IS INCOME TAX APPLICABLE ON THE GIFT MADE BY THE HUF TO KARTA
INTROUCTION
Hindu Undivided Family As The Name
Suggest Is A Structure Of Family Which Exist In Hindu Community. It Is Vital To
Understand Here That A Hindu Joint Or Undivided Family Is Not Created For Any
Business Purposes, Rather, It Is A Normal Condition Of Hindu Society And
Prevalent Throughout India Based On The Social Necessity. An HUF Cannot Be
Created Under A Contract, It Is Created Automatically. An HUF Is A Family
Set-Up Which Consists Of All Persons Lineally Descended From Common Ancestor
And It Also Includes Wives And Unmarried Daughters Of Male Descendant. It Also
Includes Minor Children. An Undivided Family Is A Normal Condition Of A Hindu
Society Which Is Ordinarily Joint Not Only In Estate But Also In Food And
Worship.
Karta Is The Generally The
Oldest Male Member Of The Family. But, A Celebrated Judgment Pronounced By The
Hon’ble Delhi High Court In The Case Of Mrs. Sujata Sharma V Shri Manu Gupta & Ors. [CS (OS) 2011/2006], Has Held That The
Eldest Woman Member Of A Mitakshara Hindu Undivided Family (HUF) Can Be Its
“Karta / Manager”.
It Is Vital To Understand That
The Position Of A Karta Is Sui Generis. A
Position Of Karta To The HUF Is Not Of A Partner, Trustee, Manager, Principal,
Agent, It Is Needless To Say That He Is The Head Of The HUF And His Position Is
Unique. While The Title Of The Karta Is Reserved For The Oldest Member Of The
Family, The Rest Of The Members Are Called Coparceners. The Term Hindu As
Defined Under The Hindu Succession Act, 1956 Gives An Inclusive Definition To
Hindu And Includes, Inter Alia, Buddhist, Jain Or Sikh By Religion. Therefore,
Even Jain, Buddhist And Sikh Families Can Have HUFs.
HOW HUF IS CREATED?
An HUF Cannot Be Created By Executing
A Deed Like Partnership. An HUF Is A Creation Of Law. An HUF Will Be Created
And Come Into Existence After Marriage As Soon As A Child Is Born. Existence Of Property Or Multiple Members Is Not A
Pre-Requisite To Create HUF. A Family Which Does Not Own Any Property May Still
Have The Character Of Hindu Joint Family. This Jointness Is Understood In Terms
Of Faith And Food. This Is Because In The Hindu Society, There Is A Presumption
That Hindu Families Are Living In A State Of Union Unless The Contrary Is
Established.
It Is Worth Mentioning That The
Hindu Law Has Developed A Lot Over The Period Of Time. Now, Even The Concept Of
Adoption Is Widely Recognised In The Hindu Law. A Person Can Also Be Introduced
To The HUF Through Adoption. [CIT Vs. M.M. Khanna (1963) 49 ITR 232 (Bom)].
HUF UNDER INCOME TAX
Under Income Tax Act, A Tax Can Only
Be Exigible On “Person” As Defined Under Sec 2(31) Of The Act. An HUF Falls
Under The Definition Of “Person” As Enumerated In The Act And Therefore, It Is
Treated As A Separate Entity For The Purpose Of Tax Assessment. This Gives An
Added Cushion For Tax Relief To A Joint Family. Suppose, A Family
Consists Of 10 Members Then Income Earned Shall Be Paid By 10 People, But If
The Family Is A HUF Under The Eyes Of Law Then Income Earned Will Be Paid By 11
Persons Bringing Down A Tax Liability To Some Extent.
In Income-Tax Officer V. Bachu Lal Kapoor [1966] 60 ITR 74, 80 (SC), K. Subba
Rao J. Observed :
“That Apart, Under Section 3 Of
The Act, In The Matter Of Assessment, There Is No Question Of Any Election
Between A Hindu Undivided Family And A Member Thereof In Respect Of The Income
Of The Family. If A Hindu Undivided Family Exists, Under Section 3 Of The Act
The Income-Tax Officer Has To Assess It In Respect Of Its Income. Indeed, Under
Section 14(1) Of The Act, Any Part Of Income Received By Its Members Cannot Be
Assessed Over Again. While Section 3 Confers An Option On The Income-Tax
Officer To Assess Either The Association Of Persons Or The Members Of The
Association Individually, No Such Option Is Conferred On Him Thereunder In The
Case Of A Hindu Undivided Family, As Its Existence Excludes The Liability Of
Its Members In Respect Of The Income Of The Former Received By The Latter.”
