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Tuesday, 22 July 2014

How to Represent before PF Authorities for Non-Applicability of EPF to Casual Labor - case study of Event Management Company

In our Organization we do the Event Management Services, where in different contractors does the work of erecting a set while other contractor will do the work of Coloring the Set, the work of erecting walls may be done by third contractor while woodwork may be done by still different person/contractor. The electrification, fixing of stage and its finishing, will each be done by still other contractors. In addition there would be host of casual labors working on the Event Management Sites, on per day wage basis. Labor force working with each contractor is different and they work for very short period and after finishing one site they move to other site with their contractor or coming to them. Such casual or temporary or site-workers are not employed in their establishment and as such we cannot be forced to cover them under PF Act as our employees. It is pointed out that under earlier paragraph 26 of 1952 scheme an employee who had put in particular length of service alone was required to be treated as covered under the scheme. Attention is invited to 1990 amendment to said paragraph 26 to show that such waiting period has been removed and from day one the employee is supposed to be covered under the scheme.

How ever we have to state that such casual labor / employees cannot be treated "as employed" with our organization and therefore are not covered by definition of Employee under Section 2(f) of PF Act. Paragraph 26(2) as it originally stood read: 26 (2). After this paragraph comes into force in the factory or other establishment, every employee employed in or in connection with the work of the factory or establishment, other than an excluded employee, who has not become a member already, shall also be entitled and required to become a member from the beginning of the month following that in which he completes six months continuous service or has actually worked for not less than 60 days within the period of three months or less in that factory or other establishment or in any factory or establishment to which the Act applies under the same employer, or partly in one and partly in the other or has been declared permanent in any such factory or other establishment whichever is earliest.

On 16 January 1981 period of six months in above clause was substituted by "three months". By later notification dated 1/11/1990 this para is amended as under:

26 (2). After this paragraph comes into force in a factory or other establishment, every employee employed in or in connection with the work of that factory or establishment other than an excluded employee who has not become a member already, shall also be entitled and required to become a member of the fund from the date of joining the factory or establishment.

When the question about the constitutional validity of this amendment came to Honorable Apex Court has in case between J.P. Tobacco Products etc. v. Union of India reported at 1995(II) C.L.R. 369 upheld the constitutional validity of this amendment. The controversy mentioned briefly above arises in this background, wherein it is pointed out that constitutional validity of amendment in Paragraph 26 of the scheme was challenged before Madhya Pradesh High Court and in ruling reported at 1995(II) C.L.R. 360 Khemchand Motilal Tobaco Products Ltd and Ors. v. Union of India the Division Bench upheld its validity. He further states that the aggrieved employers there challenged said Division Bench judgment before Honble Apex Court and in case between J.P. Tobacco Products etc. v. Union of India reported at 1995(II) C.L.R. 369, the Honble Apex Court upheld it.

Thereafter on 22/6/1995 the provident fund department issued circular by placing reliance upon this Apex Court judgment and directed all its officers to take necessary action for implementing the amended paragraph which stood amended with effect from 19/10/1990. Accordingly by issuing notices to petitioners the respondents initiated action in the matter. He states that Section 19-A of PF Act permits Central Government to remove difficulties in implementation of the provisions of PF Act and to clarify the doubts in its implementation.

He states that Section 19-A of PF Act permits Central Government to remove difficulties in implementation of the provisions of PF Act and to clarify the doubts in its implementation. In exercise of that powers delegated to him Legal Adviser of Central Government issued order on 8/2/ 1994 and clarified that the site workers employed in building and construction industry must be covered by Section 2(f) of PF Act and further stated that if such workers are casual workers they would not be governed by PF Act. He further clarified that laborers who are not obliged to report for duty every day and can change their employer of their own choice and therefore there is no element of any permanency or semi permanency in their employment are not included and are not governed by PF Act.

In our Event Management Site also, casual labor employed by us are just for that day, and they are not obliged to report for duty every day, and may or may not come to our Event Management Sites, the next day, there for there is no element of any permanency or semi permanency in working for us, hence they are not included and are not governed by PF Act, accordingly we request you to remove your claim for deduction of PF on Casual Labor, we  use for Event Management sites.

