My client received money from his family HUF during the year. The Assessing Officer wants to tax it in his hands. Is it exempt, and if so is there anything that can take the exemption away?
Section 10(2) exempts, in computing the total income of a previous year of any person, "any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family". Two qualifications sit on the face of the Act and both are routinely missed. The clause opens with the words "subject to the provisions of sub-section (2) of section 64", so where the family's income is itself income the individual is deemed to derive under the conversion rules of s.64(2), the exemption gives him nothing. And s.171(4)(b) imposes joint and several liability on members for tax on the family's income up to the date of a recorded partition expressly "notwithstanding anything contained in clause (2) of section 10".
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1962-04-01, reported as Section 10(2) of the Income-tax Act, 1961, as amended up to 2024. It bears on section 10(2), section 10, section 64(2), section 171(4) of the Income Tax Act 1961, in Capital Gains Exemptions, Assessment & Scrutiny and How Tax Law Is Read matters.
The exemption is narrower than practitioners treat it. Its own words require three things: the recipient must be an individual, he must receive as a MEMBER of the family, and the sum must have been paid OUT OF THE INCOME of the family (or, for an impartible estate, out of the income of the estate belonging to the family). Nothing in the clause exempts a sum paid out of the family's capital or corpus, and nothing in it exempts a receipt by someone who is not a member. The two cross-references matter more still. The opening words make the exemption subordinate to s.64(2): if an individual converted his separate property into family property and the family's income from that property is deemed by s.64(2)(b) to arise to him and not to the family, he cannot then take a distribution of that same income and call it exempt under s.10(2). Section 171(4)(b) works the other way round — it is drafted to override s.10(2) — so a member who has taken money out of the family cannot use the exemption as a shield against the joint and several liability for the family's tax up to the date of partition. The library already carries the Tribunal authorities on the receipt side of this clause (Vinitkumar Raghavjibhai Bhalodia, Pankil Garg, Gyanchand M. Bardia); what it did not carry was the statutory text and its two express qualifications.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 10 opens: "In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—", and clause (2) reads: "subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family". Section 171(4)(b) provides that on a recorded partition taking place during the previous year "each member or group of members shall, in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed".
A sum received by an individual as a member of a Hindu undivided family out of the income of the family — or, for an impartible estate, out of the income of the estate belonging to the family — is not to be included in computing his total income. The exemption is expressly subject to s.64(2), and it is expressly overridden by s.171(4)(b) so far as the member's joint and several liability for the family's tax up to the date of a recorded partition is concerned.
Not applicable — this is a statement of statutory text. No judicial reasoning is involved.
subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family
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Handle my notice → Ask a CA on WhatsAppSection 10(2) exempts, in computing the total income of a previous year of any person, "any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family". Two qualifications sit on the face of the Act and both are routinely missed. The clause opens with the words "subject to the provisions of sub-section (2) of section 64", so where the family's income is itself income the individual is deemed to derive under the conversion rules of s.64(2), the exemption gives him nothing. And s.171(4)(b) imposes joint and several liability on members for tax on the family's income up to the date of a recorded partition expressly "notwithstanding anything contained in clause (2) of section 10". This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10(2), section 10, section 64(2), section 171(4) of the Income Tax Act 1961. It is reported as Section 10(2) of the Income-tax Act, 1961, as amended up to 2024. The exemption is narrower than practitioners treat it. Its own words require three things: the recipient must be an individual, he must receive as a MEMBER of the family, and the sum must have been paid OUT OF THE INCOME of the family (or, for an impartible estate, out of the income of the estate belonging to the family). Nothing in the clause exempts a sum paid out of the family's capital or corpus, and nothing in it exempts a receipt by someone who is not a member. The two cross-references matter more still. The opening words make the exemption subordinate to s.64(2): if an individual converted his separate property into family property and the family's income from that property is deemed by s.64(2)(b) to arise to him and not to the family, he cannot then take a distribution of that same income and call it exempt under s.10(2). Section 171(4)(b) works the other way round — it is drafted to override s.10(2) — so a member who has taken money out of the family cannot use the exemption as a shield against the joint and several liability for the family's tax up to the date of partition. The library already carries the Tribunal authorities on the receipt side of this clause (Vinitkumar Raghavjibhai Bhalodia, Pankil Garg, Gyanchand M. Bardia); what it did not carry was the statutory text and its two express qualifications. If it applies to you, the first step is this: Check that all three conditions in the clause are satisfied before claiming it: an individual, receiving as a member of the family, out of the family's INCOME.
Section 10 opens: "In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—", and clause (2) reads: "subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family". Section 171(4)(b) provides that on a recorded partition taking place during the previous year "each member or group of members shall, in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed". The matter was decided on 1962-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. A sum received by an individual as a member of a Hindu undivided family out of the income of the family — or, for an impartible estate, out of the income of the estate belonging to the family — is not to be included in computing his total income. The exemption is expressly subject to s.64(2), and it is expressly overridden by s.171(4)(b) so far as the member's joint and several liability for the family's tax up to the date of a recorded partition is concerned.
