Taxability of transfers from HUF members to HUF and vice versa:
Income Derived as a Member of a HUF:
1. Under Section 10 (2), any income or profits made from the business or investments as a member of a Hindu Undivided Families (HUFs) will be tax-exempted under the following cases:
2. The profit share or income is paid to the member from the total income made by the family.
3. The income is generated from business activities carried out by the impartible belonging to the family.
4. Remember any interest earned through this income derived as a member of HUF is fully taxable.
Gift from members to HUF is not taxable:
1. As per Sec 56 of the Income Tax Act, If the sum of money or any property is received as a gift by a HUF without any consideration exceeds Rs.50,000/-, then such sum shall be taxable in the hands of the recipient.
2. Provided that, gift received by HUF will not be charged to tax if, it is received from relatives. Relative of HUF for this purpose means any member of the HUF.
Partition of HUF:
1. Partial partition: Section 171(9) inserted by Finance (No 2) Act, 1980 recognises only complete partition. A Partial partition taking place after 31.12.1978 is not recognized under the Income Tax Act, 1961.
2. Total partition:
a. Apex Court in the case of Maturi Pullaiah v. Maturi Narasinham AIR 1966 SC 1836, held that there is no transfer of assets in the family arrangement and the amount received by the assessee is part of the family arrangement and not towards the transfer of any capital assets and hence no Capital Gains Tax liability arises.
b. Karnataka High Court in the case of CIT v. R. Nagaraja Rao, held that the word ‘transfer’ does not include partition or family settlement as defined under the Act. It is well-settled that a partition is not a transfer.
c. So it can be safely concluded that a total partition cannot be subject to capital gains taxation.
The copy of the order is as under:
The Partition of HUF should be recognized as per the Income Tax Act and not as per the Hindu Law
