Formation of HUF on the happening of an Event

1. Formation of HUF On intestate death of a Hindu father

2. Formation of HUF On receipt of Assets through a WILL

3. Formation of HUF on a Son / Daughter being born to Hindu Parents.

4. Formation of HUF on Children born out of Hindu Father / Christian Mother — HUF status

1. Formation of HUF On intestate death of a Hindu father

On the death of a Hindu father who dies intestate (without making a will) leaving ancestral movable and immovable assets; the ancestral assets so left are thereupon inherited by the heirs of the Hindu father and the person so inheriting the ancestral assets can with the help of the assets so received form a HUF by treating the assets so received as the Corpus of the HUF. Any ancestral property received on death or partition would be HUF property in the hands of the male recipient. Once properties are received as Corpus of the HUF, the best way would be to affirm the above facts on an affidavit so that the intention of the person to this effect is confirmed.

In the case of CIT vs Nandlal Agarwal (1966) 59 ITR 758, the Apex court was confronted with a situation where a person belonging to Mitakshara school of Hindu Law died intestate leaving his widow and two minors. After the death of the person, a business was left behind and two Guardians were appointed. In the meantime, the widow also died and two minors were held to constitute a joint Hindu family and the income from the business left behind was held to be joint family income assessable as Income from business belonging to family.

A draft of such an affidavit is as follows:

In this regard following precautions must be taken:

1. The HUF must be capable of being formed i.e., it must consist of more than one member.

2. The declaration should be properly worded to indicate that it is proposed to inherit the property to HUF.

3. The Stamp paper should be of requisite value.

4. The Stamp paper should not be stale.

5. The name in which stamp paper is purchased is proper i.e., either it is in the namepf the HUF, or in the name of the declarant or if is in the name of an Advocate, that Advocate must sign the declaration as a Witness.

2. Formation of HUF On receipt of Assets through a WILL

An HUF can receive properties and other assets through a will from any person. An important thing to be kept in mind while drafting a will is to specifically mention in the will the portion of asset which are bequeathed to a Hindu Undivided family. In absence of any specific reference to the HUF, it may be difficult to characterize the property received by way of a will as HUF Property. In this regard, reference can be had to the Delhi High Court decision in the case of CIT. Delhi—TI vs Shambhu Ram Soni reported at (1982) 138 ITR 373 wherein the question arose whether the Assessee in the instant case who had inherited certain self acquired properties of his father by way of a will were inherited by him in the Status of HUF property or devolved unto him in his individual capacity. The Hon’ble Court in this regard observed as under:

“Property gifted or bequeathed by a father to his son cannot become ancestral property in the hands of the son simply by reason of the fact that he got it from his father. The father is quite competent when he makes a gift or a bequest to provide expressly either that the son would take it exclusively for himself or that the gift or bequest would be for the benefit of his branch of the family headed by the son. If there, are express terms or provisions to that effect in the deed of gift or will, the interest which the son would take in the properties would depend on the terms of the grant. In the absence of clear words, the question would be one of construction of the gift deed or the will. The law in this regard was laid down by the Supreme Court in C N. Arunachala Mudaliar vs C. A. Muruganatha Mudaliar (1954) SCR 243, AIR 1953 SC 495, 500, in these words (p. 254):

As the law is accepted and well settled that a Mitakshara father has complete powers of disposition over his self-acquired property, it must follow asa necessary consequence that the father is quite competent to provide expressly, when he makes a gift, either that the donee would take it exclusively for himself or that the gift would be for the benefit of his branch of the family if there are express provisions to that effect either in the deed of gift or a will no difficulty is likely to arise and the interest which the son would take in such property would depend upon the terms of the grant. If, however, there are no clear words describing the kind of interest which the donee is to take, the question would be one of construction and the court would I have to collect the intention: of the donor from the, language of the document taken along with the surrourding circumstances in accordance with the well-known canons of construction. Stress would certainly have to he laid on the substance of the disposition and not on its mere form”

After deliberations as above, the Hon’ble Court finally decided as under:

“We are unable to accept the submissions of the counsel for the assessee. These contentions are not borne out from the legal consequences of the provisions of the will. Taking the document as a whole and all the relevant facts into consideration, it cannot be said that the testator intended that the bequest was an integral part of a scheme of partition and what was given to the sons was really the share of the property which would normally be allotted to him or them and in his or their branch of the family on partition. The testator asserts his absolute right to dispose of the properties. The testator does not treat his self-acquired properties as ancestral properties and then proceed to allot to his sons and their families as in partition. In the will, the testator is conscious of the fact that he is possessed of the properties detailed therein and shall remain their owner till his death. Then, the testator mentions his family as consisting of his wife, the two sons and four daughters. There is an absence of the mention of the grandson or grandsons as forming part of the family headed respectively ‘by the two sons. The testator then considered it advisable to make a will for the disposal of the property after his death. The disposal suggests the settlement of the self-acquired properties. The testator then appoints his sons as executors and trustees of the will. The appointment of the executors is to administer the properties according to the will by which bequests are made to two daughters of the amount stated in the will and Rs. 5,000 to each of the grand-daughters to be spent on their marriages. Arrangements are made for the wife. In respect of these obligations the testator directed them to be discharged from and out of the entire property bequeathed. Only the remainder is divided between the two sons. The appointment of the executors and trustees is an indication that the residue allotted to the two sons was not in the scheme of partition but a bequest. The testator bequeathed the property in the manner described by him in the various clauses of the will including cl. 7. He directed that the rest of the property shall be shared equally by his two sons. It cannot be that the intention of the testator was to divide his remaining property as in a partition and to allow his two sons equally for themselves and as representing their branch of the family. The words of the allotment of the rest of the property, movable and immovable, to “be shared equally by the two sons, Shambooran and Vishwanath” clearly point to an intention on the part of the testator to make it absolute and exclusive to the sons to the extent of their share. The words “whatsoever and wheresoever” are not merely in consonance with the scheme of partition, but go equally to the disposal of the property, absolutely, of the testator at the time of his demise. On a careful construction of the document as a whole, we feel that there is no indication of the intention of the testator that the property shared by the two sons equally be taken by them as ancestral property in their hands. We feel that the Tribunal did not come to a correct construction of law on the will.

The reference is answered in favour of the Revenue and against the assessee. On the facts and circumstances of the case, we make no order as to costs”

Thus, drafting of the will must be done carefully in the light of the judgement of the Apex Court cited hereinabove particularly when the property which is sought to be devolved by way of will is self acquired property and is bequeathed to a HUF.

As in the earlier case, even here it is better for the person receiving the properties to affirm an affidavit to enable one to prove the property as an HUF property.

A draft of such an affidavit is as follows:

Again in the case of constitution of HUF property by the above mode, the following precautions must be taken:

1. The HUF must be capable of being formed i.e., it must consist of more than one member.

2. The declaration should be properly worded to indicate that it is proposed to bequeath the property of HUF.

3. The Stamp paper should be of requisite value

4. The Stamp paper should not be stale.

5. The name in which stamp paper is purchased is proper i.e. either it is in the name of the HUF or in the name of the declarant or if it is in the name of an Advocate, that Advocate must sigh the declaration as a witness.

3. Formation of HUF on a Son / Daughter being born to Hindu Parents.

We have seen that in order to constitute a HUF under the Hindu law, plurality of coparceners is necessary. Thus, where the family consists of only Husband and wife, an interesting question arises whether unborn child in the womb of mother along with Husband and wife can constitute a valid HUF. A similar question arose in the case of T.S. Srinivasan vs CIT (1966) 60 ITR 36. In this case, it was argued that under the Hindu Law, a son conceived has the same rights of property as a living son and therefore, HUF status should be granted from the time the son was conceived. However, the Apex Court after a detailed reasoning held that for the purposes of income-tax Act unless the son comes into existence, it is difficult to recognize the status of HUF notwithstanding the fact that the Hindu Law recognizes rights of an unborn son or son in the womb.

It is important to note that the case herein dealt with the case of unborn son, however in view of the amendments in the Hindu Succession Act, the case would equally apply to unborn daughters or daughters in the womb. Moreover, the case may even require reconsideration since the said judgement was given in view of the fact that till the time a child is born, it is not possible to say whether the child would be a son or a daughter.

Thus, in view of the above, as soon as a son/daughter is born, an individual can claim status of HUf in respect of the properties which is received by him on partition of HUF of which he is a member.

In case of a HUF which is formed in such a manner, a declaration/affidavit can be affirmed to act as the document for creation of the HUF and the draft of the declaration/affidavit is given herein below:-

Again in the case of formation of HUF by the above mode, the following precautions must be taken:

1. The HUF must be capable of being formed i.e., it must consist of more than one member.

2. The declaration should be properly worded to indicate that it is proposed to bequeath the property to HUF.

3. The Stamp paper should be of requisite value.

4. The Stamp paper should not be stale.

5. The name in which stamp paper is purchased is proper i.e., either it is in the name of the HUF, or in the name of the declarant or if it is in the name of an Advocate, that Advocate must sign the declaration as a witness.

The above things must be kept in mind prior to forming HUF under this route. Once the HUF is validly formed, the HUF can now do all the activities, which can be undertaken by it.

4. Formation of HUF on Children born out of Hindu Father / Christian Mother — HUF status

An interesting question came up before the Apex Court in the case of CWT vs Late R.Sridharan (1976) 104 ITR 436 as to the validity of HUF status claimed by a person who had married a Christian lady under the Special Marriage act, 1954 and a son was born out of such marriage and the person claimed HUF status for joint family consisting of himself and his son. The apex Court held that legitimate children of a Hindu father b a Christian Mother who are brought up as Hindus would be governed by Hindu law. It further held that the Special Marriage Act, 1954 cannot in any way impair or alter the joint family structure between the father and the son.