement between the assessee and his family members for the impugned sale and purchase of the HUF property and the AO has wrongly denied the exemption on the ground that the arrangement so made was not registered.

After hearing the parties ITAT held that, the law laid down in the aforesaid decision is to the effect that family arrangement entered into with a view to resolve family dispute, which is bonafide, voluntary and not induced by fraud, coercion or undue influence does not require registration. Such family arrangement by itself would convey right, title and interest in immovable property without any further requirements;

The AR apart from submitting before us that the properties have been distributed amongst the family members as per the partition deed dt. 11-11-2005 has not produced any supporting evidence to show that the family arrangement as per the terms of the partition deed dated 11-11-2005 was actually acted upon. There is no evidence on record to show that the family members actually became owners of the properties falling into their irrespective shares as per the family arrangement. At least no document has been produced before us to establish ownership of the property in the name of the family members as per the partition deed. As it appears, no such evidence was also produced before the authorities below. In these circumstances, it is difficult to accept the assessee’s claim of division of property as per the partition deed dt. 112005. Accordingly, we uphold the decision of the authorities below in taking the entire sale consideration at the hands of the assessee for computing capital gain.

FAMILY SETTLEMENT
BOMBAY HIGH COURT

Daughters are entitled to Ancestral Property

A Full Bench of the Bombay High Court comprising Mohit Shah C.J, M. S. Sanklecha and M.S Sonak, JJ, delivered a noteworthy judgment on daughter’s right to ancestral property in a joint HUF on 14th August, 2014. The Bench was constituted on a reference by Single Judge R.G. Ketkar J. who doubted the correctness of the decision of the Division Bench in the case of Vaishali S. Ganorkar & others v. Satish Keshavrao Ganorkar & others,. Prior to the enactment of the Hindu Succession (Amendment) Act, 2005 (hereinafter the Amendment Act), the Hindu Succession Act, 1956 (hereinafter the Principal Act) did not provide any rights to daughters in respect of partition of property or the right to demand partition or claim shares in the coparcenary property. A coparcener is a person who has equal rights in the undivided property of a HUF. The Amendment Act now entitles women to an interest in the HUF property by amending Section 6 of the Principal Act and makes a daughter a coparcener in her own right, thereby upholding the fundamental right to equality and non discrimination on the basis of gender enshrined in the Constitution. In the current case the point of contention was not, therefore, whether daughters are also entitled to an interest in the HUF property like their male counterparts, which has been duly settled, but whether the Amendment Act has a prospective or retrospective effect, the determination of which will have a direct bearing on the controversial issue of whether daughters born before 2005 are also entitled to be coparceners in their own right in the same way that daughters born on or after 9 September 2005 are now entitled. A Division Bench upheld the prospective operation of the Amendment Act in Vaishali S. Ganorkar v. Satish Keshavrao Ganorkar, which in effect disentitles all daughters born before 9 September 2005 to claim their equal interest in the Joint HUF governed under the Mitakshara law. Further, the Bench interpreted the amended section to mean that daughters born before 2005 would get rights in the coparcenary property only on the death of the father-coparcener on or after 9 September, 2005.

This provision effectively leaves the daughters remediless if a male coparcener, in the interim, decides to dispose of the property by testament/will. Disagreeing with the decision of the Division Bench, Single Judge R.G Ketkar J. held that the amended section has retrospective effect from the date of the enactment of the Principal Act and is applicable to all daughters who are born before or after 2005 as a daughter becomes a coparcener in her own right by virtue of her birth. The matter was thus referred by the Single Judge to the Full Bench in order to reconcile the differing opinions and reach a reasoned decision bound to impact the lives of millions in the country. Although Hindu women were considered a part of the HUF under the Shastric/Customary Law for the purpose of maintenance, they did not have a right in the property and it transmitted only to male coparceners by way of survivorship. Today, modern thinking has slowly shaped society to accept equality of the genders which has thankfully seeped into the laws of intestate succession resulting in the Amending Act, 2005. However, the amended Section 6 has left ample scope to the courts for interpretation and this is precisely the critical space where equality needs to be reasoned and upheld. More than just seeing this issue through the lens of feminist movements for equality, the case throws light on the current trend of the courts in application of the rules of interpretation.