Monday, 21 July 2014

Practicle problems relating to partition of HUF

(a) Relating to witness

While getting the document attested by witness care should be taken in the selection of witness and in recording their full names and address on the instrument itself. In order to prove a document in the court of law, it is necessary that at least one of the attesting witness is called to prove the deed.

Whenever full name and address or not noted or strangers or less known persons are taken as attesting witnesses it become a problem to recall as to who signed after a lapse of time when the need to prove the document arises, besides when they are to be summoned in a court of law to prove the document by means of their deposition. Such strangers and unknown persons are neither co-operative nor willing witness so as to readily come forward and take the botheration of deposing and proving the document.

It is always prudent to have the attestation of a document only by such person who are either well acquainted or are relatives and friends and it is an act of prudence to specify their full names and addresses at the time of the execution of the document and its attestation by the witness.

(b) Availability of documents to each co-owner

In the case of partition deed properties are allotted to several members of the joint Hindu family by means of non instrument only and each of the co-owners or members of a joint Hindu family who is allotted a share as a result of the partition, so affected derives its title to the absolute ownership of the specified property. The instrument of partition is required to be compulsorily registered under the provisions of Indian registration Act and it is the registered document which is required to be produced as an evidence and proof of partition or as a proof of the absolute ownership of the specified property. The original registered document is, there fore, of grate importance and at times is indispensable.

In the case of any partition there has necessarily to be two or more persons to whom the property is allotted by means of one instrument only, while the original instrument can remain in the possession of one of the parties only and all the remaining parties have to depend upon the party in whose custody the original document remains.
In such cases a duplicate certificates certified copy should be obtained from the registrar office. Under the provision of Indian stamp act a counter part or a duplicate of any instrument, chargeable with duty and in respect of which the proper duty has been paid can be obtained by making the stamp paper of requisite value available which is quite negligible in most of the states.

The counterpart or the duplicate of the instrument can also be offered for registration, which attract the same registration fee as payable on the original instrument and each counterpart so registered carries the same weight and value as the original instrument which is written on the full stamp value applicable for a partition deed.                

The deed partition can as a matter of prudence be made out in as many counterparts. As the members amongst whom the partition is to be effected and each co-owner or member can thus be provided with a separate registered instrument which can remain in their possession and is readily available to them for all possible eventualities.

(c) How registration possible at a place where property not situated

Section 30 of Indian registration Act empowers the registrar of the district by the persons seeking permission, starting the reasons as to why the concerned document is being offered for registration before him. One of the plausible reasons can be that either all or most the parties to the document are residing where the document is being offered for registration, while the property which is the subject-matter of registration is situated outside.

There can be many other reasons for which registration may be allowed. The discretion to register the document vested with the registrar without any fetters and thus very wide. The registrar is without any fetter and thus very wide. The registrar is at liberty as well as under an obligation to register the document for any reasonable cause or ground.
The basic principle is that stamp duty payable is the one which applied to the state where the document is executed. This provision can, there fore, be fruitfully enjoyed in all such cases where the stamp duty payable in other towns is lower as compared to the stamp duty payable at the actual place of transaction.

Precautions to be taken

(i) While drafting a deed partition, all the members who are entitled to have a share in the joint Hindu family property are to be made parties. Karta’s wife or the widowed mother through not entitled to claim partition, are nevertheless entitled to, a share when a partitions takes place between father and sons, the wife of the karta is entitled to an equal share and like wise when a partition takes place between brothers, the windowed mother becomes a necessary party to the document.

(ii) When partition is made by a father in the exercise of his paternal right and there are minor son is to be represented through the natural guardian and the mother guardian is to sign for and on behalf of the minor.

(iii) when the partition takes place between brother and there are unmarried sisters, a provision is necessarily required to be made for the maintenance and marriages of the unmarried daughters and/ or sisters as the case may be.

