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Wednesday, 2 July 2014


 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”

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