Hindu Undivided Family, commonly known as HUF is a separate entity from its members for the purpose of Income Tax. It is is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961 . The term is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. So basically a Hindu Undivided Family is not created by any Act but by status. Partition means ending the status of Joint Hindu family. Partition of HUF can be of two types under Hindu Law i.e. total and Partial.
Partition means division of property. Under Hindu Law the Joint Family status comes to an end when there is division of property among the members and joint ownership of property comes to an end. The division will be such as that the share of each member will be determined physically. Further, a division of income from any property, without physical division of such property does not amount to partition.
Types of Partition
Partition under Hindu Law, can be total or partial.
Total or Complete Partition: Assets of HUF are physically divided. Further, all the members cease to be members of the HUF. And all the properties cease to be properties belonging to the said HUF.
Partial Partition: Partition could be partial also with regards to the persons constituting the HUF, or the properties belonging to the HUF, or both. It may be partial vis-à-vis members, where some of the members go out on partition and other members continue to be the members of the family. Partial partition can be specific too where the property is divided between members and the rest of the property continues to be the HUFs property.
Partition of HUF takes place on the date the properties are physically divided. There must be physical division of the properties. Physical division of income without physical division of properties does not amount to Partition. The following procedure is prescribed under section 171 of Income Tax Act for partition and assessment of HUF:
HUF shall be considered as undivided unless where a finding of partition has been given under this section in respect of HUF.
Where it is claimed by the members that a partition has taken place to AO at the time of making assessment u/s 143 or 144. Then, the AO shall make an inquiry after giving notice of inquiry to all the members of the family.
On the completion of the inquiry, the AO shall record a finding mentioning the total or partial partition of the joint family property. And the date on which it has taken place
Responsibility to pay Tax
Where a finding of total or partial partition has been recorded by the AO. And the partition took place during the previous year than:
The total income of HUF for the period up to the date of partition shall be assessed as if no partition had taken place; and
Each member or group of members shall be jointly and severally liable for the tax on the income so assessed in addition to any tax for which he/she may be separately liable
The partition took place after the end of the previous year, the total income of the previous year of the joint family shall be calculated as if no partition had taken place. Each member of group of members shall be jointly and severally liable for the tax on the income so assessed.
The several liability of any member or group of members shall be according to the portion of the joint family property allotted to him/her at the partition, whether total or partial.
The above provisions shall, also apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to date of the partition, whether total or partial.
Notwithstanding anything contained in this section, if the AO finds after completion of the assessment of a HUF 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. Further, every such person shall be jointly and severally liable for the tax on the income so assessed.
As per the Hindu Law, part distribution of some of the assets of the HUF, i.e. partial partition of the HUF, either in respect of certain assets or in respect of some of the members is fully valid. However, income tax law does not recognize such partial partition of the HUFs’ assets. The income tax laws require that partition of HUF should be full. So in case of partial partition of some assets, the income in respect of such assets, shall be clubbed and included in the income of the HUF. Even if such assets are received by the member/members.
Nature of the property received on partition
The nature of the joint family property on partition shall be of joint family property when the recipient person is married. Hence the character of the property shall remain that of the joint family property. Such property shall be considered as individual property, until the recipient is unmarried or is reduced to a single person. Thus individual property shall continue to be individual property on inheritance. Further, HUF property on partition shall be that of the joint Hindu family subject to the existence of family during the relevant assessment year
Whether the sum received by a member as and towards his share as coparcener of HUF, on its partition is taxable as income?
The sum received by a member as and towards his share as coparcener of HUF, on its partition cannot be brought to tax as income. As partition is not considered as a transfer.
What will be the treatment of assets after partition, as per Income Tax Act?
Treatment of capital gains on distribution of assets on partition of HUF shall be as under: – Section 47: No capital gains shall arise to HUF on distribution of assets on partition of HUF. – Section 49(1): Cost of acquisition of such assets to the member shall be the cost of acquisition of such asset in the hands of HUF. – Period of holding of assets of transferor shall also be considered for computing the period of holding of assets in the hands of transferee.
Can HUF receive gift from its members?
Earlier HUF could not give or receive gift to or from its members beyond a sum of INR 50,000/-without making the donor liable to tax u/s 56(2). However Finance Act, 2012 extended the definition of a relative to include gift from any member of an HUF to HUF. Thus an HUF can now receive a gift from its member exceeding INR 50,000/- without any liability to pay tax u/s 56(2) of Income Tax Act.