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    Assessment of Hindu Undivided Families

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    Assessment of Hindu Undivided Families

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    Assessment of Hindu Undivided Families

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    Assessment of Hindu Undivided Families

    Wednesday, 06 August , 2003, 15:10

    Under the Income Tax Act, a Hindu undivided family is treated as


    a separate entity and is treated through its karta or manager. The
    concept of a joint Hindu family under this Act is different from
    that of a co-parcenary under the Hindu Law. Under the Income
    Tax Act, an huf. is assessable in respect of the income of the
    common property of the family or any income having a nucleus
    with the joint family property, and not in respect of the member’s
    individual earning even though they live jointly under the common
    mess.

    Exemption Limit

    The exemption limit for an huf is Rs. 50,000 for ay 2003-2004 and
    ay 2004-2005.

    Assessment after Partition — Section 171

    (i) So long as there is no finding of partition recorded by an


    assessing officer, the Hindu undivided family assessed as
    such is deemed to be a Hindu undivided family.

    (ii) Where at the time of making an assessment under Section


    143 or 144 it is claimed by or on behalf of any member of a
    Hindu Undivided Family that a partition, whether total or
    partial before 1 January 1979 has taken place among the
    members of such family, the ao shall make an enquiry therein
    after giving notice of the enquiry to all the members of the
    family.

    (iii) On the completion of enquiry, the ao shall record a


    finding as to whether there has been a total or partial partition
    of the joint family property, and if there has been such a
    partition, the date on which it has taken place.

    (iv) Thus a partition can be either total or partial. The term


    "Partition" means:

    (a) where the property admits of a physical


    division, a physical division of the property (but a
    physical division of the income without a physical
    division of the property producing the income
    shall not be deemed to be a partition), or

    (b) where the property does not admit of a


    physical division, then such division as the
    property admits of (but a mere severance of status
    shall not be deemed to be a partition).

    "Partial partition" means a partition which is partial as regards the


    persons constituting the Hindu Undivided Family or the properties
    belonging to the huf, or both. After 31 December 1978 partial
    partition will not be recognised as per amendment by the Finance
    (No. 2) Act, 1980, effective from ay 1980-81.

    (v) Where a finding of total or partial partition has been


    recorded by the ao under this section and the partition has
    taken place during the previous year:

    (a) the total income of the joint family in respect


    of the period upto the date of partition shall be
    assessed as if no partition had taken place; and

    (b) each member or group of members shall, in


    addition to any tax for which he or it may be
    separately liable be jointly and severally liable for
    the tax on the income so assessed.
    (vi) If the partition has taken place after the expiry of the
    previous year, the income of the family shall be assessed as if
    no partition has taken place.

    Example

    M/s. PQR a business house managed by an huf


    consisting of three major members entitled to claim
    partition earned as income of Rs. 69,000 for the
    previous year ended 31.3.2003. During the course of
    assessment proceedings it was claimed on behalf of the
    members of the family that they had fully partitioned
    the family assets in equal shares on 1.12.2002. The
    profits of family upon the date of partition amounted to
    Rs. 60,000. The profits from the business later on
    carried under a firm consisting of the same members
    with equal shares amounted to Rs. 9,000 which was
    received as working partner’s salary by each of the
    partners.

    The members claimed that the partition with effect from


    1.12.2002 be accepted and the new firm be assessed as
    firm. The ao made necessary enquiries and accepted the
    fact of partition & formation of firm and the income
    earned by the family and passed necessary orders to
    that effect.

    Compute the total income of the huf and the firm and
    indicate the liability of the three members of the family
    and the firm.

    SOLUTION

    Upto 30.11.2002 the assessment shall be made on the


    huf of PQR on Rs. 60,000. The members of the huf are
    jointly and severally responsible for payment of taxes
    on this sum.

    From 1.12.2002 the new firm has come into existence.


    The ao has accepted it as a firm. The firm itself is not
    liable to pay any tax on its income as the same is Nil,
    because Rs. 9,000 income of the firm is to be reduced
    by working partner’s salary of Rs. 9,000 under Section
    40 (b). Each partner, i.e. P,Q and R is liable to tax on
    Rs. 3,000 in his individual assessment on salary as
    "Business Income" under Section 28.

    (vii) After the completion of the assessment of the huf if the


    ao finds that the family has already effected a partition,
    whether total or partial, the ao shall proceed to recover the
    tax from every person who was a member of the family
    before the partition, and every such person shall be jointly
    and severally liable for the tax on the income so assessed.
    The several liability of any member or group of members
    thereunder shall be computed according to the portion of the
    joint family property allotted to him or it at the time of
    partition, whether total or partial.

    Taxation of Income from Conversion of Self-acquired Property


    into HUF Property — Section 64(2).

    Where an individual converts, at any time after 31 December 1969


    his separate property into property belonging to the Hindu
    undivided family of which he is a member by impressing such
    property with the character of property belonging to the family or
    throwing such property into the family hotchpotch, the individual
    will be deemed to have transferred the converted property to the
    members of the family for being held by them jointly. The income
    from the converted property will be deemed to arise to the
    individual and not to the family. The same would be the position in
    regard to the income which may arise to the spouse or the minor
    son of the individual from the whole or any part of the converted
    property which may be allotted to them in the event of partition of
    the huf

    [Excerpt from: Income Tax Guide for the Taxpayers by R.. N.


    Lakhotia, Vision Books, New Delhi, Price Rs. 190/-. This book is
    available at WalletWatch-Vision Bookstore on this site.

    R. N. Lakhotia is one of India’s top authorities on taxation and


    practising as an advocate and tax consultant. He has written over
    100 books on tax planning and is a regular columnist for several
    newspapers.]

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