It Is Pristinely Clear That An HUF Is
A Separate Entity Different From Its Coparcener Including Karta, Under Sec
2(31) Of The Act.
The Tax Slab For The HUF And An
Individual Is Same. It Is Important To Understand That The An HUF Can Be Formed
Be Two Members Also. But, To Be Taxed Under The Act There Shall Be At Least Two
Coparceners. A Coparcenary Is Must To Be Assessable Under The Act. There Is A
Key Difference Between A Member And A Coparcener. All Coparcener Are Members But
All Members Are Not Coparcener. Member Term Is Much Wider Then Coparcener. The
Key Difference Between Coparcener And Member Is That A Coparcener Has A Right
To Claim Partition Whereas A Member Has No Right To Claim For Partition.
CHARACTERISTICS OF COPARCENERY
A Hindu Coparcenery Has Following
Essential Characteristics As Under According To CED V. Alladi Kuppuswamy (1977) 108 ITR 439
(SC):
- The male
descendants as well as female descendants after the Succession (Amendment)
Act, 2005, up to the third generation acquire an independent right of
ownership by birth and not representing their ancestors. After the
commencement of Hindu Succession (Amendment) Act, 2005, a daughter of a
coparcener shall have the same right in the coparcenary as she would have had
if she had been a son.
- The members
of the coparcenary have the right to work out their rights by demanding
partition.
- Until
partition, each member has got ownership extending over the entire
property co-jointly with the others and so long as no partition takes
place, it is difficult for any coparcener to predict the share which he
might receive.
- As a result
of such co-ownership, the possession and enjoyment of the property is
common.
- There can
be no alienation of the property without the concurrence of the other
co-parceners unless it is to be for legal necessity.
- The
interest of a deceased member lapses on his death and merges in the
coparcenary property.
Now, When The Coparcener And HUF Are
Two Different Entity Then How Taxation Will Work If There Is A Gift By An HUF
To Its Coparcener/Karta. Let Us Analyse It In Detail.
To Answer The Question As To What Will
Be Tax Implication When An HUF Gifts To Its Coparcener/Karta, It Is Important
To Understand What All Assets Can Be Possessed By An HUF In The First Place. If
An HUF Has Some Asset Then Only It Can Gift To Coparcener/Karta. There Is A
Difference Between An Assets Of An HUF And Asset Of Coparceners. A Personal
Asset Earned By A Coparcener By Utilising His Own Skills And Knowledge Will Not
Form A Part Of HUF Property.
WHAT COMPRISES INCOME OF AN HUF?
For An HUF, The Income Sources Are
Almost Similar To Individual Taxpayers Such As Profits From Business Or
Profession, Income From House Property, Capital Gains, Income From Other Sources
And So On. Even Though Under The Act, An HUF Is A Person And Further Has A
Separate Entity And Existence Other Than The Coparceners, But Still It Cannot
Earn Income From Salary. Further, All Income That Arises On The Investment Of
The HUF’s Funds And Utilisation Of Its Assets Is Regarded As Income And Is
Separately Assessed And Taxed.
Therefore, An HUF Has Ample
Opportunity To Earn Income. The Income From Property Of HUF Can Be Further
Invested In Instruments Such As Shares, Mutual Funds, Etc. ,And Will Be
Assessed Under HUF. This In Turn Will Be Added To The Wealth Of The HUF.
ASSETS RECEIVED IN THE FOLLOWING SITUATIONS
WOULD BE REGARDED AS THE ASSETS OF AN HUF:
·
Assets Received On The Partition Of A Larger
HUF Of Which The Coparcener Was A Member (Like An HUF In Which The Coparcener’s
Father Or Grandfather Was The Karta).
·
Assets Received As Gifts By The HUF. Such
Gifts Could Be Received From Close Relatives Or Close Friends.
·
Assets Bequeathed By A Will That Specifically
Favours The HUF. In The Absence Of A Will, Assets Received On The Death Of A
Benefactor After 1956 (When The Hindu Succession Act Came Into Force) Would Not
Be Regarded As HUF Property, But As Individual Property Even Though Such Assets
Have Been Inherited.
