Brokerage in HUF

Kishore (Director) (48 Points)

12 December 2009

Dear Sir,

We have HUF firm, in which we would like to do Brokerage & commission business of agriculture

commodities. Pls clarify if this is allowed under Income Tax Act.

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11 Replies

CA. Megha Topiwala (Job) (1534 Points)
Replied 12 December 2009

yeh... it is allowed under IT Act...

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Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8534 Points)
Replied 12 December 2009

It is very well allowed under the Income Tax Act. infact, there is no such negative list in the Income Tax Act. To my knowledge, there is a provision in the Act that even illegal income shall be subject to tax. And you are talking about a legal business. So it is definitely allowed.

CA.SKR (CA; CS-Final (One Group); DISA (ICAI); Insolvency Professional) (442 Points)
Replied 13 December 2009

Yes, I agree with Mr. Amol Kabra.

A.K.Agrawal (Investments & Finance) (132 Points)
Replied 13 December 2009

I doubt. Brokerage & commission are based on individuals skills which can not be found in a HUF entity which is an artificial judicature entity. In case you decide to adopt yes version, pl convey me also its basis enabling me to follow to reduce my tax liability in individual.

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8534 Points)
Replied 13 December 2009

There is no doubt in that. Even if brokerage and commission are based on individual skills, the same shall be performed by the co-parceners of the HUF on its behalf. Take the case of a body corporate, even it can do the business of Brokerage and Commission, because it operates through its management and not by itself. In the same way, HUF can also do such business through its co-parceners.

Regards,

Sunil (Trader) (2610 Points)
Replied 13 December 2009

HUF can do trading as that involves investment of funds. If you invest HUF funds, obviously HUF benefits.

However, brokerage, even though it is a business adventure is dependent solely on the individual. HUF doing brokerage is possible only if there is an existing goodwill of business. That would mean if HUF is in the business of selling agricultural products or earning income from farming, if it receives orders that it cannot fulfil and passes it on as a commission, that could very well be treated as income of HUF. However, an HUF organised solely for brokerage will raise a lot of doubts and enquiries.

A.K.Agrawal (Investments & Finance) (132 Points)
Replied 14 December 2009

Every entity has to be employed with (capital + skill) both. In my opinion, HUF can earn income mainly from its capital employed. If any one co-parcener is a skilled person in a particular line, its income can not be shown in its HUF. A few doctors, architects, lawyers or CAs can form a body like partenership firm, corporate etc. to earn skill based income, but not in HUF. Similarly in a case of brokerage or commission, though to set up its office, small capital will be employed but I doubt HUF could be considered as an agent. But it seems no IT sec. specifies this. HUF can run a nursing home but not a clinic in which one co-parcener is a doctor. Now question is whether HUF can employed skill based persons on salary & could run an organisation. I think yes. If one co-parcener is also employed in it then what? Logically yes. So the conclusion is that invest HUF fund & employ skill persons + include co-parcener. Interesting dilemma ? Very narrow escape. Dept. works in the interest of Revenue where nothing is clear cut.

Sunil (Trader) (2610 Points)
Replied 17 December 2009

Ih HUF is involved in any activity by deploying funds of HUF (It could be a retail trading adventure or a manufacturing adventure in a specific item) it is obviously organised to do sales and profit. During ourse of its activities it may be in a situation that it is not able to fulfil certain orders from a customer. It can definitely earn a commission / brokerage to pass on the order to another manufacturer of similar item. However what is going to create problem is HUF organised as a GCA or broker for goods etc.

RAJENDRA KHANDELWAL (CHARTERED ACCOUNTANTS) (26 Points)
Replied 07 April 2010

In my opinion HUF can earn business income by investing its own funds. For example if any one is planning to earn Commission Income in HUF without investing any funds of HUF it shall definately attract clubbing provision. However if commission business requires investment of funds like C & F agent in which funds are required then in that case HUF can earn Commission Income. Another example Commission income under Property brokerage where individual skills are required and no funds are required then such commission income a HUF can not earn and AO shall club the income in the hands of Karta