The Full Bench concurring with the opinion of the Single Judge stated “We agree with the Respondents that normally a statute should be construed on its plain meaning. However, when the plain reading of the provision is not very clear then, in that case, one has to apply an appropriate tool of interpretation to unearth the intent, object and purpose of the enactment. In such cases, particularly, in cases of socio-economic legislations like the one we are concerned with, we must apply the Mischief or Purposive Rule of interpretation to find out the true meaning of the Statute”. The Mischief Rule propounded in 1584 from Heydon’s case, essentially seeks to rectify the existing defect in the common law and thus allows interpretation to keep in tune with the changing social philosophies of the time. Applying the Purposive Rule to this case, the Full Bench has determined the prospective v. retrospective operation of the Amendment Act. As is well established, the interpretation of statutes raises a presumption against retrospective operation of statues unless expressly or impliedly specified by the legislation itself, as it would result in the dire and chaotic consequence of unsettling already vested rights. However, the courts must not be restrained by the black letter of the law which subverts the justice and equality due to millions of daughters born before 9 September 2005.

The Court, to mete out justice, resorted to the application of an intermediary category known as ‘Retroactive Statute’ which does not operate backwards and does not take away vested rights, but successfully provides rights to those daughters who are alive at the time of the Amendment Act, irrespective of whether they were born before or after 2005. In case the coparcener has died before 2005, then the pre-amended law is applicable but by passing of the Amendment Act, all daughters who are alive ipso facto become coparceners, thus settling the interpretation of the amended Section 6. “The only requirement is that when an Act is being sought to be applied, the person concerned must be in existence/living. The Parliament has specifically used the word ‘on and from the commencement of Hindu Succession (Amendment) Act, 2005’ so as to ensure that rights which are already settled are not disturbed by virtue of person claiming as an heir to a daughter who had passed away before the Amendment Act came into force.”, the Court said.

Supreme Court Judgement- HUF

SC says daughters whose fathers died before amendment in Hindu Succession Act have no right to inheritance.

A bench of Justices Anil R Dave and Adarsh K Goel held that the date of a daughter becoming coparcener (having equal right in an ancestral property) is "on and from the commencement of the Act".

The Supreme Court has said that a daughter's right to ancestral property does not arise if the father died before the amendment to Hindu law came into force in 2005.

According to an Indian Express report, the apex court held that amended provisions of the Hindu Succession (Amendment) Act, 2005, do not have retrospective effect. The father would have to be alive on September 9, 2005, if the daughter were to become a co-sharer with her male siblings.

A bench of Justices Anil R Dave and Adarsh K. Goel held that the date of a daughter becoming coparcener (having equal right in an ancestral property) is "on and from the commencement of the Act".

The Hindu Succession Act, 1956 did not give daughters inheritance rights in ancestral property. However, the Congress-led UPA government modified this Act on September 9, 2005. Earlier, women could only ask for sustenance from a joint Hindu family.

The only restriction in force after the passage of this amendment was that women could not ask for a share if the property had been alienated or partitioned before December 20, 2004, the date the Bill was introduced. But now the Supreme Court has added this new restriction.

Indian Express says that the apex court ruling overrules some high court judgements which say that the amendment being in the form of a gender legislation, should apply retrospectively for the sake of removing discrimination.

The top court shot down the argument that a daughter acquires right by birth, and even if her father had died prior to the amendment, the shares of the parties were required to be redefined. "The text of the amendment itself clearly provides that the right conferred on a 'daughter of a coparcener' is 'on and from the commencement' of the amendment Act. In view of plain language of the statute, there is no scope for a different interpretation than the one suggested by the text," it said.

Further, there is neither any express provision for giving retrospective effect to the amended provision nor necessary intent, noted the court, adding "even a social legislation cannot be given retrospective effect unless so provided for or so intended by the legislature".

----------------------------------------------------------------------------

Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.