The Above Enumerated Instances Are
Only A Glimpse. There Can Be Umpteen Number Of Situations In Which An HUF Can
Hold Asset. Assets Can Be Transferred By A Coparcener To The HUF Also.
PROPERTIES WHICH ARE GENERALLY ACCEPTED AS
JOINT FAMILY PROPERTY:
- Ancestral
property;
- Property
allotted on partition;
- Property
acquired with the aid of joint family property;
- Separate
property of a co-parcener, blended with the family property. The
provisions of S.64 (2) of the I.T. Act have superseded the principles of
Hindu Law, in a case where the co-parcener impresses his property with the
character of joint family property.
A Female Member Cannot Pool In Her
Property With The Joint Family Property. However, She Can Make A Gift Of It To
The HUF As Was Held In Puspadevi Vs. CIT 109 I.T.R. P. 730 (SC). A Female Member May Also Bequeath Her
Property To An HUF– C.I.T. Vs. G.D. Mukim, 118 I.T.R. P. 930 (P&H).
ONCE THE ANSWER TO QUESTION WHETHER AN HUF
CAN HOLD PROPERTY OR NOT IS AFFIRMATIVE THEN ARISES ANOTHER QUESTION AS TO
WHETHER AN HUF CAN GIFT TO ITS KARTA.
Any Gift Received By A Taxpayer Is
Exigible To Tax Under The Act. But, There Is A Rider To It. Gifts Up To Rs.
50,000/- In A Financial Year Are Exempt From Tax. A Gift May Include Cash,
Gold, Real Estate Or Any Other Valuable Items. However, If A Taxpayer Receives
A Gift Higher Than Rs. 50,000/- Then The Entire Gift Will Be Exigible To Income
Tax. This Is Provided Under Sec 56 Of The Act.
FROM THE TAXATION POINT OF VIEW, GIFT CAN BE
CLASSIFIED AS FOLLOWS:
- Any sum of
money received without consideration, it can be termed as ‘monetary gift’.
- Specified
movable properties received without consideration, it can be termed as
‘gift of movable property’.
- Specified
movable properties received at a reduced price, it can be termed as
‘movable property received for less than its fair market value’.
- Immovable
properties received without consideration, it can be termed as ‘gift of
immovable property’.
- Immovable
properties acquired at a reduced price, it can be termed as ‘immovable
property received for less than its stamp duty value’.
All The Above Instances Are Of Gift.
These Are The Broad Heads Under Which A Gift Can Find Its Place.
THERE ARE CERTAIN INCOME WHICH DOES NOT FORM
PART OF TOTAL INCOME. THESE INCOMES ARE GIVEN UNDER SEC 10 OF THE INCOME TAX
ACT.
In computing the total income of a previous year of any
person, any income falling within any of the following clauses shall not be
included—
(1)
Agricultural Income ;
(2) Subject To The Provisions Of Sub-Section (2) Of Section 64, Any Sum
Received By An Individual As A Member Of A Hindu Undivided Family, Where Such
Sum Has Been Paid Out Of The Income Of The Family, Or, In The Case Of Any
Impartible Estate, Where Such Sum Has Been Paid Out Of The Income Of The Estate
Belonging To The Family ;
(2A)……………….
In Nut-Shell, The Exemption Under
Section 10(2) Is Available If The Following Two Conditions Are Satisfied –
- The
individual is the member of a Hindu Undivided Family; and
- The amount
received is from the income of the Hindu Undivided Family.
The Purpose Of Sec 10(2) Is To Avoid
Double Taxation. This Exemption Is Based On The Line Of Partnership Where The
Partnership Firm Has Been Assessed To Income Tax Separately, Then, The Share Of
Profit Received By An Individual Person Is Not Taxable.
GIFT BETWEEN HUF AND COPARCENERS AND VICE
VERSA
If Income Is Not Determinable In Any
Of The Four (4) Major Heads Of The Income I.E. Salary, House, Business Or
Profession And Capital Gains Then It Finds A Place Under The Head Income From
Other Sources. Sec 56 Of The Act Provides For Income From Other Sources. Sec
56(2)(Vii) Provides For Where An Individual Or A Hindu Undivided Family
Receives, In Any Previous Year, From Any Person Or Persons On Or After The 1st
Day Of October, 2009 But Before The 1st Day Of April, 2017 Will Be Chargeable
To Income Tax.
