Income Derived From Funds Of HUF -Whether Individual Income Or Family Income

 

Often it is seen that family funds are invested in a business and the Karta is actively engaged in the business and during the course of such active involvement earns some income by way of remuneration, fees etc. A question which arises is. whether such income which is earned by the Karta or any other member of a HUF is the individual income of Karta or is the family income. In the case of P.N. Krishna Iyer vs CIT. (1969) 1 SCR 9431= (1969) 73 ITR 5391 the Apex Court was confronted with a similar situation and after deliberations, the Apex Court held as follows in Para 13:


13.       Income received by a member of a Hindu undivided family from a firm or a company in which the funds of the Hindu undivided family are invested, even though the income may be partially traceable to personal exertion of the member, is taxable as the income of the Hindu undivided family, if it is earned by detriment to the family funds or with the aid or assistance of those funds; otherwise it is taxable as the member’s separate income. .


Further, the Hon’ble Apex Court in the aforesaid judgement held as follows:-

 

But this Court in VSD. Dhanwatey case has held that the question whether the income was the income of the Hindu undivided family or the individual income was a finding on a mixed question of law and fact, and the final conclusion drawn from the primary evidentiary facts was open to challenge on the plea that the relevant principle had been misapplied by the Tribunal.


The case of VSD.Dhanwatey was a constitution bench judgement reported at (1968) 68 ITR 365 w.herein the Apex Court took the view that the question was a mixed question of law and fact. While deciding the case, the Hon’ble Apex Court referred to the following doctrine of Hindu Law.


The general doctrine of Hindu law is that property acquired by a karta or a coparcener with the aid or assistance of joint family assets is impressed with the character of joint family property. To put it differently, it is an essential feature of self-acquired property that it should have been acquired without assistance or aid of the joint famiy. property. The test of self-acquisition by the karta or coparcener is that it should be without detriment to the ancestral estate. It is therefore clear that before an acquisition can be claimed to be a separate property, it must be shown that it was made without any aid or assistance from the ancestral or joint family property. The principle is based on the original text of Yajnavalkya who while dealing with property not liable to partition, states:


“Whatever else is acquired by the coparcener himself, without detriment to the father’s estate, as a present from a friend or a gift at nuptials, does not appertain to co-heirs. Nor shall he, who receives hereditary property which had been taken away, give it up to coparceners; nor what has been gained by science.” (Yajnavalkya 2, verses 119-120).


In the aforesaid case, though the Hon’ble Apex Court ruled against the assessee, but one of Judges (Justice Hegde) gave a dissenting and separate judgement by taking cognizance of the fact that business concerns do not earn profits merely because capital is invested in them. Much depends upon th persons who are in charge of business. Captains of industries and business managers should possess business knowledge, tact, capability, drive and numerous other qualilies.


Similar view was taken in the case of CIT vs D.C. Shah, (1969) 1 SCC 550 1= (1969) 73 ITR 692], wherein the Apex Court had followed the decision in the case of P.N. Krishna Iyer vs CIT,(1969) 1 SCR 943 (supra) and held as follows:

 

Upon the particular facts of this case, it is manifest that there was no real or sufficient connection between the investment of the joint family funds and the remuneration paid by the partnership to Shri D.C. Shah. It follows that the remuneration of Shri D.C. Shah was not earned on account of any detriment to the joint family assets and the amounts of remuneration received by Shri D.C. Shah as the Managing partner of the two partnerships were not assessable as income of the Hindu Undivided Family.


Again in the case of CIT WB vs Kalu Babu Lal Chand reported at (1959) 37 ITR 123, the Apex Court was confronted with a situation where the Karta was appointed as Managing Director of a Company which was promoted by the Karta and shares were issued in the name of Karta and other members of the family from the funds provided by HUF. In the light of these facts, the Apex Court ruled that the remuneration which was given to the Karta in his capacity as Managing Director was to be assessed as HUF income. The Apex Court distinguished the judgements cited in the case of Sardar bahadur Indra Singh vs CIT(1943) 11 ITR 16 on the ground that there was an express provision in the Articles of Association in that case that the remuneration of the Managing Director would be his personal Income. Further, the case of CIT vs Darsanram (1945) 13 ITR 419 was also distinguished as the joint family property having not been spent for earning the Managing Directors’ remuneration. The apex Court in this case held that the acquisition of business, flotation of the company and the appointment of the managing director were inseparably linked together. The Apex Court relied on the Bombay High Court case of Haridas Purusottam case reported in (1947) 15 ITR 124.

