Ownership and succession of HUF assets

There is a misconception among people that an HUF can come into existence only if it owns any assets.  An HUF and HUF assets are two different concepts. It is not necessary that an HUF should have an asset for coming into existence. There may be situation where an HUF exists on the basis of existence of persons but it may not own any asset. This is because Hindus get joint family status by birth and joint property is simply an adjunct to the joint family. Let us discuss various  aspects related owning and succession of assets with special reference to HUF.

How can an HUF acquire its assets?

An HUF can acquire its assets on partition of HUF of ancestors of its coparceners. Karta of an HUF can also receive assets by way of gifts from non family members provided the donor gives specific direction that the gift is made for the benefit of the HUF. An HUF can also acquire assets under a Will thorough a specific bequest in favour of the HUF by the deceased. Even members of the HUF can also throw their personal property in the common hotchpot of the HUF.  However any income arising from such transferred asset shall be clubbed with the income of the donor till the assets of the HUF are distributed. After distribution of such HUF property the share of the HUF property which is allotted to the wife of the transferor will still continue to be clubbed with the income of the transferor.

Since members of the HUF are treated as relative of the HUF, the gifts received from the members will not be taxable under Section 56(2) at the time of receipt of the gift but the gifts received from non members shall become fully taxable if the aggregate of all gifts received by the HUF during the years exceeds Rs. 50,000. However the gifts upto Rs. 50,000/- in a year received by an HUF from non members are fully exempt under Section 56(2). In case of gifts through cheque or movable assets, no registration is required to be done but in case of gifts of immovable property such gift needs to be registered and adequate stamp duty is also required to be paid.

Succession and transfer of HUF property

The coparceners of the HUF cannot gift or transfer their rights in the assets of the HUF during their lifetime but are entitled to bequeath their share in the assets of the HUF through a Will. Prior to amendment of the Hindu Succession Act, the rights of the coparcener in the HUF property used to devolve on the surviving members of the HUF but now the situation is changed. In case no Will is made by the coparcener, the share of the deceased in the HUF property passes to the successors as mentioned in class 1 of the first Schedule of the Hindu Succession Act, 1956. The assets acquired by such successors become their absolute property which they are entitled to dispose off the way they want.

Partition of the assets of the HUF property

Since all the coparceners have right in the assets of the HUF so the Karta cannot dispossess any coparcener of his right. In case the coparcener demands partition of the assets of the HUF, the karta has to give his share to such coparcener from the assets if the HUF. Though as per the Hindu Law partial partition of the HUF either as regards the assets or as regards members is fully valid but the income tax laws do not recognise such partial partition of the assets of the HUF. The income tax laws require that partition of HUF should be full as regards all the assets as well as in respect of all the members. So unless there is full partition of the HUF, the income arising in respect of the partly distributed assets shall be continued to be taxed in the hands of the HUF.

Balwant Jain is a tax and investment expert. He can be reached on jainbalwant@gmail.com, @jainbalwant