Gifts by HUF

1. Gift by HUF to its Member

2. Gift To Minor Daughters Out Of HUF Property Prior To Marriage

3. Gift to Members of HUF by Book Entry

4. Gift of HUF Property to Stranger or to any Person who is a Alien to HUF

1. Gift by HUF to its Member

It is very well possible for the HUF to make gift to any member of the HUF to reasonable extent with the consent of the members/coparcener. In case of gifts to members of the HUF, it is advisable to have the gift deed drafted in such a way so as to incorporate the consent of all the members in the gift deed itself so that there is no problem in the future challenging of the gift from the members themselves. In this regard, the Punjab & Haryana High Court in Raghbir Singh’s case (1958) 34 ITR 719, held gift to the spouse of Karta to be valid primarily because the son, the only other coparcener had no objection to it.

A draft of such a gift is given herein below:-

2. Gift To Minor Daughters Out Of HUF Property Prior To Marriage

On the issue whether the Karta can gift the HUF property to minor daughters only on the occasion or marriage or at any time, it was held that, the Karta of a HUF has inherent powers to make gifts out of HUF property in reasonable quantity. The support for this proposition is derived from the Apex Court case of CWT vs K.N. Shanmugasundaram, (1997) 11 SCC 252, wherein the Apex Court referred to the following finding of the Madras High Court :

Under the Hindu law the father or his representative can make a valid gift by way of reasonable provision for the maintenance of the daughters, regard being had to the financial and other relevant circumstances of the family, and by custom or convenience such gifts are made at the time of marriage but the right of the father or his representative to make such a gift is not confined to the marriage occasion and it is a moral obligation which continues to subsist till it is discharged. Marriage is only a customary occasion for such a gift but the obligation can be discharged at any time either during the lifetime of the father or thereafter. The High Court has further held that the right of the father or his representative to make such a gift is not confined to the marriage occasion and that there was no reason why a father should not have the power to make a gift of a reasonable portion of the joint family property to his minor unmarried daughters who might get married or continue to remain as spinsters and lead a life of celibacy. According to the High Court, the need of a father in a Hindu undivided family to make a provision for the future maintenance of his minor unmarried daughters is greater and more compelling than the one he may have to make a provision for the maintenance of the daughter at the time of the marriage or thereafter. For a daughter who gets married or who has already got married, has her husband who may provide for her maintenance in addition to the support which she derives from her father after the marriage while there is no such support from a person like the husband or other relative in the case of a minor unmarried daughter of a Hindu father of an undivided family. The High Court further found that having regard to the fact that the total assets of the assessee amounted to Rs 13 lakhs and that the gift which each of the three minor daughters got would bear only 1/39 portion of the total value of the assets of the assessee on one computation and only 1/55 portion of. the total value of the assets by another computation it could not be said that the properties gifted to the minor daughters do not bear a small or reasonable proportion of the total value of the properties owned by the family of which the assessee is the manager. In view of the aforesaid findings, the High Court has answered the questions referred to it against the Revenue and in favour of the assessee.

After this the Hon’ble Apex Court declined to interfere on the ground that the Gift of property in small proportion to three minor daughters from HUF property was approved under the Income-tax as well as Gift tax Assessment.

3. Gift to Members of HUF by Book Entry

The question whether Gift by book entry to members is permissible or is recognized has to be seen in the light of the provisions of law in this regard.

In the erstwhile Gift-tax Act,1958 w’iich was repealed later though there was no provision which prohibited gift by book entry, but the consistent view which has been taken by the Courts of law is that in case of gift by book entry, the gift must be genuine and the subject matter of the gift should actually pass or in case of book entry by debit/credit in the account with a party, there should be sufficient balance in the account of the donor to effect the gift by book entry. It is possible in certain circumstances for a donor to make a valid gift by instructing a firm or a company with which HUF has a balance to effect for a gift by book entry to the members of the HUF.