(iv) A deed of partition should give full recitals of the ownership of the property as well as the content of the relevant documents which go to establish the ownership of the property by the joint Hindu family.

(v)As earlier mentioned, while choosing witnesses, the parties should choose such witness, who is either close relative or friends so that they are readily available when ever so required. Further it shall be an act of prudence that the witnesses chosen are younger persons and not of old age, so that with the lapse of time or at a time when witnesses are needed such persons are available to prove the document.

(vi)Whenever the document is executed in a number of counterparts as it ought to be when there are several persons who are allotted shares, the document should recite the number of counter parts is handed over and also the names of the person to whom the first counterpart is handed over and also the names of the persons to whom the other counterparts are to be handed over.

(v). When ever the parties are effecting a total partition, it should be so specified that all assets and liabilities exiting or contingent, should be divided.

Friday, 11 July 2014

Budget is the Blue print of the Government, present team of Narendra Modi’s team headed by Arun Jaitly, Finance Minister has done tremendous job, in conceptualizing and making in to an effective blue print for the Indian Inc. It is practically not possible to address all Sectors, Industries, Projects of Public Interest in one single policy document and blue print of plan of action for running the government of a Country with largest Democracy.

It is pertinent to not that this Budget has taken enough care about the lager canvass of the country as a whole. Lets have a look at the best measures taken up in the Budget:

  1. Industries

    1. Setting up on eBiz Platform, where all business and investment related clearances and compliances are available in one window. All the Central Government Ministries and Departments will integrate their services on this platform, by December 31. Thought it is a welcome measure, time means money, and six months is a very big time, if this kind of platform is going to boost the Industry as a whole and in turn it’s going to boos the revenues of the Government, then its imperative that it should be completed in at best three months time, we are sure that there are capable corporate in India, who can deliver the same sans fixing the deadline of 6 months.
    1. Investment allowance @15% for the Investments by Manufacturing Companies in New Plant and Machinery exceeding Rs.25 Crores in a year, is definitely a blessing for fuelling the additional investments in Manufacturing Sector, how ever if the MAT is rationalized, by reducing further the rate of tax presently it is 18.5%, there would be more takers, better still if this benefit is restricted to the Investments which generate employment opportunities.
    1. Proposal to set up a Rs.10,000 Crores venture capital fund, for providing equity, quai equity, soft loans and other risk capital for start-up companies is a welcome move, how ever the name of the game is Implementation and administration, till the proposal is effectively planned and implemented, we have noting to cheer up on this proposal.

    1. Entrepreneur Friendly Exit norms and legal bankruptcy framework would be developed for SME’s to enable easy exit. This is definitely a best proposal if and when implemented would help the SME.
  1. Individuals

    1. Basic Exemption raised from Rs. 2 lacs to Rs.2.5 lacs corresponding limit for Senior Citizens raised from Rs.2.5 lacs to Rs.3 Lacs.
    2. Additional Tax break on home loan interest of Rs.50,000/-, this is a welcome measure for assesses who have taken higher home loan, whose annual interest is crossing or about to cross Rs.2 lacs.
    3. Investment Threshold for PPF Investment raised to 1,50,000/-.
    4. KVP, Kisan Vikas Patra’s allowed as Investment option u/s 80C.
new tax slab structure for individuals stands as:

Individual (Other than Senior Citizen)
Senior Citizens (aged 60 years & above but below 80 years)
Very Senior Citizen (aged 80 years & above)
Income upto Rs. 250,000 – Nil tax
Income upto Rs. 300,000 – Nil tax
Income upto Rs. 500,000 – Nil tax
Income from Rs. 250,001 to Rs. 500,000 – 10% tax
Income from Rs. 300,001 to Rs. 500,000 – 10% tax
Income from Rs. 500,0001 to Rs. 10,00,000 – 20% tax
Income from Rs. 500,0001 to Rs. 10,00,000 – 20% tax
Income from Rs. 500,0001 to Rs. 10,00,000 – 20% tax
Income above Rs. 10,00,000 – 30% tax

