Legal Framework: Section 171 of the Income Tax Act, 1961, governs the partition of a Hindu Undivided Family (HUF). This section provides the legal basis for dividing the assets and liabilities of the HUF among its members.
Total Partition Requirement: For a partition to be recognized under the Income Tax Act, it must be complete, meaning all HUF assets must be divided among members. Partial partitions are not recognized for tax purposes under Section 171.
Determination of Members' Shares: At the time of partition, each member's share in the HUF’s assets and liabilities is determined based on factors like the value of ancestral property, each member’s contributions, and any pre-existing agreements among the family members.
Tax Implications for Income: Income earned or received by the HUF before the partition remains assessable as HUF income. Post-partition, however, any income generated from previously HUF-owned assets is taxed individually in the hands of each member.
Binding Nature of Assessments: Any tax assessments made on the HUF before the partition apply to the HUF and its members, though adjustments may be made to reflect the division of assets and liabilities.
Relevance of Hindu Succession Act: While the Hindu Succession Act, Section 6, determines members' rights within the HUF, the Income Tax Act, specifically Section 171(1), governs the partition's tax implications. [Maharani Raj Laxmi Devi 224 ITR 582 (SC)]
Recognition by the Income Tax Officer (ITO): For tax purposes, the ITO must recognize a partition by issuing an order under Section 171(1). Without such recognition, the HUF remains liable for taxes as a joint entity, despite any family partition arrangements. [Ambika Prasad Sonkar 168 ITR 444 (Allahabad)]
Monday, 28 October 2024
Partition of a Hindu Undivided Family (HUF):
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