Moreover, in the Wealth-tax Act, 1957 a provision is contained in Section 4(5A) of the Wealth-tax Act, 1957 wherein it has been provided that where a gift is made by book entry, then the value of such gift is liable to be included in the net wealth of the Donor unless he proves to the satisfaction of the Assessing officer that the money has actually been delivered to the Donee at the time the entries were made.
In this regard, reference can be made to the decision of the Apex Court in the case of Cu lab Rai Govind Prasad vs CIT, 1987 Supp SCC 337 1= (1987) 165 ITR 163], wherein the Apex Court dealing with a case of gift by book entry held the gift to be invalid on account of the fact that there was no evidence of the acceptance of the gift. The only act alleged to be connected with the gift was the making of entries in the books. There as no evidence that the karta in his capacity as the guardian of the minor had accepted the gift.

Another decision in this regard is contawed in CIT vs R.S. Gupta, (1987 2 SCC 841= (1987) 165 ITR 361 wherein he Apex Court held that It is possible in certain circumstances for a donor to make a valid gift by instructing a firm or a company or a HUF in which the donor has an account to give effect to the gift by debiting his account and crediting the account in the name of the donee. But in such cases merely book entries would not suffice. The circumstances must be such as to make it clear that there were sufficient funds at the disposal of the donor by reason of which he could make the gift by such book entries. Th firm in which the donor may have account may or may not have sufficient cash balance but it must have sufficient provision for overdraft with the bank on the basis of which it could honour instructions given by the assessee. This position of law has been referred to and reiterated by the Bench decision of the Delhi High Court in the case of Indian Glass Agency vs CIT Justice Ranganathan of the Delhi High Court after referring to several authorities has observed that book entries may be sufficient only when circumstances make it clear that the gift was genuine and the firms where accounts transfers are effected must have sufficient cash in hand or sufficient provision for overdraft facility upon the basis of which it would honour the instructions given by the assessee. The assessee must also have sufficient credit balance to enable him to make the gift. Reference may also be made for this proposition to the decision of the Delhi High Court in New India Colour CO. vs CIT.

Thus, in the light of the aforesaid provisions it is important that while making gift by book entry the following important things are kept in mind:

1. The gift is accepted by the Donee.

2. On the Date of gift by book entry, there is sufficient balance in the account of the Donor to gift.

3. The act of the parties subequent to the gift confirms the genuineness of the gift.

4. Gift of HUF Property to Stranger or to any Person who is a Alien to HUF

There are restrictions on Gift of Property belonging to HUF to strangers or to any person who is alien to HUF.

1. The Hon’ble Supreme Court in the case of Guramma vs Mallappa reported at AIR 1964 SC 510 held as follows : -
   “No authority has so far been placed before us to sustain a gift to a stranger even on the ground of charity. It must be remembered that the manager has no absolute power of disposal over the HUF property. The Hindu law permits him to do so only within such limits. We cannot extend the scope of power on the basis of the wide interpretation given to the word pious purpose in Hindu Law in a different context. In the circumstances, we hold that the gift to stranger of a Joint family property by rhanager is void.

2. In the case of Mukund Singh vs Wazir Singh, (1972) 4 SCC 178, at page 180 the Apex Court was considering the validity of a gift made by a father to a stranger out of the coparcenary property wherein the coparcenary consisted of father and his adopted son and the Apex Court after detailed reasoning held that A gift Of coparcener’s property by a member is void. There is nothing in Section 13 of the Hindu Adoptions and Maintenance Act, 1956 which detracts from that rule.

Thus, gift by HUF to strangers is void. Interestingly the Rajasthan High Court in the case of Commissioner of Income-tax vs Dwarka Dass and Sons(1995) 212 ITR 579 held cash gift of reasonable amount(Rs.5000/-) out of HUF Property to strangers as valid. Thus it has been seen that even though gifts have been held to be void by various courts of law, it is not uncommon to find gifts by HUF. In such cases, precaution must be taken to ensure that the gift to members/strangers by HUF are not termed as Partial Partition within the meaning of Section 171 of the Income-tax Act,1961 as discussed in later chapters.