Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
HUF & FAMILY SETTLEMENT-
TAX PLANNING
ASHOK SETH, Lucknow
B. Sc, FCA, DISA (ICA)
as@sethspro.com
Tax planning- Relevance
 Low rates of Taxation. Average rate
14% on Income of 10 Lacs
 No Gift Tax, Estate Duty, and lim...
Tax Planning- Scope
 McDowell’s case 154 ITR 148 (SC)
 Playworld Electronics, 184 ITR 308 (SC)
“It is true that tax plan...
HUF
 A single male individual cannot be
assessed as HUF as long as he is
unmarried.- C. Krishna Prasad vs. CIT
97 ITR 493...
HUF
 Property held by a sole surviving
coparcener, when there is no widow in
existence who has power to adopt; will
be hi...
Partial Partition
 Partial partition was de-recognised
with amendment in the s. 171(9) of
the I. Tax Act wef. 31.12.1978
...
Tax Planning Through HUF
 Through complete but not equal
partition of HUF assets. Apoorva
Shantilal Shah V. Commissioner ...
Gifts to HUF
 HUF can receive gift Sukhlal Bhanwar
Lal 226 ITR 513 (MP), 517, 518 but
the declaration for gift to HUF sho...
Precaution in Partition
 The SC in CIT V. Venugopal Inani 239
ITR 514 held that partition to be
recognised under IT Act: ...
Gifts to HUF
 In the case of Pushpadevi vs. C.I.T.
109 ITR 730 (SC), the SC has held
that any person, other than a
coparc...
Gifts to HUF
 SC in Surjitlal Chabda vs. CIT 101
ITR 776 (SC) held that a gift of
separate property can be made by a
male...
Precautions
 Applicability of Sec 64(2)
 Applicability of Section 56(2)(vii)
w.e.f from 1st Oct 2009 on gifts
received b...
Multiple HUFs
 By Reunion of Old partitioned HUF- can be
created as per the need by reuniting
different combinations of s...
Family Settlement
 It has been evolved out of necessity
and has received recognition by the
judges of the Highest Court. ...
Family Settlement
 Halsbury’s Laws of England defines a
family arrangement as follows: -
 “A family arrangement is an
ar...
Applicability
 The concept of family arrangement is
not only applicable to Hindus but to
other communities in which there...
Essentials
 Should be for benefit of the family in
general.
 Must be bona fide, honest and voluntary
and it should not b...
Essentials- Contd.
 The parties must have antecedent title,
claim or interest. Even if a possible claim in
the property w...
Precaution
 Purely a voluntary act of giving up
one’s right without compelling
circumstances will not be a valid
family a...
Ram Chandra Dass v Girja
Nandini Devi AIR 1966 SC 323
 “The transaction of a family
settlement entered into by the partie...
Contd.
 Every party who takes benefit under
it need not necessarily be shown to
have, under the law, a claim to a
share i...
Family
 the word 'family' is not to be
understood in a narrow sense of
being a group of persons whom the
law recognizes a...
Agreement
 “The agreement may be implied from
a long course of dealing, but it is
more usual to embody or to
effectuate t...
Agreement
 SC in Tek Bahadur Bhujil vs. Debi Singh Bhujil
AIR 1966 SC 292 held that family arrangement
can be arrived at ...
Maturi Pulliah v. Maturi Narasimham,
AIR 1966 SC 1836
 "Briefly stated, though conflict of legal claims is
praesenti or i...
Section 17(1)(b) of the Indian
Registration Act
 Where document merely records the
terms and recital of the family
arrang...
Registration
 Distinction has to be made between a
document containing the terms and
mere memorandum prepared after
the f...
Taxation and Family Settlement
 The provision of section 171 of the Act, which
places restriction on a partial partition ...
No Transfer
 In a latest case held that Family
arrangement and settlement cannot
be termed as transfer. The word
'transfe...
Compensation received
 In CIT v Ashwani Chopra (2013) 85
DTR 40 (P&H High Court) held that
“Compensation received to equa...
Sec 64 Not Applicable
 CWT v H.H. Vijayaba, Dawager Maharani
Saheb of Bhawnagar and Others 117
ITR 784 (SC)
 The family ...
Period of Holding Sec 49(1)
 In Asstt CIT v Baldev Raj Charla & ors
(2009) 18 DTR (Del) (Trib) 413 and
Shanthi Chandran 2...
Last but not the least
 Family arrangement or settlement
cannot have as its object that of
saving tax. It then becomes a ...
If you wait for happy moments,
you will wait forever.
But if you start believing that you
are happy,
you will be happy for...
Please mail your comments to
as@sethspro.com
35CA Ashok Seth, Lucknow14th Dec 2013
36
Have a good day
CA Ashok Seth, Lucknow14th Dec 2013
Upcoming SlideShare
Loading in …5
×

