Audit & Assurance | Business Start up & Registration | Business Support | Tax Advisory | Management Consultancy | Visa Documentation | Project Syndication & Feasibility Studies

Wednesday, 2 July 2014

DIFFERENT MODES OF CREATION OF HUF

1. BY GIFT

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.
POINTS TO NOTE;
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.

2.CREATION OF HUF THROUGH WILL

            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.
   

3.BY JOINT ACQUISITION OF PROPERTY

            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.
   

4.FULL OR COMPLETE PARTICIPATION OF HUF

            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.

ILLUSTRATION:
            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.
            

5. BY COMPLETE PARTITION & THEN REUNION OF HUF
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.

POINTS TO NOTE:
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.