Income above Rs. 10,00,000 – 30% tax
Income above Rs. 10,00,000 – 30% tax

  1. Capital Markets

    1. Debt Mutual Funds Taxed as Bank Deposits, hither to the dividend from mutual funds used to be tax free, needing the Investors to shift towards Equity oriented Mutual Funds

    1. Profits of Foreign Portfolio Investors be taxed as capital gains, this is a move to bring now boost towards capital market investments, but considering the complex Double Tax Avoidance treaties, and their implementation in India, there is a fair chance to Pull out their Investments out of Indian Markets than, entering India as a Porfolio Investors, hope the government should carefully have a re-look on this. Hope this gives lot of business for the Professionals Involved in DTA.

  1. International Taxation

      For reducing litigation in Indian Transfer Pricing regime by introducing

    1. Roll Back provision in Advance Pricing Agreements (APA). Roll back mechanism in the APA Scheme for a period of four years preceeding the first previous year for which the APA is applied, subject to prescribed conditions.
    2. Range Concept for determining arm’s length price
    3. Allowing multiple year data for comparable analysis. One year data is used for comparable analysis with some exception as per the current regulation. It is proposed to amend regulations to allow the use of multiple year data for comparability analysis.
    1. TPO would now have the authority to levy penalty under section 271G of two per cent of the value of international transactions or specified domestic transactions for failure to furnish prescribed information or documentation w.ef.1 October 2014.

  1. Corporate Taxation
a. Section 80-IA: Extension of 10-year tax holiday to undertaking which begin generation, distribution and transmission of power by March 31, 2017.

b. Section 115-O & 115R: Dividend declared by a domestic Company must be grossed up for applying DDT resulting in an effective rate increase from 16.99 per cent to 20.47 per cent (including surcharge and cess). This amendment shall take effect from 1 October 2014.

c. Section 40(a)(i): In respect of disallowance for nonpayment of tax from payment to non-resident, the time limit of payment of withholding tax into the government treasury has been extended till date of filing of return of income similar to the timelimit available for payment of withholding taxes in respect of payments to resident.

d.  Section 40a(ia): Disallowance of expenditure due to non-withholding of tax on payments made to resident taxpayers is restricted to 30 per cent instead of 100 per cent under existing provisions. Further, the disallowance under this category has been extended to all payments made to resident taxpayers which are subject to withholding tax (e.g. salary, director’s fees, etc.)

e. Section 115JC: The adjusted total income for AMT shall be computed by adding investment linked deduction on capital expenditure for specified business (Section 35AD) net of depreciation.

                f.   REITs and Infrastructure Investment Trusts shall enjoy tax pass through status.

g.  Section 112: Concessional rate of 10% has been proposed to withdrawnfor debt oriented mutual funds.

h. Section 220: Liability of assessee to pay interest on amounts specified in the notice of demand extended up to the disposal of appeal by the last appellate authority or disposal of proceedings. In cases where tax payable was reduced due to orders of the settlement commission, etc. but was restored to earlier levels, interest under Section 220 of the Act shall be payable from the date of first notice of demand upto the date when the demand is paid.

i.  Section 200A: The deductor was permitted to make corrections in the statement pursuant to Centralized Processing of Statements of Tax Deducted at Source Scheme, 2013. However, there was no provision in the Act enabling filing of the correction statement. The act of correction and processing the statement has now been codified and shall came into effect from 1 October 2014.

j.  Section 201: The period for passing an order deeming a person to be an assessee in default for failure to deduct the whole or any part of tax on payment to a resident has been extended to seven years from the end of the FY in which payment is made or credit is given w.e.f. 1 October 2014.

The above measures would go a long way in clearing litigations in International Taxation, involving Transfer Pricing.

Overall it is matured Budget with a larger goal of containing fiscal deficit, which gave marginal relief to Middle Income group, how ever what is expected of this is reduction of Inflation and rationalization of tax laws in India, which would not only increase the tax compliance, but supports the exchequer by way of additional revenue through taxes only thing is Government should decide whether they want More from Few or Few from More.