Huf and family setllement kanpur tax bar dec 13

635 views

Published on

Published in: Law, Business, Technology
  • Writing good research paper is quite easy and very difficult simultaneously. It depends on the individual skill set also. You can get help from research paper writing. Check out, please ⇒ www.WritePaper.info ⇐
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Be the first to like this

Huf and family setllement kanpur tax bar dec 13

  1. 1. HUF & FAMILY SETTLEMENT- TAX PLANNING ASHOK SETH, Lucknow B. Sc, FCA, DISA (ICA) as@sethspro.com
  2. 2. Tax planning- Relevance  Low rates of Taxation. Average rate 14% on Income of 10 Lacs  No Gift Tax, Estate Duty, and limited Wealth tax  Planning- actual family circumstances and not solely to save tax. Sometime too much tax planning becomes troublesome in actual partition among the family members later on 14th Dec 2013 CA Ashok Seth, Lucknow 2
  3. 3. Tax Planning- Scope  McDowell’s case 154 ITR 148 (SC)  Playworld Electronics, 184 ITR 308 (SC) “It is true that tax planning may be legitimate provided it is within the framework of the law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by dubious methods 14th Dec 2013 CA Ashok Seth, Lucknow 3
  4. 4. HUF  A single male individual cannot be assessed as HUF as long as he is unmarried.- C. Krishna Prasad vs. CIT 97 ITR 493 (SC)  After the death of the last male member, the HUF may consist of female members only, like widowed mother, widowed daughter-in-law and unmarried sister CIT vs RM AR. AR Veerappa Chettiar 76 ITR 467 (SC) 14th Dec 2013 CA Ashok Seth, Lucknow 4
  5. 5. HUF  Property held by a sole surviving coparcener, when there is no widow in existence who has power to adopt; will be his Individual. (C. Krishna Prasad vs. CIT 97 ITR 493 (SC).  Self-acquired property of a father inherited by his son after the death of the father (after 17.6.1956), cannot be treated as ancestral property in the hands of son. (CWT-vs-Chander Sen 161 ITR 370 SC) 14th Dec 2013 CA Ashok Seth, Lucknow 5
  6. 6. Partial Partition  Partial partition was de-recognised with amendment in the s. 171(9) of the I. Tax Act wef. 31.12.1978  In Union of India & Ors. V M V Valliappan & Ors. Etc. 238 ITR 1027 SC observed that creation of multiple HUFs was part of tax planning.  Applies only to HUF hitherto assessed. 192 ITR 376 (Guj) 14th Dec 2013 CA Ashok Seth, Lucknow 6
  7. 7. Tax Planning Through HUF  Through complete but not equal partition of HUF assets. Apoorva Shantilal Shah V. Commissioner of Income-tax, Gujarat. 141 ITR 0558 (SC)  Creation of New HUF ?. Efforts can be made to increase the income yielding property of the HUF. 14th Dec 2013 CA Ashok Seth, Lucknow 7
  8. 8. Gifts to HUF  HUF can receive gift Sukhlal Bhanwar Lal 226 ITR 513 (MP), 517, 518 but the declaration for gift to HUF should be categorical that the gift is for the benefits of the family 99 ITR-1 (SC).  The property can also be received in HUF through “will” of the deceased. But there should be categorical declaration. 14th Dec 2013 CA Ashok Seth, Lucknow 8
  9. 9. Precaution in Partition  The SC in CIT V. Venugopal Inani 239 ITR 514 held that partition to be recognised under IT Act: -  must lead to physical division of joint properties-which are capable of division.  This case had observed that those properties which can be physically divided must be divided physically e.g. moneys deposited in banks etc. 14th Dec 2013 CA Ashok Seth, Lucknow 9
  10. 10. Gifts to HUF  In the case of Pushpadevi vs. C.I.T. 109 ITR 730 (SC), the SC has held that any person, other than a coparcener, can validly make a gift to the HUF.  The conversion of self-acquired property into HUF hotchpotch does not involve ‘transfer’ 14th Dec 2013 CA Ashok Seth, Lucknow 10
  11. 11. Gifts to HUF  SC in Surjitlal Chabda vs. CIT 101 ITR 776 (SC) held that a gift of separate property can be made by a male member to his HUF even if there is no ancestral property of HUF. However, the Supreme Court has also held in such a case till a son is born property income to be assessed in individual status only. 14th Dec 2013 CA Ashok Seth, Lucknow 11