Not applicable — this is a statement of statutory text. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family"
It was decided by the CBDT Circulars & Instructions on 1962-04-01 and is reported as Section 10(2) of the Income-tax Act, 1961, as amended up to 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 10(2), section 10, section 64(2), section 171(4), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. A sum received by an individual as a member of a Hindu undivided family out of the income of the family — or, for an impartible estate, out of the income of the estate belonging to the family — is not to be included in computing his total income. The exemption is expressly subject to s.64(2), and it is expressly overridden by s.171(4)(b) so far as the member's joint and several liability for the family's tax up to the date of a recorded partition is concerned. It arises in Capital Gains Exemptions, Assessment & Scrutiny and How Tax Law Is Read matters, on section 10(2), section 10, section 64(2), section 171(4) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the sum came out of corpus rather than income, do not claim s.10(2) on those words; find another footing or concede the point. Where any part of the family's income is caught by s.64(2), do not offer s.10(2) as an answer. The clause is expressly subject to that sub-section. In a recovery proceeding after a recorded partition, do not run s.10(2) against a s.171(4)(b) demand. Sub-section (4)(b) applies notwithstanding clause (2) of section 10. For an impartible estate, note that the clause has its own limb and requires the sum to have been paid out of the income of the estate belonging to the family.
Still good law. In force. Clause (2) is printed in identical words in the two editions of s.10 compared for this entry, the only difference being a closing semicolon. No amendment footnote for the clause has been read, so no commencement date is asserted for it. Judicial treatment of s.10(2) has not been checked for this entry. The library already holds three Tribunal decisions tagged to the clause — Vinitkumar Raghavjibhai Bhalodia, Pankil Garg and Gyanchand M. Bardia — and those are where the receipt side of the clause is worked out. What this entry adds is the statutory text and its two express cross-references, which those decisions do not set out. Two things a reader should carry away about the standing of the clause. It is one of the oldest exemptions in the Act and nothing suggests it has been narrowed; but its own words are narrower than the way it is commonly used, because they require an individual, receiving as a member, out of the INCOME of the family. A payment out of corpus is outside the words altogether, and no amendment is needed to defeat such a claim. And the two qualifications are not glosses: the opening words make the clause subject to s.64(2), and s.171(4)(b) is drafted to override it. Both are on the face of the Act, and an officer relying on either is not extending the clause but applying it. What would change the position: an amendment to clause (2), to s.64(2) or to s.171(4)(b). None has been found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Statutory entry, not a decision. Clause (2) of s.10 has been compared across two editions of the section, each printing the Act name 'Income-tax Act, 1961' and the section heading 'Incomes not included in total income'. Both print clause (2) in identical words, including the opening 'subject to the provisions of sub-section (2) of section 64'; the only difference between them is a closing semicolon in the later edition. Both print the opening words of the section in identical terms. Clause (2) and clause (2A) were taken separately, each under its own label, so that the words of one could not be mistaken for the words of the other; they came back distinct and correctly labelled. LIMIT: no amendment footnote for clause (2) has been read, and no statement is made here about when the clause was last amended. In particular, when the opening words 'subject to the provisions of sub-section (2) of section 64' were inserted into the clause has NOT been established, and no date is asserted for them. That matters for an old year: if those words came in later than the year in hand, the qualification described on this page may not apply to it, and a practitioner should check before conceding the point. The cross-reference to s.171(4)(b) was read on s.171 itself and is not inferred from anything. Its words — 'notwithstanding anything contained in clause (2) of section 10' — are the section's own. 'decided_on' is the commencement date of section 10, namely 1 April 1962, the date on which the Income-tax Act, 1961 came into force under s.1(3) of that Act. It is not a decision date. 'bench' and 'favours' are inapplicable to a statutory entry, and 'tier' carries the value used for statutory entries in this library because the fixed vocabulary has no better one. One further point about the shape of the clause. It exempts a sum received by an individual AS A MEMBER of the family, which is not the same as a sum received from the family: a payment to a member in some other capacity — as a creditor, as a vendor, as an employee of a family business — is outside the words, however the family's books describe it. And the exemption operates on the RECEIPT and not on the family's income. The family is taxed on its income in the ordinary way; the clause stops the same income being taxed again when it is distributed. That is why the words require the sum to have been paid out of the income of the family, and why a distribution out of corpus, on which no tax has been paid at the family level, is outside the clause altogether. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
A sum received by an individual as a member of a Hindu undivided family out of the income of the family — or, for an impartible estate, out of the income of the estate belonging to the family — is not to be included in computing his total income. The exemption is expressly subject to s.64(2), and it is expressly overridden by s.171(4)(b) so far as the member's joint and several liability for the family's tax up to the date of a recorded partition is concerned.
TaxSphere, “Statutory position — s.10(2): a member's receipt out of family income is exempt, but the clause is subject to s.64(2) and is overridden by s.171(4)(b)”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-10-2-a-members-receipt-out-of-family-income-and-its-two-qualifications/ (validity last checked 2026-09-09)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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