Interest free loan from huf to member

This query is : Resolved

sandeep k. gianchandani (Querist)
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21 February 2013 Dear sirs,

If HUF advances an interest free loan to one of its member and The fund is utilised by member for his business purpose. The member earns income from the utilisation of fund.

Now can the clubbing provisions under section 60 be applied to tax the income in the hands of HUF.

I would like to emphasize that section 60 covers "any arrangement" by which income is transferred without transferring the ownership of asset.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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21 February 2013 Section 60 can not be invoked in this case as there is no transfer. The fund still belongs to HUF.
.
Utilisation is a different thing than the transfer as defined U/s 2(47). The funds of HUF , belongs, ultimately, to its members and as such HUF can extend a loan to its members out of its own spare funds.
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Further, it can also be argued that , there is no revenue loss to the exchequer, as Individual and HUF have the similar tax slabs and it is business which can generate more profits than simple interest. By not making an interest provision, individual may pay even higher tax than the HUF.
.

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