Partition of joint Hindu family property has an important bearing in the matter of taxation under the direct tax laws. On partition of the joint Hindu family property, the incomes arising from the shares allotted to the different members of the family becomes assessable to income-tax in their respective hands has individuals or if the coparceners are married a new status of joint family is brought in to existence for all such members.

The partition can be either of a joint family property or that of joint properties. There is essentially a difference between the joint family properties and the joint properties. In the former case it is the partitioning of properties belonging to the joint Hindu family and in the letter case it is partitioning of properties belonging to the co-owners.

1.     Writing not necessary but advisable

It is not necessary that a partition of the joint Hindu family be effected by means of an instrument of writing. A partition of joint property is neither a sale within the meaning of section 54 of the transfer of property Act nor on exchange as defined Under section 118 of the transfer of property Act. As such the condition that it has to be necessarily in writing does not apply.

A partition can thus be effected orally or by an instrument in writing. If the partition of immovable properties of the value of Rs.100 or more is effected in writing, the instrument must be registered in accordance with the provisions of the Indian Registration act.

The term of an oral partition  made by the consent of the parties can be reduced ton writing in the form of memorandum as a record of something already done and achieved. An instrument of memorandum although reduced to writing is not required to be registered nor the instrument has the bear the stamps required on a deed of partition. The memorandum can be on a plain paper or a stamp paper or a stamp paper required for an affidavit, since it can be devised as declaration and a record of something which is completed or an act which already stands accomplished.

2. Admissibility of memorandum – saving stamp duty

A partition of the immovable property of joint Hindu family can be effected by an oral agreement irrespective of the value of the property. There fore a memorandum recording the fact of the partition which has already taken place is admissible in law, even if it is not registered under the Indian registration Act.

It has been held that a document acknowledging the previous partitions of a Hindu Undivided family does not require registration Act.

It has been held that a document acknowledging a previous partition of a Hindu undivided family does not require registration. Such a Document is admissible in evidence as proof of partition.

3. Necessary parties in a deed of partition

The parties necessary in a deed of partition are those who are entitled to share at the time when the partition is to take place. In case the parties who are to be allotted shares are minors, they are required to be represented by their natural guardian, the natural guardians are firstly the father and secondly the mother . if the father is alive, then father has to represent the minors and if father is dead or is otherwise incapacitated then the mother is to represent the minors, while in the absence of both the natural guardians, the parties can be represented by a guardian appointed by the court, who can be his next friend.

4. Necessary recitals in a Deed of partition

The necessary recitals in a deed of partition are:
(a) Whether the properties to be partitioned are the joint property or the joint family property of the parties.
(b) In case of joint property the source and mode of its acquisition, the rights and the respective shares of the parties among whom the partitions is to take place.
(c) In case joint family property , the family to whom it belongs, branch or branches of the family among whom the partitions is to take place.
(d) In case partition among the members of a specific branch the members entitled to share and their respective shares.
(e) Whether partitions is total or partial.

(f) In case of a total partition, a list of properties sought to be partitioned and a separate list of the properties which have to continue to remain the joint family properties of the family.

5. Registration of partition deed

When a deed of partition effecting immovable property is reduced to writing or deed of partition effecting any immovable property valued at Rs.100 or more is reduced to writing, the document is required to be compulsorily registered under the provisions of section 17 of the Indian registration Act.

According to section 23 of the registration act, the deed of partition is required to be presented for registration before the registering authorities within a period of four months from the date of its execution.

A document effecting the partition of an immovable property has to be presented for registration in the office of sub-registrar within whose sub-district the whole or some portion of the properties to which such document relates is situate, which implies that if the properties which are the subject-matter of partition are situated in more than one state, the document can be presented for registration in any one of the sub-strict within whose jurisdiction the property is situate.

