Income-tax and Wealth-tax is levied on a person under the Income-tax Act, 1961(in sIort the I.T.Act) and the Wealth-tax Act, 1957(in short the W.T.Act) and the proposed Direct Taxes Code (in short the D.T.C). The liability for tax would be on a person. Section 2(31) of the I.T Act, Section 3 of the W.T. Act and Section 314(184) of the DTC includes (i) an Individual and (ii) a Hindu Undivided Family( in short the HUF) as a taxable entity. Thus a Hindu has the privilege of planning to have two assessments one as an Individual and another as a HUF. One can even plan to have manifold assessments by adopting the mode of partition, reunion, creation of family asset etc. etc.
Under the said sections not a Hindu Coparcenary but a Hindu Undivided Family is one of the assessable entities. 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, these being the sons, grandsons, and great-grandsons of the holder of the joint property for the time being. Since 2005 a daughter, who earlier was a member till unmarried has been labeled as a Coparcener, with same rights and obligations as that of a male.
There need not be more that one male member to form a Hindu undivided family as a taxable entity under the Income-tax Act. 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 the Hindus. Under the Hindu system of law a joint family may consist of a single male member and widows of deceased male members, and the Income-tax Act does not indicate that Hindu undivided family as an assessable entity must consist of at least two male members as held in Gowli Buddanna vs CIT (1996) 60 ITR 293(SC). Same is the position under the W.T. Act as held in N.y. Narendranath vs CWT (1969) 74 ITR 190(SC).
The meaning of the word HUF has been explained in various Courts of law as follows:
The Orissa High Court in the case of Dulari Devi vs Controller of Estate Duty reported at (1995) 211 ITR 524 has while explaining the meaning of the word HUF said as follows:
“The expression “Hindu Undivided family” for the purpose of the Income-tax Act, or the Wealth-tax Act, or the Estate Duty Act, is not co-terminous with a Hindu Coparcenary. The expression “Hindu Undivided family” is used in the sense in which it is understood in the personal law of Hindus. That means, a joint family may consist of a single male member, his wife and daughters, and there is no embargo either under the Income-tax Act, or the Wealth-tax Act, or the Estate Duty Act, to suggest that unless there is more than one male member, there cannot be an asessab1e unit of the Hindu Undivided family”
- The Rajasthan High Court in the case of Kushal Chand Surana vs Commissioner of Income-tax reported at (1995) 216 ITR 56 has opined as follows while elaborating upon the meaning of the term HUF: -
“A coparcenary is narrower than the joint family. A person who acquires by birth an interest in the joint or coparcenary property is a coparcener. The joint Hindu family constituting a coparcenary is required to have a common male ancestor with lineal descendant in the male line whereas a joint Hindu family consists of all persons lineally descendant from a common ancestor and includes theii’ wives and unmarried daughters”
3. The Apex Court in the case of Sathyapreina Manjunatha Gowda vs CED, (1997) 10 SCC 684, at page 6871(1997) 227 ITR 1(SC)] held that The Hindu joint family consists of male members descending lineally from a common male ancestor, together with their mother, wives or widows and unmarried daughters bound together by the fundamental principle of sapindaship or family relationship which is the essence and distinguishing feature of the institution. This body is purely a creature of law and cannot be created by act of parties save insofar that by adoption or marriage a stranger may be affiliated as a member thereof. An undivided family which is the normal condition of Hindu society is ordinarily joint not only in estate but in food and S worship; therefore, not only the concerns of the joint family, but whatever relates to their commonality and their religious duties and observances are regulated by the members or by the manager to whom they have, expressly or by implication, delegated the task of regulation. The joint family status being the result of birth, possession of joint properties is only an adjunct of the joint family and is not necessary for its constitution. Nor is it necessary that all the members possess rights or status even though the property of the family is called joint family property.
4. The Apex Court in the case of CWT vs Smt Champa Kumari Singhi (1972) 83 ITR 720 was confronted with a question as to whether a Jam undivided family was not a Hindu Undivided family within the meaning of Section 3 of the Wealth-tax Act,1957. The Apex Court after detailed reasoning held that the expression “Hindu undivided family” will certainly include “Jam undivided family”.