(Vii) Where An Individual Or A Hindu
Undivided Family Receives, In Any Previous Year, From Any Person Or Persons On
Or After The 1st Day Of October, 2009 But Before The 1st Day Of April, 2017,—
(A) Any Sum Of Money, Without
Consideration, The Aggregate Value Of Which Exceeds Fifty Thousand Rupees, The
Whole Of The Aggregate Value Of Such Sum;
(B) Any Immovable Property,—
(I) Without Consideration,
The Stamp Duty Value Of Which Exceeds Fifty Thousand Rupees, The Stamp Duty
Value Of Such Property;
(Ii) For A Consideration Which Is Less
Than The Stamp Duty Value Of The Property By An Amount Exceeding Fifty Thousand
Rupees, The Stamp Duty Value Of Such Property As Exceeds Such Consideration:
Provided That Where The Date Of The Agreement
Fixing The Amount Of Consideration For The Transfer Of Immovable Property And
The Date Of Registration Are Not The Same, The Stamp Duty Value On The Date Of
The Agreement May Be Taken For The Purposes Of This Sub-Clause:
Provided Further That The Said Proviso Shall Apply Only
In A Case Where The Amount Of Consideration Referred To Therein, Or A Part
Thereof, Has Been Paid By Any Mode Other Than Cash On Or Before The Date Of The
Agreement For The Transfer Of Such Immovable Property;
(C) Any Property, Other Than Immovable
Property,—
(I) Without Consideration, The
Aggregate Fair Market Value Of Which Exceeds Fifty Thousand Rupees, The Whole
Of The Aggregate Fair Market Value Of Such Property;
(Ii) For A Consideration Which Is Less Than
The Aggregate Fair Market Value Of The Property By An Amount Exceeding Fifty
Thousand Rupees, The Aggregate Fair Market Value Of Such Property As Exceeds
Such Consideration :
Provided That Where The Stamp Duty Value Of Immovable
Property ……….
Provided Further That This Clause Shall Not Apply To Any Sum
Of Money Or Any Property Received—
(A) From Any Relative; Or
(B) ……….
(C) ……….
(D) ……….
(E) ……..
(F) ……..
(G) ……….
(H) ……….
Explanation.—For The Purposes Of This
Clause,—
(A) ……….
(B) ……….
(C) ……….
(D) ……….
(E) “Relative” Means,—
(I) In Case Of An Individual—
(A) Spouse Of The Individual;
(B) Brother Or Sister Of The Individual;
(C) Brother Or Sister Of The Spouse Of The
Individual;
(D) Brother Or Sister Of Either Of The
Parents Of The Individual;
(E) Any Lineal Ascendant Or Descendant Of The
Individual;
(F) Any Lineal Ascendant Or Descendant Of The
Spouse Of The Individual;
(G) Spouse Of The Person Referred To In Items
(B) To (F); And
(Ii) In Case Of A Hindu Undivided
Family, Any Member Thereof;
Sec. 56(2)(Vii) Brings Under The
Income Tax Any Sum In Excess Of Rs 50,000/- Or Any Immovable Property Received
By An Individual Or HUF From Any Person/S. This Section Only Comes Into Action
When Such Property Or Sum Is Received By An Individual Or HUF Without Any
Consideration.
Second Proviso To Sec 56(2)(Vii)
Provides For A List Of Conditions Under Which The Said Clause Shall Not Apply
To Any Sum Of Money Or Any Property Received By An Individual Or HUF. The
Article (A) Of The List Provides For Relative. Any Sum Or Property,
Irrespective Of Whether Value Is Above Rs. 50,000/- Or Not Shall Not Be
Exigible To Tax If It Is Between Relatives.
The Term Relative For Sec
56(2)(Vii) Is Defined Under The Explanation (E) Of Sec 56(2)(Vii). In Respect
Of HUF It States That “(Ii) In
Case Of A Hindu Undivided Family, Any Member Thereof;”. Here Two Views Arise As To:
·
Whether The Gifts Given By The Members To The
HUF Is Only Exempt Or
·
Whether The Gift Given By The HUF To The
Members Are Also Exempt.
