- Section 171:
Section 171 of the Income Tax Act, 1961 defines the partition of Hindu Undivided Family (HUF) and deals with the provisions of assessment after its partition.
- Distinguished from Hindu Law:
The Partition of HUF should be recognized as per the Income Tax Act and not as per the Hindu Law. Section 6 of the Hindu Succession Act would govern the rights of the parties but in so far as income-tax law is concerned, the matter has to be governed by section 171(1) of the Income Tax Act, 1961.
- Partial partition:
Tax Laws do not recognize partial partition of property or/and persons after 30.03.1978 on insertion of sub-section (9) to Section 171 of the Income Tax Act. This restriction was put to avoid creation of multiple HUFs which was a misuse.
- Distribution of assets at the time of partition of HUF
On a full partition of the assets of a Hindu Undivided Family (HUF), all the coparceners get their shares in the property.
After the amendment in 2005, of Section 6 of Hindu Succession Act, 1956, daughters are also made coparceners and their rights are equal to those of the sons and the daughters, therefore sons and daughters get the same share in the HUF property on partition.
- Physical division by metes and bounds is necessary
Hindu Law does not require division of joint family property physically or by metes and bounds. However, partition as defined under Explanation to Section 171 of the Act means—
(i) where the property admits of a physical division, a physical division of the property, but a physical division of the income without a physical division of the property producing the income shall not be deemed to be a partition; or
(ii) where the property does not admit of a physical division, then such division as the property admits of but a mere severance of status shall not be deemed to be a partition.
- Partition of HUF property can be done either through family settlement or through a partition deed
Partition of HUF property can be done either through family settlement or through a partition deed. Family settlement does not attract stamp duty and is not required to be registered, but partition deed attracts stamp duty and must be registered.
- Procedures for recognition of partition
The procedure by which the partition gets its recognition are as follows:—
(a) The HUF, which has been hitherto assessed, must make a claim to the assessing officer that the Hindu undivided family (HUF) properties have been subjected to total partition.
(b) Then, the Assessing Officer will make an inquiry into the claim after giving notice to all members of the HUF; and
(c) if he is satisfied that the claim is correct, then, he will record a finding that there was a total partition of the HUF, and he will also mention the date on which it has taken place.
- Order under section 171 not applicable where an HUF has not been assessed to tax
The wordings of section 171 show that the section has no application to an HUF, which has not been hitherto assessed.
– [CIT v. Hari Krishnan Gupta (2001) 117 Taxman 214 (Del.)]
- Partition is not a transfer
Distribution of the assets of an HUF in the course of partition, would not attract any capital gains tax liability as it does not involve a transfer. There would be no clubbing of incomes under section 64 of the Income Tax Act as it would not involve any direct or indirect transfer.
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