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Monday, 18 August 2014

HUF VIS A VIS INCOME TAX ASPECTS

A.ASSESMENT

1. ‘PERSON’ INCLUDE A HINDU UNDIVIDED FAMILY
The term ‘person’ has been defined in section 2(31) in an inclusive manner to include, inter alia, a Hindu undivided family. However, there is no definition of the purchase “Hindu undivided family in the income tax act.

2.HUF IS A SAPERATE TAX ENTITY
    The supreme court in I.T.O.v. Bachula Kapoor [1966]60 ITR 74 (SC) held that “so long as the HUF exists, the individuals thereof cannot separately be assessed in respect of its income . . . . . thus HUF is a separate and a distinct tax entity and income arising to HUF can be assessed only in it’s own hands and cannot be assessed in the hands of any member or copercener’’

3.Basic condition for assessment as HUF

Income of a joint Hindu family may be assessed as income of a Hindu undivided family if the following two conditions are satisfied:
·       There should be a coparcenership. In this connection, it is worth while to mention that once a joint family income is assessed as that of Hindu undivided family, it continues to be assessed as such in subsequent assessment years till partition is claimed by it’s coperceners.
·       There should be a joint family property which consist of ancestral property, and  property transferred by its members.

ANCESTRAL PROPERTY:- Ancestral property may be defined as the property which the man inherits from any of his three immediate male ancestor, i.e., his father, Grand father and grate grandfather. Therefore, property inherited from any other relation is not treated as ancestral property. In the fallowing cases, income of ancestral property. In the fallowing cases, income of ancestral property is taxable as income of ancestral property is taxable as income of Hindu undivided family:

  1. Family of window mother and sons (may be minor or major);
  2. Family of husband and wife, having no child;
  3. Family of two windows of deceased brother;
  4. Family of uncle and nephew;
  5. Family of two or more brothers ;
  6. Family of mother, son and son’s wife;
  7. Family of male and his late brother’s wife.

B.COMPUTATION OF TAXABLE INCOME OF HUF
In order to compute the income of a Hindu undivided family, one has to first ascertain its income under the different heads of income exempted under section 10, 10A and 10B.

While computing income one should keep in mind the fallowing additional points;
§       If funds of a Hindu undivided family, one has to first ascertain its income under the different heads of income of the family in case the fees or remuneration is earned essentially as a result of investment of funds. Conversely, however, if the fees or remuneration is earned essentially for services rendered by the member in his personal capacity, it will be treated as the personal income of the member.

§       If any remuneration is paid by the Hindu undivided family to the karta or any other member for services rendered by him in conducting family’s business, the remuneration is deductible if remuneration is (a) paid under a valid and bonafied agreement; (b) in the interest of, and expedient for, the business of family; and (c) genuine and not excessive – jugal kishore Baladeo sahai v. CIT[1967] 63 ITR 238(SC). Similarly, if salary is paid by the Hindu undivided family to its karta for looking after its interest in firm in which it is paid by the Hindu undivided family to its karta for looking after its interest in firms in which it is partner through said karta for looking after its interest in firms in which it is partner through said karta, such salary is allowable as deduction __ CIT v. Prakash chand agarwal [1982] 11 taxman 55(MP).
·       The fallowing income are not taxed as income of Hindu undivided family:
o       If a member has converted (or transferred without adequate consideration) after December 31, 1969 his self acquired property in to joint family property, income from such property is not taxable in the hands of the family.
Income from impartial estate is taxable in the hands of the holder of the estate and not in the hands of the Hindu undivided family. Through the impartiable estate belongs to the family, income arising there from belongs to the holder of the estate who is the senior most male member of the family. Income from impartiable estate is taxable in hands of the holder of the estate.
o      Personal income of the members cannot be treated as income of Hindu undivided family.
o      As stridhan is absolute property of a woman, income arising there from is not taxable as income of Hindu undivided family.
o      Under the Dayabhaga school of law, no son has any right in the ancestral property during the life time of his father, If therefore, the father does not have any brother as a coparcener, income arising from ancestral property is taxable as his individual income.
Clubbing and adjustment of losses- In this regard fallowing points should be noted-
1.     Under section 60 to 63, income belonging some other person, may be taxable as income of Hindu undivided family transfer income without transferring the asset, such income is taxable Under section 60 in the hands of the family.
Losses of the court year as well as proceeding years will be set off under section 70 to 80.
After the aforesaid adjustment, the total of the five heads of income is gross total income.
DUDUCTION FROM GROSS TOTAL INCOME – After computing gross total income in the aforesaid manner, the fallowing deduction are made under section 80CCC to 80U for the assessment year 2003-04 in order to arrive at net income:

Section                                                     Nature of deduction    

80D                                      Payment on account of medical insurance premium
80DD                                   Maintenance including medical treatment Of  
                                             handicapped dependents
82DDB                                 Expenditure on medical treatment
80G                                      Donation to charitable institution and funds
80GGA                                Donation to scientific research or rural development
80HHB                                Profit and gains from project outside India
80HHBA                             Profit and gains from Housing projects
80HHC                                Export turnover
80HHD                                Earning in convertible foreign exchange
80HHE                                Profit from export of computer software
80HHF                                Profit from export of films software
80-I                                      Profit and gains from industrial undertaking after a certain    
Date
80IB                                    Profit and industrial undertaking other than infrastructure
                                                            Development undertakings
80JJA                                  Profit from the business of collecting and processing of
                                                            Bio degradable wast
80L                                      Interest on certain securities, dividend etc.
80D                                     Royalties from foreign enterprises

TAX Liability calculation


The procedure and the rates of tax is the same as of on individual.