CA Practice- You Can’t Be a Karta of HUF

CA Amresh Vashisht

As far as Hindu Law is concerned, there is no qualification to act as Karta of a HUF. So a Chartered accountant can act as KARTA of a HUF under Hindu Law however, he is subject to restriction as per respective enactment governing our right of practice. The Institute of Chartered accountant of India through its 190A regulation allows members to engage in any act without taking permission from the council. However to act as Karta of HUF, the special permission is required to act as Karta. 

So a practicing Chartered Accountant cannot do so as it will be against the professional Ethics. However a Full- Time Salaried Chartered Accountant can do business in his HUF’s as the said clause only applicable on practicing Chartered Accountant. A member of the Institute in practice is subject to the regulations if he is a Karta of HUF. He can be involved in business through HUF so long as he is not Karta of HUF but active participation also restricts him in the capacity of members of a HUF. The basic principle of putting restriction on practicing CAs may be kept in mind i.e. his attention should be primarily on practice and not on other activities like business etc. Therefore, he has to undertake about the time for business in case of inheritance.

INTEREST IN FAMILY BUSINESS

A member of the Institute can acquire an interest in the family business in any of the following manner:

(a) As a proprietor of a proprietary firm.

(b) As a partner of partnership firm.

(c) In the name and style of Hindu Undivided Family as its karta or a member.

It would be necessary for the member to provide evidence that interest in the family business concern devolved on him as a result of inheritance / succession / partition of the family business. It is also necessary for the member to show that he was not actively engaged in carrying on the said business and that the family business concern in question was not created by him. The member is required to submit an application and a declaration in the prescribed format.

REPLY OF SECRETARY COMMITTEE ON ETHICAL STANDARDS (CES)

Sub:    Restraining a Hindu Undivided Family (HUF) from carrying on business, where the karta is a practicing CA.

Please refer to our correspondences with you in the cited matter.

The Committee on Ethical Standards (CES) considered the matter and decided that permission to a member in practice is given in those cases where the member in practice has interest in family business concern or concern in which interest has been acquired as a result of relationship and in the management of which no active part is taken. As such no permission could be given where the business carried out by the HUF is not a result of inheritance /succession / partition of the family.

  Thanking you,

Yours faithfully,

 (N.P. SINGH) SECRETARY

TWO DISCIPLINARY CASES ALSO SUPPORTED THIS RESTRICTION

A member as a Karta of his Hindu Undivided Family entered into partnership business for a short period with non-Chartered Accountants for engaging in business other than the profession of Chartered Accountants, without prior permission of the Council. Therefore, he was found guilty in terms of clauses (4) and (11).

(R.D. Bhatt vs. K.B. Parikh – Page 191 of Vol. VI(2) of Disciplinary Cases – Decided on 15th, 16th and 17th December, 1988)

Where a Chartered Accountant acted as karta of a Hindu Undivided Family (HUF) without taking prior permission of the Council. Held that he was inter alia guilty of professional misconduct under the clause.

(B.L. Asawa, Chief Manager, Punjab National Bank, Delhi vs. P.K.Garg – Page 728 of Vol. IX – 2A – 21(4) of Disciplinary Cases – Council’s decision dated 16th to 18th Sept. 2003)

MANY CAs ARE DOING IT BUT IT REQUIRE SPECIAL PERMISSION

Permission of the Council is required as per clause (11) of Part I of First Schedule. In this regard refer a case where a Chartered Accountant acted as karta of a Hindu Undivided Family (HUF) without taking prior permission of the Council.  Held that he was inter alia guilty of professional misconduct under the clause. (B.L. Asawa, Chief Manager, Punjab National Bank, Delhi vs. P.K.Garg – Page 728 of Vol. IX – 2A – 21(4) of Disciplinary Cases – Council’s decision dated 16th to 18th Sept. 2003)

Further,  as per council decision Specific Resolution would be equally applicable to member carrying out the activities referred to therein in his capacity as Karta / representative of HUF provided he is not actively engaged in carrying on such activities.

PERMISSION FOR ENGAGEMENT IN OTHER BUSINESS/ENGAGEMENTS

A member in practice is required to seek permission of the council under Regulation 190A for engaging in any business or occupation other than the profession of accountancy. The member is required to submit an application in the prescribed Form. The permissible categories of engagements approved by the Council under Regulation 190(A), are available in Appendix No.9 to the chartered Accountants Regulations, 1998.In case member had obtained permission of the Council for other engagement, he is required to Inform to the institute the date of leaving, upon ceasing such within 30 days.

SPECIMEN OF THE DECLARATION

I, Shri / Ms ………………………………………………………….S/o. D/o. W/o ………………………………………….

R/o …………………………………………………………..do hereby, solemnly affirm and state as follows

1. I have passed the Final Examination of the Chartered Accountancy course of the Institute of Chartered Accountants of India in ………………………………………………..

2. I am a member of the Institute of Chartered Accountants of India holding Certificate of Practice w.e.f. …………………………………………………………and / or I have applied for membership of the Institute  / Certificate of Practice from the Institute on …………………………………. (date).

3. ** I have applied to the Institute for permission of the Council to engage in family business / Occupation other than the profession of Chartered Accountancy vie my application dated ……………………………………….. in accordance with Clause (11) of part I, First Schedule to the C.A. Act, 1949.

4. I state that my interest in the family business namely ………………………………………….. was acquired as a result of:

(a)   Inheritance

(b)   Succession

(c)    Partition

5.  I declare and confirm that I have not been and I am not and I shall not actively engage in carrying on the aforesaid family business

6. I say and confirm that the family business concern mentioned above was not created by me.

Name of Declarant

Verification

Verified that the contents of the above declaration are true and correct

Verified at ……………………. On this …………………………………….. day of…………………….

Signature of Declarant: …………………………………

Name of Declarant: ……………………………………..

Membership Number: ………………………………….

*delete which is not applicable

(About the Author- Author was Member of ICAI- Regional Research Committee 2013-14 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email [email protected] or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA)

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