The concept of Multiple HUFs was in practice in the States like Maharashtra and Gujrat where by custom a person used to write the first name of his father in his name as middle name and an unmarried daughter used to write the name of her father in her name as middle name and further a married lady used to write the first name of her husband in her name as middle name. This practice is still prevalent in those states.
The Multiple HUFs in such a scenario used to be created by creating several sub HUFs within the bigger HUF of a say Hindu father.
A Hindu father say X having three sons namely A, B, and C used to create in all 7 HUFs as follows:
1. X HUF
2. XA HUF
3. XB HUF
4. XC HUF
5. XAB HUF
6. XAC HUF
7. XBC HUF
The HUFs so created are called Multiple HUFs since the membership in case of such HUF is restricted to that branch of son who is a part of the HUF.
MULTIPLE HUFS - NOT POSSIBLE NOW
It is pertinent to note that the provisions of Section 171(9) of the Incometax Act, 1961 were introduced in the Act only to curb the practice of creating multiple HUFs by making a partial partition. So much so that one planner planned to cause more than 50 HUF with different combinations and 50 separate assessments. Thus, it is no longer possible to create multiple HUFs.
However, this doesn’t mean that a family can not have more than one HUF. It is possible to have a separate HUF with father as the Karta and another HUF with his son or sons as Karta or even with daughters in view of the amendment made in the Hindu Succession Act.
MULTIPLE HUFs vs Bigger HUF/Smaller HUF
It may be noted that Multiple HUF are different from Bigger HUF/Smaller HUF which have been explained in detail in Chapter 2 and it should be noted that only Multiple HUF is not possible these days. The Bigger HUF as well as smaller HUF in the same family can still function without any violation of law.
There can be a bigger family and smaller families on partition. To illustrate : M/s Mohonlal Sohanlal (HUF) is carrying on wholesale business with a net income of Rs. 15 lacs after payment of salary to the karta and adult male coparceners working on the shop. The bigger family is headed by karta ‘M’, his wife ‘W’, five sons and three daughters, all married, with daughter in-laws and grand children from the HUF. The family capital can be partitioned between the coparceners. Whatever is received by each, ‘M’, W and three married daughters would receive as an individual but the five sons would receive in the capacity of karta of HUF and form HUF with their respective wife and children. Thus 5 HUF would come into assistance the family business can be converted into partnership firm admitting all the sons and daughter-in-laws. ‘M’ & ‘W’ as partners and grand children as beneficiary partners. The tax on 15 lakhs can be totally avoided or substantially reduced, to create capital and promote/develop over short period.