MORE TOPICS ....

HUF -  Capital Gain Account
HUF -  Deduction from HUF Business Income
Income Derived From Funds Of HUF -Whether Individual Income Or Family Income
Gift by HUF to its Member
Gift To Minor Daughters Out Of HUF Property Prior To Marriage
Gift of HUF Property to Stranger or to any Person who is a Alien to HUF
Clubbing Provisions In Case Of Gifts Received By HUF
Applicability of Clubbing Provisions in case Karta of a HUF is a Partner in a Firm
Gifts received by HUF from Aliens / Strangers
HUF - Investment Options
Concept of Multiple HUF’s
Whether a Single Member can Constitute a HUF ?
Whether any Limit is placed on Number of Members of a HUF ?
Whether HUF- Can Be Constituted with only Female Members ?
Drawings / Expenses of HUF
Whether HUF can be a Shareholder / Subscriber to the MOA ( Memorandum Of Association)  of a Company
Whether HUF can be a Member of a Cooperative Society ?
Whether HUF can be a Partner ?
Can KARTA of a HUF enter into Partnership with another Member of HUF ?
Can There Be A Partnership Between Two HUFs?
Effect Of Death Of Karta In Case Of Partnership Firm
Whether HUF Can Be A Proprietor ?
Whether HUF Can Be A Trustee / Settler ?
HUF - Aliyasantana Law
HUF - Marumakkattayam Law
Power of KARTA in relation to HUF
Managing Members in relation to HUF
Whether a Female can become a Karta ?
Tax Planning TIPS for HUF
HUF - Meaning Of Important Term- “Ancestral”
HUF - Meaning Of Important Term- “Stridhan”
HUF - Meaning Of Important Term- “Mitakshara”
HUF - Meaning Of Important Term- “ Dayabhaga”
Meaning of the term ‘Coparcener’ of HUF
Power of ‘Coparcener’ of HUF
Difference between a ‘Coparcener’ and a ‘Member’
Whether Husband / Wife Can Constitute A HUF ?
HUF - RECOVERY PROVISIONS
‘Maintenance of Accounts’ by HUF
‘Audit of Accounts’ by HUF
Applicability Of The ‘Accounting Standards’ On HUF
Whether Merger Of Two HUF is Possible ?
Residential Status of the HUF under I.T. Act.1956
‘Coparcener Property’ under HUF
 
