This article is written by Divya Kathuria, a student of Raffles University.
Introduction
The term ‘Hindu Undivided Family’ has not been defined under the Income Tax Act. It is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. This means membership of a HUF does not come from a contract but from status of the person in such families. A HUF cannot be formed by a group of people who do not constitute a family. Lineal descendents with a common ancestor is a must.
Further, the transfer of HUF can be by several ways that is, by will (intestate succession), by partition, by family arrangement while partition and inheritance. The law on stamp duties is quite difficult to understand and hence, it usually becomes difficult for the transferee to ascertain whether he needs to register the property received by him under Section 7 of the Registration Act or not and as a result of that, if stamp duty needs to be paid or not and if to be paid how much. However, payment of stamp duty varies from state to state as every state has its own stamp duty statute.
Registration of partitioned portions of HUF
An instrument of partition, of immoveable property, of the value of Rs. 100 or upward requires registration.[1] According to Hindu law, a partition of immoveable properties between coparceners or co-owners can be made orally, and is not required to be in writing; but, if there is an instrument effecting partition of immoveable properties, it requires registration.[2] Partition deed attracts stamp duty and must be registered.
A decree of partition is an instrument of partition and therefore is required to be stamped under Schedule 1 of Article 45 r/w Section 2(15) of the Stamp Act. However, an oral family settlement dividing or partitioning the property is not required to be stamped. Similarly, a memorandum recording an oral family settlement which has already taken place is not an instrument dividing or agreeing to divide property and is therefore not required to be stamped.
Registration of property attained by Family arrangement/settlement
A family arrangement does not involve a transfer, but a settlement in which each party takes a share of the family property by virtue of an independent title which is, to that extent, admitted by other parties.[3] A family settlement would be entered into to purchase peace by resolving any of the existing disputes or rival claims, or claims or disputes which may or likely to arise in future. Though in a family settlement or arrangement there may be sharing of immoveable property, it is not ‘partition’ in normal sense of term. It is well known that a memorandum of past partition does not require registration. But, if by virtue of that document a right is created for the first time in a property worth Rs. 100 or more, it does require registration in view of Section 17 of the Registration Act.[4]
The law as to registration of documents comprising family arrangements was considered by the Allahabad High court in a full bench in Ram Gopal v. Tulshi Ram.[5] And the following propositions are laid down:
- In the usual type of family arrangement, unless any item of property which is admitted by all the parties to belong to one of them is allotted to another, there is no ‘exchange’ or other transfer of ownership. A binding family arrangement of this type can be made orally, and if made orally, no question of registration arises.
- If such arrangement is followed by a writing containing reference to it, then the question is whether, thereby, the terms of arrangement have been ‘reduced to the form of a document’, within the meaning of Section 91 of the Evidence Act 1872, ie, formally recorded in a document with the purpose that they should be evidenced by that document. This is a question of fact in each case to be determined upon a consideration of the nature and phraseology of the writing, the circumstances and the purpose with which they were written.
- If such arrangement was in fact ‘reduced to the form of a document’ for the purpose of recording the arrangement, registration ( when the value is Rs. 100 or upwards ) is necessary under S. 17 of the Registration Act, in proof of the arrangement, and under s. 91 of the Evidence Act no other proof thereof can be given.
- If the terms were not ‘reduced to form of a document’, for the purpose of recording the arrangement, registration is not necessary, even though the value is Rs. 100 or upwards.
While referring to its earlier decision in Sahu Madho Das v.Mukund Ram,[6] the Apex court, in Roshan Singh v. Zail Singh,[7] declared:
The true principle that emerges can be stated thus: If the arrangement is one under which a person, having an absolute title to the property, transfers his title in some of the items thereof to the others, the formalities presented by law have to be complied with since, the transferees derive their respective title through the transferor. If, on the other hand, the parties set up competing titles and differences are resolved by the compromise, there is no question of one deriving title from the other and, therefore, the arrangement does not fall within the mischief of S. 17 read with S. 49 of the Registration Act, as no interest in the property is created or declared by the document for the first time. It is assumed that the title had always resided in him or her, so far as the property falling to his or her share is concerned, and therefore, no conveyance is necessary.
In Tek Bahadur v. Debi Singh and Ors.[8] the Constitution Bench of this Court considered the validity of the family arrangement. The question was whether it is required to be compulsorily registered under Section 17. This Court, while upholding oral family arrangement, held that registration would be necessary only if the terms of the family arrangements are reduced into writing. A distinction should be made between the document containing the terms and recital of family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of record or for information of the court for making necessary mutation.
Inherited property that is, by intestate succession and will
There is no inheritance tax in India. So the property, shares or any other investments will not attract any tax at the acquisition stage.[9] Under section 56 of the Income-tax Act, any money received by an individual from a person during any fiscal year without consideration, the aggregate value of which exceeds Rs 50,000, is taxable under the head Income from other sources. However, an exemption could be availed if the money is received from a relative, which includes among others, any lineal ascendant or descendant of the individual. At present, there is no inheritance tax in India.[10]
As regards stamp duty and registration of the property acquired through will, legal practitioners suggest and say, one need not pay any stamp duty. But, if any dispute with regard to the will and one has to go for probate of the will then, one has to pay the stamp duty on it before going to the court for probate. However, if there is no such dispute, the position remains still and no stamp duty needs to be paid. The amount of stamp duty to be paid in such situation will vary from state to state as per the State Stamp Duty Act. Recently, in its new budget session, government of Maharashtra announced that there will be no stamp duty applicable on transfer of land, building and estate to legal heirs and successors as 5% tax was a burden to pay.[11]
Further, if the property is inherited through intestate succession, there is no need to pay any stamp duty at all.
So, in all, there is no stamp duty that needs to be paid on inherited property by will or by succession.
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[1] Shankar v. Vishnu, (1875) 1 Bom 67; Diwakar Prasad Dubey & Anr. V. Prabhakar Prasad Dubey & Anr. AIR 1985 All 133
[2] Ramnagina v. Harihar, AIR 1966 Pat 179
[3] Hiran Bibi v. Sohan Bibi, (1914) 18 Cal WN 929; Khunni Lal v. Govind Krishna (1911) 38 IA 87
[4] PN Wankudre v. CS Wankuder AIR 2002 BOM 129
[5] (1928) 51 All 79
[6] AIR 1955 SC 481
[7] AIR 1988 SC 881
[8] AIR 1966 SC 292
[9] http://articles.economictimes.indiatimes.com/2010-02-18/news/27574138_1_ancestral-property-tenant-inheritance last visited on 10th July, 2015
[10] http://www.bemoneyaware.com/blog/inheriting-property-fd-tax/ last visited on 10th JULY, 2015
[11]http://accommodationtimes.com/no-stamp-duty-on-property-transfer-to-legal-heirs-in-maharashtra/comment-page-1/ on 10th July, 2015
I need to know the tax incidence on relinquishment of interest by the coparceners and members of HUF in favor of Karta such that the HUF shall come to an end. Will there be any tax leviable in the hands of the Karta as a direct result of such relinquishment.
What will be the date of acquisition for any property so received in relinquishment when sold as a long term capital gain in future? Will it be the date of relinquishment or the original date of acquisition by the HUF.
Is it necessary to inform the assessing officer for such dissolution. What are the consequences of the assessing officer not according his approval. Will the income in such a case be assessed in the hands of the HUF in view of Section 171 of I.Tax Act