Remuneration to huf

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SANIA (Querist)

17 November 2014 hlo freinds , if a huf is a partner in a partnership firm then remuneration given to karta as representing his huf is allowable or not, pls reply early

CA Tejas Mistry

CA Tejas Mistry (Expert)

17 November 2014 Under sec. 2(31) of the IT Act, 1961, a HUF is a ‘person’ for the purpose of the Income-tax Act. However, a HUF is not a juristic person for all purposes (viz., for the purposes of other laws) including the partnership law. Accordingly, under the Indian Partnership Act, 1932, a HUF is not a juristic person and it cannot enter into a valid partnership with any other person.
- Agarwal & Co. v. CIT [1970] 77 ITR 10 (SC).

The karta of the HUF may enter into partnership with outsiders on behalf and for the benefit of his joint family. If he does so the other members of the HUF do not, vis-a-vis the outsiders, become partners in the firm. They cannot interfere in the management of the firm or claim any account of the partnership business or exercise any of the rights of a partner. So far as the outsiders are concerned, it is the karta who alone is, and is in law, recognised as the partner.
- CIT v. Seth Govindram Sugar Mills [1965] 57 ITR 510 (SC).

The party name can be written as: . M/s XYZ (HUF Name) represented by its Karta Mr. A (Name), son of …… (Father’s Name), residing at……(Address). If a karta of a HUF is a partner in a firm and where the share of that partner, including remuneration if any, received by him is due to the investments of the family funds, both the share of profits and the remuneration will be assessed as income of the HUF. (The general doctrine of Hindu Law is that property acquired by a karta with the aid of joint family is impressed with the character of joint family property.) . On the other hand, if the remuneration paid to such karta is linked to some professional expertise that he may possess and specifically rendered by him to the firm without any detriment to the funds invested by the HUF in the firm, then the remuneration will be assessed in his individual hands as his individual income. However, even in such cases, the share of profits in their firm will continue to be assessed as income of the HUF

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