Get Updated ...
Tax Tutorials
E-Payment Of Direct Taxes
Filing Of Return Of Income
Interest for Delay in Filing the Return of Income [Section 234 A]
Interest for default in Payment of Advance Tax [Section 234B]
Provisions Of 'Income-Tax Law' Useful For Non-Residents
MAT (Minimum Alternate Tax)
AMT ( Alternative Minimum Tax)
Tax On Long-Term Capital Gains (LTCG)
Tax On Short-Term Capital Gains (STCG)
Exemption[ Section-54] For Capital Gains Arising On Transfer Of Residential House Property
Tax Treatment Of Gifts Received By An Individual Or HUF
Set Off And Carry Forward Of Loss Under The Income-Tax Act
Interest For Delay In Payment of TDS/TCS And For Non-Payment Of Tax Demanded
Tax Deduction/Collection Account Number (TAN)
How to apply for PAN ?
Refund Of Excess Tax Paid By The Taxpayer (Sections - 237 to 245 )
Presumptive Taxation Scheme of Section 44AD
Presumptive Taxation Scheme of Section 44ADA
Presumptive Taxation Scheme of Section 44AE
Deduction in respect of Life Insurance Premium, PPF, NSC, etc. [Section 80C]
Deduction in respect of Medical Insurance Premium [Section 80D]
Tax Deducted at Source (TDS) from Interest, other than Interest on Securities (Section-194A)
Tax Deducted at Source (TDS) from Interest on Securities (Section 193)
Late Filing Fees And Penalty For Failure To Furnish/Delay In Furnishing The TDS/TCS Statements
LIBRARY @ Tax Management
TAX & INVESTMENT GUIDE FOR "NRI"- Non-Resident Indians !
GUIDE & FAQ @ TAX
GRAPHICAL PRESENTATION @ TAX
TIPS & TRICKS @ TAX
MANAGERIAL & FINANCIAL DECISIONS @ TAX
5 GOLDEN RULES OF TAX PLANNING
FAMILY TAX PLANNING
DEDUCTIONS FROM YOUR INCOME
EXEMPTED INCOMES
HUF - FORMATION, MANAGEMENT & TAX PLANNING
COMPUTATION OF GROSS TOAL INCOME
INCOME TAX @ GLANCE
MULTIPLE KNOWLEDGEBASE ON TAX
51 TIPS ON TAX PLANNING
APPEALS UNDER INCOME TAX
ASSESSMENTS
PENALTIES UNDER IT DEPATMENTS
TAX SAVING SCHEMES
TAX READY RECKONER
TAX RATES
PROSECUTIONS UNDER INCOME TAX DEPARTMENT
TAXATION SYSTEM IN INDIA
CHARITABLE & RELIGIOUS TRUST - TAXATION
PRESCRIBED FORMS WITH with Section / Rules
KNOWLEDGE BASE !
New Topics @ Tax KnowledgeBase...
 
 

Most Popular Topics :

Corporate Tax ( Taxation in Companies)
FAQ on TDS on Salaries
FAQ on Taxable Income
FAQ on Filing of Income Tax Return
Graphical Chat Presentation of Provision of Motor Car / Other Vehicles [Rule 3(2)(A)&(B)]
'Appeals' Under Income Tax Act. 1961.
'Assessments' Under Income Tax Act. 1961.
List of Exempted Incomes (Tax-Free) Under Section-10
Income Under the Head ' Business and Professions' [Section 28 to 44]
Income Under the Head ' Capital Gain'
Income Under the Head ' House Property '[Section- 22 - 25 ]
Income Under the Head "Salary"
[Section 15-17]
Income Tax on 'Partnership Firms'
PENALTIES Under Income Tax Act. 1961.
Tax Saving Schemes for Individual -Instant Guide
New Tax Rates For FY 2017-18 & AY 2018-19
"Exempted Incomes" under Income Tax Act.
Charitable & Religious Trust :Formation, Registration, & Taxation
Hindu Undivided Family [HUF] - Formation, Management and Taxation
 

Most Popular Links :

Clubing of Income Deduction U/s 80C
Allowances Us-17(3) Exemption-Salary
Tax Amendment-2015 Taxable Income
Clubing of Income Tax Deductions
HUF Deduction HUF Investment
Gift by HUF HUF Tax Planning Tips
Tax Saving Schemes Tax Planning Tips
Refund of Tax Fringe Benefit Tax-FBT
Return Filing Assessment / Scrutiny
Notice from I.T. Dept. Incomes Types @ TDS
Exemptions-Tax Returns “Summon” U/s 131
'Black Money' @ I.Tax Big Gifts To Be Taxed
'Appeals' under I.Tax Assessment @ I.Tax
Exempted Incomes Capital Gain
Business & Professions House Property
Salaries @ I.Tax Partnership Firm
'Penalty' under I.Tax Act. Tax Ready Reckoner
Charitable Trust Useful Links @ I.Tax
 
Guide & FAQ on Tax Knowledgebase @ Taxation Income Tax @ Glance HUF - Formation, Planning & Taxation
Charitable & Religious TRUST NRI (Tax Planning,Saving,Investemnt) Budget 2017-2018 GST (FAQ, Law, Act. Rules, Schedule, Enrollment)
FAQs - Income Tax India Tax Tutorials    
________________________________________________________________________________________

Disclaimer:
All efforts are made to keep the content of this site correct and up-to-date. But, this site does not make any claim regarding the information provided on its pages as correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

The visitors may click here to visit the web site of Income Tax Department for resolving their doubts or for clarifications