What the courts have decided on section 64(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Goli Eswariah v. CGT — throwing self-acquired property into the common stock is a unilateral act and no transfer at all (Gift-tax Act, 1958)
Supreme CourtHelps taxpayer
My client impressed his self-acquired property with the character of joint family property by a declaration. The department says he has made a gift to the family. Is a declaration of blending a transfer?
No. The Supreme Court held that the declaration by which the assessee impressed the character of joint Hindu family property on his self-acquired properties did not amount to a transfer, and so did not attract the Gift-tax Act, 1958. The act by which a coparcener throws his separate property into the common stock is a unilateral act: there is no question of the family rejecting or accepting it, no donor and no donee, and no gift under Chapter VII of the Transfer of Property Act. "Transaction entered into" in s.2(xxiv)(d) of the Gift-tax Act contemplates an act to which two or more persons are parties and cannot apply to a unilateral act, and "disposition" in the opening words of s.2(xxiv), read with the company it keeps, refers to a bilateral or multilateral act. THE ACT CONSTRUED IS THE GIFT-TAX ACT, 1958.
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Vinitkumar Raghavjibhai Bhalodia v ITO — a gift by an HUF to its member is a gift from 'relatives', and is in any event exempt under section 10(2)
ITATHelps taxpayer
My client received Rs 60 lakh from his own HUF. The Assessing Officer says an HUF is not a 'relative' in the Explanation, so it is taxable. What is the answer?
There are two answers and the Rajkot Bench gave both. First, an HUF is not a body of individuals but 'a group of relatives' — every person who composes it falls within the Explanation's list — so a gift from the HUF to a member is a gift from relatives and is outside the charge. Second and independently, a sum received by a member out of the income of the family is exempt under section 10(2), which requires only that he is a member and that the sum came out of the income of the family.
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Statutory position — s.64(2): converting self-acquired property into HUF property does not move the income, and on a partition the spouse's share is clubbed too
CBDT Circulars & InstructionsCuts both ways
A client wants to transfer a rental property he owns personally into his family HUF so that the rent is taxed in the HUF's lower slab. He says the HUF will be a separate assessee with its own basic exemption. Does that work?
No. Section 64(2) applies where an individual who is a member of a Hindu undivided family converts property that was his separate property into property belonging to the family — by impressing it with the character of family property, or by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration. From the assessment year beginning 1 April 1971, and notwithstanding anything in any other provision of the Act or in any other law, the income derived from the converted property is deemed to arise to the INDIVIDUAL and not to the family. And the clubbing survives a partition: where the converted property has been the subject-matter of a partition, whether partial or total, the income from so much of it as is received by the SPOUSE on partition is deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse, and s.64(1) then applies so as to bring it back into the individual's hands.
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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)
CBDT Circulars & InstructionsCuts both ways
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".
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
