Under the Income-tax Act, 1961 (“the Act”) & Wealth Tax Act, 1957, a Hindu Undivided Family (“HUF”) is treated as a separate entity for the purpose of assessment.

The term HUF is not defined under the Act. Hindu law defined it as consisting of all members lineally descending from a common ancestor, including their wives and daughters. Daughter even after her marriage continues to remain coparcener of HUF of her father. Thus female on her marriage, is at the same time member of two HUFs i.e. HUF of her father and HUF of her husband. Even family with husband & wife without child constitute valid HUF. The income of a HUF would be assessed as such if there were a coparcenership. The relation amongst the members of HUF arises out of legal status and not from a contract. The HUFs are not recognised in the State of Kerala after the enactment of Kerala Joint Family System (Abolition) Act, 1975 with effect from 1-12-1976.

There are two school of Hindu Law viz. Dayabhaga prevailing in West Bengal & Assam and Mitakshara applicable to all other places. Under Dayabhaga School of law, a son does not acquire any interest by birth in the ancestral property. He acquires interest only upon death of father. Father is the absolute owner of property during his lifetime. Accordingly, father is assessed as individual and not as a HUF. Further, on death of father, by operation of law son does not spontaneously, become the member of the joint family. He along with other remains co-owners with definite shares in the property left by the father unless they voluntarily decide to live as joint family. However, under the Mitakshara School of law each child acquires equal interest in the ancestral property. Hindu Law does not govern Jain & Sikh family, but for the purpose of Act such families are treated as HUF.

Residential status of the HUF would depend upon where the control and management of the affairs of HUF is situated. HUF would be non-resident where whole of the control and management of its affairs is situated outside India. As such, the income earned by HUF will enjoy all exemptions and deductions; including the basic exemption under Income-tax & Wealth-tax Acts, so far as applicable. The total income of a HUF is determined on the similar lines of that of Individual, various deductions available to the individual is also available to the HUF.

Accordingly, first step is to ascertain the income under the different heads of income. On the net income, tax is payable at the rates applicable to Individuals. If the HUF has agricultural income, then due consideration to the rules so applicable is to be given to arrive at non-agricultural income. Thereafter deduction u/s 88E is allowed. On resultant tax amount, surcharge (applicable only if income is more than 10 lakhs up to A.Y. 2009-10) and education cess & secondary and higher education cess is applicable. Thereafter to the balancing amount advance tax, tax deducted at source or collected at source, etc. is be deducted to find out the amount to tax payable.

Any of the coparcener can claim for the partition of the HUF. On partition, there is severance of status of HUF. In order to be acceptable partition u/s 171 of the Act, a partition should be complete with respect to all members of HUF and in respect of all properties of HUF and there should be actual division of property by metes & bounds. However, as per Hindu law partition need not be by metes and bounds. It can be total or partial. Income-tax Act does not recognise partial partition. Setting apart certain assets of HUF in favour of certain coparceners on condition that no further claim in properties will be made by them is nothing but partial partition and not a family arrangement and that is not recognised u/s 171(9) of the Act.