6. Stamp duty payable

The stamp duty payable an a partition deed according to the provision of article 45 of the first schedule of the Indian stamps Act is to be calculated on the total sum of the value of the property which is the subject matter of partition, after excluding one major share. For instance, if a partition is effected between the two branches of a family and also an inter se partition amongst the members of one of the branches, the major share being that one of the branches, who continue to remain joint and his allotted the property as such has to be excluded out of the total value of the property and the stamp duty shall be calculated on the balance amount arrived at from the total value after exclusion of one major share.

The stamp Act is Central act and applies to the whole of India excepting the state of Jammu and Kashmir and the formula for arriving at the value on which stamp duty is payable remains the same, but so far as the rate of stamp duty is concerned, it varies from state to state as the states are vested with the legislative territories.

7. Witnessing of documents

According to the transfer of property Act, the instrument of partition is required to be attested by two or more witnesses each of whom has seen the executant sign or affix his mark to the instrument or has seen some other person signing the instrument in the presence or by the direction of the executant  or has received from the executant a person acknowledgement of his signature or mark of the signature of such other person. Each of the attesting witness is also required to sign the instrument in the presence of the executant.

It is not necessary that more than one of such witness shall have been present at the same time.Attestation need not be in any particular form; a  mere signature is sufficient. The attesting required to sign After execution of the document and not earlier. A party to a deed cannot be an attesting witnesses. For, the object of attestation is protection against fraud and undue influence.


Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Dated 21st February, 2014

The Income Tax Department had initiated a business intelligence project in February,
2013 to identify PAN holders who have not filed Income Tax Return and about whom
specific information is available in Annual Information Return (AIR), Central
Information Branch (CIB) data and TDS/TCS Returns. In the first round of data
matching, 12.19 lakh non-filers were identified. Letters have been sent in these cases
by the Compliance Management Cell and Assessing officers seeking the response of
the taxpayer. The results of this initiative is very encouraging and 5,36,220 returns
have been received from the target segment. Self assessment tax of Rs.1017.87 Cr.
and advance tax of Rs. 898.22 Cr. has also been paid by the target segment.
The Income Tax Department has now conducted the second round of data matching
which has identified additional 21.75 lakh potential non-filers. The Department has
sent letters to the 50,000 potential non filers in the first batch. The information relating
to the 21.75 lakh new non filers has been made available on the ‘Compliance Module’
on the e-filing portal of the Income Tax Department. The information will be shown
only to the specific PAN holder when the PAN holder logs into e-filing portal at The PAN holder will be able to submit the
response electronically and keep a printout of the submitted response for record
While the Government urges all tax payers to disclose their true income and pay
appropriate taxes, the Tax Department would continue to pursue the non filers
vigorously till all the high potential non filers are covered.

(Dr. B.K. Sinha)
Commissioner of Income Tax(C&S)
CBDT, North Block

Friday, 4 July 2014

Wednesday, 2 July 2014



Gift can be made in favor of HUF to bring it in existence.
            The supreme court has held in the case of pushpa Devi V.CIT(1977) 109 ITR 730 (SC): (1977) CTR (SC) 348 that the HUF can accept gift from a person who is not a coparcener. The decision of the madras High court in the case of Satyendra kumar V.CIT (1983) 140 ITR 840 (Mad.): [1981]24 CTR (Mad.) 28 is also relevant on this issue. In the case the donor provided gifts to the donee with the clear intention of benefitting of the family. The donee kept the gifted amount as nucleus of the HUF and there was no evidence that the donee  intended at any point of the time to hold the said property as his individual property. The court held that once the intention of the donor to donate the funds for the joint family was conceded, the presence of the basic nucleus of the joint family was established.
            Under the Hindu law the karta of an H.U.F has been given inherent power to manage the affairs of the family. A Karta can Obtain debt for H.U.F even if it (HUF) Has no fund and yet he can make the members of the H.U.F liable for such debt under certain conditions.
            When the existence of H.U.F is natural presumption of Hindu law and when the karta of H.U.F has been given the vast powers , karta can as well accept the gift from on outsider. Under Hindu law there is nothing to bar on outsider from making a gift to H.U.F similarly , there is no bar in Hindu law that karta cannot accept gift from any outsider. By  such a gift from any outsider. By such a gift H.U.F property can come in to existence provided the intention of the donor is clear enough to show that  he making the gift to H.U.F and not to karta in his individual capacity . a reference may be nade to the case of C.N. Arunachal Mudaliar (1954) SCR 243 (SC).
            Hence any property given as a gift by as a gift by an outsider with the express direction that it is being given to the H.U.F. and not to any member of the H.U.F in his personal status, will form a part of the properties of H.U.F.
Therefore, while making any gift to the HUF the ruling of the courts should be kept in mind. The point that the gift is being made to the HUF and not to the karta in his individual capacity should be clearly indicated by the donor by of an affidavit.
(ii) To avoid various complications it is advisable that gifts to HUF should be preferred from the uncles, Brother-in-law, grand parents and other relatives who are not the members of the HUF and in whose case the transfer by way of gift does not attract the clubbing provisions of section64.
(iii)Gift made, in the above manner, to HUF will constitute the property of HUF.
(iv)Gift of immovable property must be effected by a registered instrument duly executed.