The Hon’ble Chandigarh ITAT In The
Case Of Shri
Pankil Garg V. PCIT, ITA No. 773/C HD /2018, Dated 17.072019 Held That: –
Family Income Flows Into A Common Pool From
Which Resources Are Drawn To Meet Needs Of All The Members Which Are Regulated
By The Head Of The Family. In Such Circumstances, Any Amount Received By A
Member Of The ‘HUF’, Even Out Of The Capital Or Estate Of The ‘HUF’ Cannot Be
Said To Be Income Of The Member Exigible To Taxation. Since Such A Member
Himself Has A Pre-Existing Right In The Property Of The ‘HUF’, Hence, It Cannot
Be Said To Be A Gift Without Consideration By The ‘HUF’ Or By The Other Members
Of The ‘HUF’ To That Recipient Member. In Such Circumstances, The Provisions Of
Section 56(2)(Vii) Are Not Attracted In Case An Individual Member Receives Any
Sum Either During The Subsistence Of The ‘HUF’ For His Needs Or On Partition Of
The ‘HUF’ In Lieu Of His Share In The Joint Family Property.
The Hon’ble Tribunal Held That
The Amount Received By The Assessee From The ‘HUF’, Being Its Member, Is A
Capital Receipt In His Hands And Is Not Exigible To Income Tax. So, It Is Clear
That Any Gift From The HUF To Members Or From Members To The HUF Are Both
Exempt
From The Income Tax. A Similar
Conclusion Was Also Drawn By The Hon’ble Mumbai ITAT In Case Of CIT V. Ateev V. Gala, ITA NO.1906/Mum/2014.
In The Eyes Of Law, There Is No
Difference Between The Status Of Karta Or Coparcener When It Comes To Gift
Received From HUF. Even Though The Karta Is The One Who Is All Mighty In
Respect Of His HUF. The Exemption Provided By Conjoint Reading Od Sec
56(2)(Vii) And 10(2) Will Equally Apply On The Karta Also.
PRECAUTIONS
TO BE TAKEN WHILE ACCEPTING GIFTS
There Are Few Safeguards That One Should
Bear In Mind Before Accepting Any Gift. These Are As Follows:
·
The Intention Of Gift And The Declaration
Thereon Shall Be Clear And Cogent And It Should Be Through An Affidavit. {C.N.
Arunachala Mudaliar Vs C.A. Muruganatha Mudaliar & Anr. AIR 1953 SC
495: (1954) SCR 243 (SC)}
·
The Material Asset Which Is Gifted Shall Be
Valid & Genuine.
·
There Is No Restrictions In The Act To A Gift
Made By The Father To The HUF Of His Son, His Wife & Minor Children.
However, To Avoid Getting Caught By The Hands Of Sec 64 (1)(Vi) Of The Act,
Such Gifts Shall Better Be Avoided.{CIT Vs Smt. T. Suryamani
Kothavalasala (2003) 263 ITR 271; CIT Vs S.N. Malhotra (1989) 178 ITR
380 (Cal)}
·
HUF Can Accept Gifts From Relative Who May
Not Be The Member Of The Family.
WAY FORWARD
As It Can Be Seen That The Operation
Of The Sec 56 (2)(Vii) Was For A Limited Period From 1st Day Of October, 2009
But Before The 1st Day Of April, 2017. After 2017, The Gifts Are Taxed Under
Sec 56(2)(X). The Definition Of Relative Is Akin To That Of The Clause (Vii)
And Therefore, There Is Nothing Much Which Can Bring The Gift To Tax Between A
Karta Or Coparcener And HUF.
It Is To Bear In Mind That In
Case Of Gift, There Has To Be A Gift Deed. One Cannot Gift To Self. There
Should Be Two Parties. One Has To Be Donor And The Other Will Be Done. Gift Is
An Instrument Which Need To Be Accepted. Therefore, Donee Should Expressly Give
Consent Accepting The Gift In The Gift Deed.
Gift Received And Accepted Is
Easily Said Than Done. Gifts Are Very Vulnerable To Litigation. Hence, It Is
Advisable And Only Prudent To Maintain Documentary Evidence In Respect Of The
Gifts Received, To Avoid Any Dispute With Tax Authorities At A Later Stage. The
Documentary Evidences Become Even More Important When The Amount Of Gift Is
Substantial And Also Where It Is Received From Relatives. It Is Also Advisable
To Keep Gift Deed, Letter Of Understanding Or Any Other Document Shall Be Kept
Safe In Record For Future Reference.
Co-Authors
Veena Goenka (CA)
Abhishek Kumar (Adv)
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