The HUF being a separate unit of taxation under the Income-tax Act,1961 being eligible for all the benefits available to an assessee is also subjected to the recovery provisions under the Income-tax Act,1961 as contained in Chapter XVII-D of the income-tax Act,1961. It is therefore important to understand as to who are responsible for the tax liability of the lIUF assessees. It is also important to understand whether the liability of members of FIUF in regard to tax liability of HUF assessees is limited to the assets of 1-IUF or is unlimited as we have seen in case of Partnership firms.
The tax liabilities in this regard are to be seen from two angles. ‘llie first is general tax liability upon regular assessment and second is tax liability upon partition as envisaged u/s 171 of the Income-Tax Act, 1961. in respect of tax liability arising to HUF assessees upon partition, Section 171(6),(7) and (8) contain specific provisions as to who are liable for such liability and they are briefly enumerated herein below:-
“Notwithstanding anything contained in this section, if the Assessing Officer finds after completion of the assessment of a Hindu undividd family that the family has already effected partition, whether total or partial, the Assessing officer shall proceed to recover the tax from every person who was a member of the family before the partition, and every such person shall be jointly and severally liable for the tax on the income so assessed”.
Thus, Section 171(6) in no uncertain terms states that any member of the HUF is jointly and severally liable for the tax liability of HUF assessees.
“For the purposes of this section, the several liability of any member or group of members there under shall be computed according to the portion of the joint family property allotted to him or it at the partition, whether total or partial.
Thus, Section 171(7) clarifies that the several liability shall be in proportion to the allotment of the asset to that member.
Thus, it has been clarified by Section 171(7), that in case the liability is proposed to be realized from the members, the Assessing officer has to realize it from the members in propotion to the assets received by the particular member on partition whether partial or total. Once it is collected from the individual members in proportion to the assets received by them and even after such realization if any demand remains, the same can be collected from any member with whom any asset is available.
“The provisions of this section shall, so far as may be, apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to the date of partition, whether total or partial of a Hindu undivided family as they apply in relation to the levy and collection of tax in respect of any such period.
Thus, Section 171(8) specifies the quantum of tax liability which is capable of being realized in relation to Section 171 of the Act.
Now regarding the general tax liability the provisions are contained in the Income-tax Act, 1961 and the Second schedule of the Income-tax Act, 1961 and in case any amount is due from HUF, the HUF is liable for the said tax liability. In this regard, it is important to note that Part V of the Second Schedule contains Rule 73 containing provisions regarding arrest and detention of the defaulter and the Explanation to this rule says that “for the purposes of this rule, where the defaulter is a Hindu Undivided family, the karta thereof shall be deemed to be the defaulter”. In this regard, it is pertinent to note that the Explanation below Rule 73 was inserted by Taxation Laws (Amendment) Act, 1975 w.e.f. 1/10/1975.
Prior to insertion of this explanation, the Karta was not capable of being treated as a defaulter as decided by the Apex Court in the case of Kapurchand vs Tax Recovery Officer(1969) 1 SCR 691[ =(1969) 72 ITR 623] wherein the Apex Court was dealing with a situation where the l’RO intiating proceedings for arrest of Karta for default in payment of tax by HUF and the Hon’ble Apex Court held that there is no provision in the Act which deems the manager to be the assessee, for the purpose of assessment and recovery of tax, when the income of the Hindu undivided family of which he is the manager is assessed to tax. Nor is there any provision enabling the Income Tax Officer or the Tax Recovery Officer to treat the manager of the Hindu undivided family as an assessee in default under the provisions of the Act. Section 160 provides for treating a person as a representative assessee, and Section 161 prescribes the liability of a representative assessee. Section 179 makes a special provision for rendering the DirectOrs of private company in liquidation to be jointly and severally liable for the payment of tax which cannot be recovered from the assets of the private company in liquidation. The Legislature has made no such provision for recovery of tax by reason to the personal property of the manager of the Hindu undivided family, or by his arrest and detention for default by the family in paying the tax due.
However, the effect of the aforesaid judgment was diluted in view of the insertion of explanation below Rule 73 as dealt with hereinabove.
Thus, in relation to any tax liability of HUF, if the question of arrest arises, Karta is deemed to be a defaulter.
In nut shell, the tax liability of all the members of HUFs in relation to HUF is limited to the extent of the property/assets received on partition. It doesn’t extend beyond and individual property of the member is not amenable to the recovery of taxes against the HUF.