            The creation of HUF through will has been upheld by various high courts fallowing the supreme court decision in the case of surjit Lal chhabda V.C.I.T.[1975] 101 ITR 776 (SC).

 A will can be made in favour of a HUF, which is not existence at the time of the execution of the Will or which does not have HUF nucleus, as decided by Punjab & Haryana High court in the case of C.I.T.v. Ganshamdass mukim [1973] 118 ITR 930 (P&H). In the said case a Will was left by the Mother of Ghanshamdass providing there in for passing of certain properties to the HUF of his son who had only wife and a daughter at that time. The will in favour of         HUF held valid and the contention of revenue that no HUF could be created by Will was rejected. It was observed that joint family is the normal condition of Hindu society and there is no restrictions to bequeathing property to joint Hindu family, there four the court held that the pre-existence of the HUF was not necessary for Benqueathing property to HUF through a will.


            In this case, when due to joint efforts/labour done by the members of a HUF some new property is brought in to existence, then such property will be considered as HUF property of this members.

 For the purpose of the Income tax it would be advisable that such coparceners should declare the intention in writing, starting that the income earned through their joint labour will be the income or any assets acquired out of it will neither belong to them nor their legal heirs or any assets acquired out of it will neither belong to them nor their legal heir or successors in individual capacity.


            A HUF can be portitioned and such smaller HUFs can be created each enjoying the benefit of threshold limit under the income tax Act as well as wealth Tax Act. It may, however, be noted that the partial partition is no more useful after 31.12.78 due to insertion of section 171(9).

According to past supreme court decision “If in it’s origin, the property belongs to the HUF, then mere partition will not change the character of the property even if a coparcener having wife & daughters has no male issue.” So it has to be assessed as HUF.

            Suppose a person Mr. A has two sons B & C. Each Mr. B & Mr.C has further two sons –B1,B2 (Sons of Mr. B) & C1,C2 (Sons of Mr. C). Now on partition, the property coming to the share of the father Mr. A will become his separate property obtained by Mr. B and Mr. C will continue to be the joint family property (as character of HUF already exists). So there will be two separate joint families Headed by Mr. B & Mr.C.

In Hindu law, reunion is permissible between the fallowing persons:
(i)                 Father & sons.
(ii)               Brothers
(iii)             Paternal uncle & nephew
Principles of reunion of HUF
An HUF which undergoes partition can once gain come in to existence by means of reunion.
i.                    There must have been a previous state of union. Reunion is possible only among the persons who were on an earlier date members of a HUF.
ii.                  There must have been a partition of a HUF.
iii.                The reunion must be effected by the parties or some of them who had made the partition and
iv.                There must be junction of the estate and the reunion of property because reunion is not merely an agreement to live together.
Reunion is intended to bring fusion in the interest and the estate among the divided members of the erstwhile HUF and upon reunion a HUF comes in to existence. In Bhagawan Dayal v.Reoti Devi AIR 1962SC 287 It was held that a reunion is a matter of contract and there should necessarily be a junction of the estate to validate the reunion.

v     There should be a written agreement between are parties going to reunite.
v     At the time of reunion, it s pre-conditioned that parties should bring in all the properties received by them (at the time of partition) in to the joint family hotchpotch.

v     It is not necessary that all the parties should agree to reunite as reunion between few persons of the dividend family is also allowed. So reunion can take place only between parties (few or all) to the original partition.