  12. 12. Precautions  Applicability of Sec 64(2)  Applicability of Section 56(2)(vii) w.e.f from 1st Oct 2009 on gifts received by HUF from other than any member. 14th Dec 2013 CA Ashok Seth, Lucknow 12
  13. 13. Multiple HUFs  By Reunion of Old partitioned HUF- can be created as per the need by reuniting different combinations of smaller families (Bhagwan Dayal Reoti Devi AIR 1962 SC 287, 304)  Express agreement to re-unite  Is no t transfer. (CGT vs. P. Gopinathan 204 ITR 324 Ker.)  Renunciation by coparcener does not amount to partition (Choudhury Raghuvans Narain Singh vs. State of U.P. AIR 1972 S.C. 2096) 14th Dec 2013 CA Ashok Seth, Lucknow 13
  14. 14. Family Settlement  It has been evolved out of necessity and has received recognition by the judges of the Highest Court. It is essentially a compromise for resolving disputes among members of a family. Such a dispute could have actually arisen or could be plausible or possible. It need not have reached a court of law. 14th Dec 2013 CA Ashok Seth, Lucknow 14
  15. 15. Family Settlement  Halsbury’s Laws of England defines a family arrangement as follows: -  “A family arrangement is an arrangement between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour. “ 14th Dec 2013 CA Ashok Seth, Lucknow 15
  16. 16. Applicability  The concept of family arrangement is not only applicable to Hindus but to other communities in which there is a common unit, common mess and joint living Muslims can also validly execute family arrangements.  Ziauddin Ahmed vs. CGT 102 ITR 253 (Gau)  Bibijan Begum vs. ITO 34 TTJ 557 (Gau.)  CGT v S.N. Zaman and SM Elahi 221 ITR 842 (Gau.) 14th Dec 2013 CA Ashok Seth, Lucknow 16
  17. 17. Essentials  Should be for benefit of the family in general.  Must be bona fide, honest and voluntary and it should not be induced by fraud, coercion or undue influence.  To resolve present or possible family disputes and rival claims not necessarily legal claims by a fair and equitable division of the property amongst various members. Contd. 14th Dec 2013 CA Ashok Seth, Lucknow 17
  18. 18. Essentials- Contd.  The parties must have antecedent title, claim or interest. Even if a possible claim in the property which is acknowledged by the parties to the settlement will be sufficient.  The consideration for entering into family arrangement should be preservation of family property, or peace and honour of the family and avoidance of litigation. Kale vs. Deputy Director of Consolidation (AIR 1976 SC 807) 14th Dec 2013 CA Ashok Seth, Lucknow 18
  19. 19. Precaution  Purely a voluntary act of giving up one’s right without compelling circumstances will not be a valid family arrangement. But where the person have no and cannot have any claim or possible claim against the transferor cannot be regarded as family arrangement CED v Chandra Kala Garg 148 ITR 737 (Alld) & The CIT v Ponnammal 164 ITR 706 (Mad). 14th Dec 2013 CA Ashok Seth, Lucknow 19
  20. 20. Ram Chandra Dass v Girja Nandini Devi AIR 1966 SC 323  “The transaction of a family settlement entered into by the parties who are members of a family bona fide to put an end to the dispute among themselves, is not a transfer. It is not also the creation of an interest. Contd. 14th Dec 2013 CA Ashok Seth, Lucknow 20
  21. 21. Contd.  Every party who takes benefit under it need not necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection. 14th Dec 2013 CA Ashok Seth, Lucknow 21
  22. 22. Family  the word 'family' is not to be understood in a narrow sense of being a group of persons whom the law recognizes as having a light of succession or having a claim to a share in the disputed property. (Ram Chandra Dass v Girja Nandini Devi AIR 1966 SC 323) 14th Dec 2013 CA Ashok Seth, Lucknow 22
  23. 23. Agreement  “The agreement may be implied from a long course of dealing, but it is more usual to embody or to effectuate the agreement in a deed to which the term ‘family arrangement’ is applied. (Halsbury’s Law of England) Contd. 14th Dec 2013 CA Ashok Seth, Lucknow 23