5. The Apex Court in Surjit Lal Chhabra vs CIT (1975) 101 hR 776 (SC) stated:
“Section 2(9) of the Indian Income-tax Act, 1922, defines a ‘person’ to include, inter alia a ‘Hindu undivided family’. Under sections 3 and 55 of that Act, a Hindu undivided family is a taxable unit for the purposes of income-tax and super-tax. The expression ‘Hindu undivided family finds reference in these and other provisions of the Act but that expression is not defined in the Act. The reason of the omission evidently is that the expression has a well-known connotation under the Hindu Law and being aware of it, the legislature did not want to define the expression separately in the Act. Therefore, the expression ‘Hindu undivided family must be construed in the sense in which it is under stood under the Hindu law (Commissioner of Income-tax vs Gomedalli Lakshrninarayan (1935) 8 ITC 239; 3 ITR 367, 369-370 (Bom)”.
6. In the words of Sir George Rankin who delivered the opinion of the Judicial Committee in Kalyanji’s case (1937) 5 ITR 90 (PC) “The phrase ‘Hindu undivided family’ is used in the statute with reference, not to one school only of Hindu law, but to all schools; and their Lordships think it a mistake in method to begin by pasting over the wider phrase of the Act the words ‘Hindu coparcenary’, all the more that it is not possible to say on the face of the Act that no female can be a member”. Outside the limits of coparcenary, there is a fringe of persons, males and females, who constitute an undivided or joint family. There is no limit to the number of persons who can compose it nor to their remoteness from the common ancestor and to their relationship with one another. A joint Hindu family consists of persons lineally descended from a common ancestor and includes their wives and unmarried daughters. The daughter, on marriage, ceases to be a member of her father’s family and becomes a member of her husband’s family. The joint Hindu family is thus a larger body consisting of a group of persons who are united by the tie of sapindaship arising by birth, marriage or adoption. “The fundamental principle of the Hindu joint family is the sapindaship. Without that it is impossible to form a joint Hindu family. With it as long as a family is living together, it is almost impossible not to form a joint Hindu family. It is the family relation, the sapinda relation, which distinguishes the joint family, and is of its very essence”. [(Karsondas Dharamsey vs Gangabai(1908) ILR 32 Born 479, 493)].
The joint Hindu family, with all its incidents, is thus a creature of law and cannot be created by act of parties, except to the extent to which a stranger may be affiliated to the family by adoption. But the absence of an antecedent history of jointness between the appellant and his ancestors is no impediment to the appellant, his wife and unmarried daughter forming a joint Hindu family. The appellant’s wife became his sapinda on her marriage with him. The daughter too, on her birth, became a sapinda and until she leaves the family by marriage, the tie of sapindaship will bind her to the family of her birth. As said by Golapchandra Sarkar Sastri in his “Hindu Law” (Eighth Ed., p. 240), “those that are called by nature to live together, continue to do so” and form a joint Hindu family. The appellant is not by contract seeking to introduce in his family strangers not bound to the family by the tie of sapindaship. The wife and unmarried daughter are members of his family. He is not by agreement making them so. And as a Hindu male, he himself can be the stock of a fresh descent so as to be able to constitute an undivided family with his wife and daughter.
There are thus two classes of cases, each requiring a different approach. In cases falling within the rule in Gowli Buddanna’s case, the question to ask is whether property which belonged to a subsisting undivided family ceases to have that character merely because the family is represented by a sole surviving coparcener who possesses rights which an owner of property may possess. For the matter of that, the same question has to be asked in cases where the family, for the time being, consists of widows of deceased coparceners as in Commissioner of Income-tax, vs Rm. Ar: Ar. Veerappa Chettiar (1970) 76 ITR 467, 470 (SC), so long as the property which was originally of the joint Hindu family remains in the hands of the widows of the members of the family and is not divided amongst them. In cases falling within the rule in Kalyanjis case, the question to ask is whether property which did not belong to a subsisting undivided family has truly acquired the character of joint family property in the hands of the assessee. In this class of cases, the composition of the family is a matter of great relevance for, though a joint Hindu family may consist of a. man, his wife and daughter, the mere existence of a wife and daughter will not justify the assessment of income from the joint family property in the status of the head as a manager of the joint family: The appellant’s case falls within the rule in Kalyanjis case since the property, before it came into his hands, was not impressed with the character of joint family property. It is of great relevance that he has no son and his joint family consists, for the time being, of himself, his wife and daughter.