Can the sole male surviving coparcener of the Hindu joint family constitute a HUF under the Income-tax Act?

Under Hindu Law, a Hindu Undivided Family (HUF) is a family which consists of all persons lineally descended from a common ancestor, and also the wives and daughters of the male descendants. It consists of the Karta, who is typically the eldest person or head of the family, while other family members are coparceners. The Karta manages the day-to-day affairs of the HUF. Children are coparceners of their father’s HUF.

How is a HUF covered under Income Tax Provisions?

Under section 2(31) of the Income-tax Act, 1961, an HUF is considered a “person” and, therefore, is treated as a separate entity for the purpose of tax assessment. Often families that own ancestral properties and businesses obtain a separate Permanent Account Number (PAN) in the name of the HUF. This is done so that the incomes earned from the assets and businesses owned by the HUF are assessed separately, which also brings down the family’s tax liability. An HUF is taxed on the same slab rates that are applicable to an individual income tax assessee.

How is a HUF formed?

A HUF automatically comes into existence when a person gets married and starts his family. It is not necessary that this new family should also have kids. Although a HUF is automatically formed at the time of marriage, it is always advisable to have a written agreement as the Banks and Income Tax Department asks for a HUF Deed. It is not necessary that HUF is created on the day of marriage itself and can be created at any point of time in future.

Let us refer to the case of Gowli Buddanna vs Commissioner Of Income-Tax, where the issue under consideration before the Supreme Court was whether the sole male surviving coparcener of the Hindu joint family, his widowed mother and sisters can constitute a HUF within the meaning of the Income-tax Act?

Facts of the Case:

• One Buddappa, his wife, his two unmarried daughters and his adopted son Buddanna were members of a HUF.
• After the death of Buddappa, in respect of the business dealings of the family, Buddappa was assessed during his life-time in the status of a manager of the HUF.
• For the assessment year 1951-52 the Additional Income-tax Officer, Raichur, assessed Buddanna in respect of the income of the previous year which ended on November 8, 1950 as a HUF under the title “Sri. Gowli Buddappa (deceased) represented by his legal successor Sri. Gowli Buddanna, Oil Mills Owner, Raichur.”
• The order of assessment was confirmed in appeal by the Appellate Assistant Commissioner, subject to the variation that the assessment was made under the title “Buddanna – a Hindu undivided family.”
• The Income-tax Appellate Tribunal (ITAT) confirmed the order of the Appellate Assistant Commissioner.

The ITAT then referred the following questions of law to the High Court for opinion under section 66(1) of the Indian Income-tax Act:

• Whether the sole male surviving coparcener of the Hindu joint family, his widowed mother and sisters constitute a HUF within the meaning of the Income-tax Act?
• Whether the assessment of the income in the hands of the HUF was correct?
• Whether the Appellate Assistant Commissioner was entitled to correct the status?

The High Court recorded answers in the affirmative on all the questions. With certificate granted by the High Court, Buddanna appealed before the Supreme Court (SC).

Observations of the SC on composition of a HUF

• Under section 3 of the Income-tax Act not a Hindu coparcenary but a HUF is one of the assessable entities.
• A Hindu joint family consists of all persons lineally descended from a common ancestor, and includes their wives and unmarried daughters.
• A Hindu coparcenary is a much narrower body than the joint family. It includes only those persons who acquire by birth an interest in the joint or coparcenary property (sons, grandsons and great-grandsons of the holder of the joint property).
• Therefore, there may be a joint Hindu family consisting of a single male member and widows of deceased coparceners.

Observations of the SC on the plea that there must be at least 2 male members to form a HUF as a taxable entity

• According to the SC this plea had no force. The expression “Hindu undivided family” in the Income-tax Act is used in the sense in which a Hindu joint family is understood under the personal law of Hindus.
• Under the Hindu system of law, a joint family may consist of a single male member and widows of deceased male members, and apparently the Income-tax Act does not indicate that a Hindu undivided family as an assessable entity must consist of at least two male members.

Appellant relied by way of illustration upon the Finance Act, 1951, which in the First Schedule sets out the rates of income-tax payable by individuals, Hindu undivided family, unregistered firm and other association of persons.

According to the First A Schedule prescribing rates of tax, no income-tax shall be payable on a total income which, before deduction of the allowance, if any, for earned income, did not exceed:

• Rs. 7,200 in the case of every Hindu undivided family which satisfies as at the end of the previous year either of the following conditions, namely:
  • that it has at least two members entitled to claim partition who are not less than 18 years of age; or
  • that it has at least two members entitled to claim partition neither of whom is a lineal descendant of the other and both of whom are not lineally descended from any other living member of the family; and  
• Rs. 3,600 in every other case.”   

But the Schedule sets out the limits of exempted income. It does not state or imply that a Hindu undivided family must consist of at least two members entitled to claim partition. The text of the clause furnishes a clear indication to the contrary. 

Observations of the SC on reliance placed upon the form of “Return” prescribed under the Rules

• Part IIIA of the Form prescribes certain particulars to be incorporated in the case of a Hindu undivided family, viz. names of members of the family at the end of the previous year who were entitled to claim partition, relationship, age at the end of the previous year and remarks.
• However, it was not intended that a Hindu undivided family as an assessable entity did not exist so long as there are not at least two or more members entitled to claim partition.
• The information was required to be given in Part IIIA of the Form merely to enable the Income-tax Officer to consider which of the two parts of the proviso in the First Schedule to the relevant Finance Act prescribing the limit of exemption in respect of the Hindu undivided family applied.

Observations of the SC on reliance placed Section 25A

• Section 25-A(1) on which reliance was placed also does not imply that a Hindu undivided family must consist of more male members than one.
• The sub-section only prescribes the procedure whereby the members of a family which has hither to been assessed in the status of a Hindu undivided family may obtain an order that they may, because of partition of the joint status, be assessed as separated members.
• The-clause is purely procedural. It does not enact either expressly or by implication that a Hindu undivided family assessed as a unit must consist of at least two male members who are capable of demanding a partition.

Observations of the SC on whether a single coparcener can alienate the property in a manner not open to one of several coparceners

• SC observed that it was an irrelevant consideration. Let it be assumed that his power of alienation was invincible.
• That would mean no more than that he has in the circumstances the power to alienate joint family property.
• That is what it is until he alienates it, and, if he does not alienate it, that is what it remains.
• The fatal flaw in the argument of the appellant appeared to be that, having labelled the surviving coparcener “owner”, he then attributed to his ownership such a congeries of rights that the property could no longer be called “joint family property.”
• The family, a body fluctuating in numbers and comprised of male and female members, may equally well be said to be owners of the property, but owners whose ownership is qualified by the powers of the coparceners.
• There is in fact nothing to be gained by the use of the word “owner” in this connexion.
• It is only by analysing the nature of the rights of the members of the undivided family, both those in being and those yet to be born, that it can be determined whether the family property can properly be described as “joint property” of the undivided family.”

Conclusion by SC

• Property of a joint family therefore does not cease to belong to the family merely because the family is represented by a single coparcener who possesses rights which an owner of property may possess.
• In the case in hand the property which yielded the income originally belonged to a Hindu undivided family.
• On the death of Buddappa the family which included a widow and females born in the family was represented by Buddanna alone but the property still continued to belong to that undivided family and income received therefrom was taxable as income of the income of the Hindu undivided family.
• The High Court was therefore right in recording their answers referred for opinion.
• SC expressed no opinion on the question whether a Hindu undivided family may for the purpose of the Indian Income-tax Act be treated as a taxable entity when it consists of a single member – male or female.

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