 It is incorrect to say that HUF is created. The existence of HUF is a natural presumption of Hindu law unless contrary is proved. We cannot create a HUF, as HUF is creation of nature itself-birth of a child in a Hindu family leads to creation of a new HUF.

            What we people call “creation of HUF files” –means the creation of property of HUF and then income from such property, in a lawful manner.

            In most of Hindu families, features of HUF already exist but in order to have HUF status in the eyes of income tax law the family should have funds and derive a taxable income thereof.

1. By making gift to HUF.                    
2. By will in favor of HUF.
3. By joint acquisition of property.
4. By complete partition of HUF.
5. By complete partition & then reunion of HUF.
All the methods are discussed in detailed later in this book.

            Like every other person, a HUF is given a name for identification. It is normally referred to as “Name of the karta(HUF)”. There might be situations when a person might be a karta in more than one HUF. For example, ‘X’ might constitute a HUF along with his two younger brothers, his spouse, the spouses of his brothers and the children of all the brothers. In this HUF, since he is the oldest surviving male member, he will be the karta. This HUF will be “X (HUF)”.’X’  may also be the karta of the HUF consisting of himself, his wife and children.

To avoid any difficulty in identification, the first HUF is identified as (BHUF) and the second as ‘X’ (SHUF) where BHUF and SHUF stand for bigger HUF and smaller HUF respectively.

            A smaller HUF may also be created by partial partitions of a HUF which is now de-recognised, due to the operation of section 171(9) of the Income Tax ACT through recognized under the Hindu law.

            Where a smaller HUF is created as a taxable entity, one would appreciate that the basic exemption, the lower slab rates of tax and other deduction will be available there by helping in planning to reduce the tax liability.

            Where the HUF consist of sizable members, it may be advantageous to form multiple HUFs. In such process one member of HUF release his right in one property and Bring another HUF into existence in which other members of HUF other than the members who relinquishes his right will be the members of that HUF. Similarly relinquishment of rights would be done by other member in other properties one by one and thus bringing the new entity in the status of HUF in existence. In other words, a number of HUFs can be brought in to existence by process of relinquishment of rights in the properties. Thus reduction in tax liability may be achieved by dividing the existing income among  number of different taxable  entities.

           This concept of multiple HUF has been accepted by Gujarat High court in the case of C.I.T vs. Shanti kumar  jagabai 1051TR 795. However, it may be noted that this idea of multiple HUF is yet to receive the blessing of the supreme court of India.


1. Gowli Buddana vs. CIT (1966) 60 ITR 293 (SC): TC 37R.121
For an HUF to be a taxable entity under income tax Act, it is not always necessary that there should be two male members.

2. N.V. Narendranath vs. CWT (1969) 74 ITR 190 (SC): TC 65R.557) If there are two coperceners in the family, it is not necessary that HUF should always have ancestral property for the income of such HUF to be taxable in the status of an HUF.

3.Surjitlal Chhabda vs. CIT 1976 CTR (SC)1470: (1975)101 ITR 776 (SC) : TC 37R. 132
(a) If an HUF consists of a coparcener and wife and unmarried daughter i.e. there is only one male member, the income arising to the HUF out of ancestral funds would be taxable in HUF.
(b) However, if the funds are not ancestral then until a son is born, the income will continue to be taxed in the hands of the sole coparcener.

4. K.S. Subbaih pillai vs. CIT (1999)237 ITR 11 (SC)
If the income is earned on account of investment of HUF funds then the income will be taxable in the status of an HUF.

However if the income is earned on account of personal skill and exertion of the coparcener without investment of HUF funds, then the income would be taxable in the hands of the coparcener as an “individual”