  24. 24. Agreement  SC in Tek Bahadur Bhujil vs. Debi Singh Bhujil AIR 1966 SC 292 held that family arrangement can be arrived at orally. Its terms may be recorded in writing as a memorandum of what had been agreed upon between the parties  In Sahu Madho Das vs. Mukund Ram (AIR 1955 SC 481) the SC held that the family arrangement can as a matter of law be inferred from a long course of dealings between the parties even though there may not be a specific family arrangement agreement in writing 14th Dec 2013 CA Ashok Seth, Lucknow 24
  25. 25. Maturi Pulliah v. Maturi Narasimham, AIR 1966 SC 1836  "Briefly stated, though conflict of legal claims is praesenti or in future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a Joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, courts will more readily give assent to such an arrangement than to avoid it." 14th Dec 2013 CA Ashok Seth, Lucknow 25
  26. 26. Section 17(1)(b) of the Indian Registration Act  Where document merely records the terms and recital of the family arrangement after the family arrangement had already been made which per se does not create or extinguish any right in immovable properties, such document does not fall within the ambit of Section 17(1)(b) of the Act and so it does not require registration. This is supported by the judgment of SC in Kale V Deputy Director AIR 1976 SC 807 14th Dec 2013 CA Ashok Seth, Lucknow 26
  27. 27. Registration  Distinction has to be made between a document containing the terms and mere memorandum prepared after the family arrangement had already been made for the purposes of record or for information of the court for making mutation etc. Govt of A.P. & Others v M Krishnaveni & Ors 2006 (7) SCC 365 also CWT v Santokh Singh 252 ITR 707 (Del) 14th Dec 2013 CA Ashok Seth, Lucknow 27
  28. 28. Taxation and Family Settlement  The provision of section 171 of the Act, which places restriction on a partial partition do not apply to a family settlement  there is no transfer of property by one member of the family in favour of another member of the family under a family arrangement, for each member takes the share of family property by virtue of his or her independent title, admitted by the other party. Hiran Bibi v. Sohan Bibi AIR 1914 PC 44, Sahu Madho Dass v Mukund Ram AIR 1955 SC 481 14th Dec 2013 CA Ashok Seth, Lucknow 28
  29. 29. No Transfer  In a latest case held that Family arrangement and settlement cannot be termed as transfer. The word 'transfer' does not include partition or family settlement as defined under section 2(47). Therefore, there was no capital gain on transaction of family arrangement. -Vide CIT v. R. Nagaraja Rao (2012) 207 Taxman 236 (Karn.) 14th Dec 2013 CA Ashok Seth, Lucknow 29
  30. 30. Compensation received  In CIT v Ashwani Chopra (2013) 85 DTR 40 (P&H High Court) held that “Compensation received to equalise inequalities in family settlement is not taxable as “Income”” 14th Dec 2013 CA Ashok Seth, Lucknow 30
  31. 31. Sec 64 Not Applicable  CWT v H.H. Vijayaba, Dawager Maharani Saheb of Bhawnagar and Others 117 ITR 784 (SC)  The family settlement is for a valuable consideration and as such section 64 should also not be attracted. The family peace, family integrity, happy relation, winding up of the litigation amongst the family members are considered as valuable consideration for family settlement. 14th Dec 2013 CA Ashok Seth, Lucknow 31
  32. 32. Period of Holding Sec 49(1)  In Asstt CIT v Baldev Raj Charla & ors (2009) 18 DTR (Del) (Trib) 413 and Shanthi Chandran 241 ITR 371 (Mad) it was held by Delhi Tribunal that Family settlement is analogous to partition attracting section 49 (1) 14th Dec 2013 CA Ashok Seth, Lucknow 32
  33. 33. Last but not the least  Family arrangement or settlement cannot have as its object that of saving tax. It then becomes a fraud. The sole object of family arrangement is preservation of family dignity, unity and peace. So if one targets family settlement or arrangement as the tax saving device that would certainly cast a cloud on the bona fides of the whole transaction. 14th Dec 2013 CA Ashok Seth, Lucknow 33
  34. 34. If you wait for happy moments, you will wait forever. But if you start believing that you are happy, you will be happy forever. Good Day! CA Ashok Seth, Lucknow 3414th Dec 2013
  35. 35. Please mail your comments to as@sethspro.com 35CA Ashok Seth, Lucknow14th Dec 2013
  36. 36. 36 Have a good day CA Ashok Seth, Lucknow14th Dec 2013

×