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Clubbing Provisions In Case Of Gifts Received By HUF

It is pertinent to refer to the provisions of Section 64(2) of the Act which read as follows:-


(1) Where, in the case of an individual being ‘a member of a Hindu undivided family, any property having been the separate property of the individual has, at ny time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the characterof property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,—

 

(a)       the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly;

 

(b)       the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family;

 

(c)        where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly:


Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be the spouse of the individual.


Explanation 1.—For the purposes of sub-section (2),—


“property” includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.


Explanation 2.—For the purposes of this setion, “income” includes loss.


Thus, it is not possible for an individual being a member of HUF to convert his separate property into property belonging to HUF in view of the clubbing provisions contained in Section 64(2) of the Income-tax Act, 1956. In such a case, the income generated from such property would be assessable as his individual income only and not as HUF income. However, the income which is so generated remains with the HUF and HUF is free to invest this income and any income generated out of such reinvested income is not liable for clubbing and remains with the HUF. Thus, though the initial income is clubbed in the hands of the person who has given the gift, income from income in future years is not to be clubbed.


In case of say shares which are gifted as such, the dividend on such shares is to be clubbed with the person who has gifted the shares. However, if any bonus shares are issued on these shares and any dividend is received on these bonus shares, the said dividend is income of HUF only.

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