QUESTION: I have income both from individual capacity as well as in the capacity of a karta of a joint family. I have several plots of land acquired in joint family status. I have learnt from your column that the gift by me (HUF) to the brothers in their individual capacity may not be exempt, since the definition of relatives makes no reference to the contingency of the donors or the donee being a group of persons like HUF, unless one takes a liberal view that the definition of relatives is understood as applicable to the karta. Assuming that gift by HUF will not be exempt, I am prepared to pay tax in excess of the value of the property exceeding Rs.50,000, since this basic exemption should be allowed to me. I also propose to transfer some property from HUF to individual status, which I believe will not attract tax in view of the exemption under Sec. 10(2) for any sum received by the individual or a member of HUF, which is not to be treated as income. Can I go ahead with my plan?
ANSWER: The purpose for which the transactions of gifts are proposed have not been indicated. Apparently this is done as a matter of tax planning with the object that the proposed transferee will be liable to tax at a lesser rate, apparently on intended sale of transferred assets. But the proposed transaction should be legally tenable, even in the light of law, that tax planning is legitimate. As for the proposal for the Hindu Undivided Family to give gifts to the brothers of the karta in their individual capacity, it is to be understood that the karta is a guardian of the assets of the joint family. He has a fiduciary role. Such gifts of joint family property to the brothers may not be legally valid and, at any rate, may not be considered as genuine, unless there are some good and credible reasons for the same. One has also to be aware of Benami Transactions (Prohibition) Act, 1988, and the pending Bill.
The further plan to convert HUF property to individual would clearly lack legal validity. What is exempt under Sec. 10(2) is only the amount out of the income of the HUF and not receipt of capital asset from the joint family. A member can take the property of the family only on partition of joint family.
Besides, a karta cannot appropriate the joint family property for himself so that its validity is open to serious doubt apart from genuineness which can be questioned by the assessing officer. The reader would find it cheaper to pay the tax by way of capital gains on direct transfer to the purchaser/s without entering into such questionable intermediary arrangement, which may finally involve in a large tax cost apart from possible penalty.
