QUESTION: As a practicing chartered accountant, I sometimes come across ignorance of some of the Indians abroad who have some income from property or interest from NRO account for which they are filing return for years for which they are non-residents (NR) or resident but not ordinarily resident (R & Not OR). There is no obligation to return or to inform the assessing officer or to give intimation relating to foreign income in such a case. But where the non-resident comes to India intermittently and becomes a resident and ordinarily resident as for a year, when he comes on furlough and some of his family members who stay both in India and abroad for a fairly long time often become resident and ordinarily resident in India with income both in India and abroad. It is not unusual for them not to report foreign income either because they imagine that there is no liability for foreign income in India or they assume that such income would be exempt under Double Tax Avoidance Agreement. Similarly, they do not report the Indian income even where they are resident in countries such as U.S., where global income is required to be reported, no doubt, subject to double tax relief, if any. Such omission could be serious enough to warrant penal proceedings. I feel that the Tax Forum should advise NRIs and others with incomes in more than one country to comply with the law of each country and report the income in the other country, if so required, so that they may not be vulnerable.
ANSWER: The reader has pointed out an important aspect of tax compliance. There is a wrong view that one has to report only the income in the country in which income-tax return is filed. It is a widespread misconception. Such a view may land such persons, who omit to report their income in the other country, where it is required, in possible consequences of concealment of income. It is, therefore, necessary that such persons set right the matter as early as possible before the tax collector gets scent of the same. All countries deal leniently with those who voluntarily set right such matters on their own accord prior to detection so that remedial action should be taken without delay.
Q: A non-resident Indian, a Hindu, working in a country, which expects its residents to report his global income as in the U.K. or the U.S., has only joint family income in India from his Hindu Undivided Family (HUF) either as a karta or as a member of such joint family, with such assets having been acquired either by survivorship or on partition. There can be no expectation of such persons to report the income of the HUF, either as a karta or a member, because such income does not belong to him in his individual capacity under the Hindu law. He does not have, therefore, to report such income in computation even where global income is required to be reported. I believe that this inference is correct but would like to be advised on the same.
A: Mulla's Hindu Law would define a joint Hindu family variously described as Hindu Undivided Family or Hindu Joint Family as under: “A joint Hindu family consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. — Commissioner of Income-tax v Luxminarayan (1935) 59 Bom 618, 37 Bom LR 692, 159 IC 424, AIR 1935 Bom 412 ; Melagiriyappa v Lalithaamama AIR 1961 Mys. 152 . A daughter ceases to be a member of her father's family on marriage, and becomes a member of her husband's family”. It is further explained that the essence of the Hindu joint family is its unity of ownership in following words:
“The essence of a coparcenary under Mitakshara law is unity of ownership. The ownership of the coparcenary property is in the whole body of coparceners. According to the true notion of an undivided family governed by Mitakshara law, no individual member of that family, while it remains undivided, can predicate, of the joint and undivided property, that he, that particular member, has a definite share, one-third or one-fourth. — Appovier v Rama Subba (1886) 11 MIA 75, 89 . His interest is a fluctuating interest, capable of being enlarged by deaths in the family, and liable to be diminished by births in the family. Sudarsan v Narasimhulu (1902) 25 Mad 149, 154, 156 . It is only on a partition that he becomes entitled to a definite share”. Where a bachelor member gets a share on partition, he holds it on behalf of a potential joint family, so that it becomes joint family property on marriage, a law which has also been settled by the Supreme Court in Sheela Devi v Lal Chand (2006) 157 Taxman527 (SC) .
Mayne's “Hindu Law” would understand a Hindu joint family as under:
“There is community of interest and unity of possession between all the members and upon the death of any one of them, the others take by survivorship that in which they had during the deceased's lifetime a common possession.
“According to the true notion of an undivided family in Hindu law, no individual member of that family, whilst it remains undivided, can predicate of the joint and undivided property, that he, that particular member, has a certain definite share.” He has an interest in the coparcenary and on his death this interest lapses to the coparcenary; it passes by survivorship to the other coparceners. He, therefore, has no power to devise it by will, nor is there any question of succession to it. In no part, of the coparcenary property has he left an ‘estate' of his own”. Though there has been some modifications in the Hindu law as regards marriage, adoption and maintenance with recognition of right to a daughter, the concepts of Hindu joint family and what constitutes Hindu joint family property continue to be the same and the position of law for male members of Hindu joint family remains the same. Neither the karta, who is the manager of the joint family nor any other member can predicate his interest in the joint family property. He does not have absolute right to enjoyment and alienation except a right to a share on partition between him and his brothers/ sisters or between him and his children. It is the property for the entire family, so that even an unborn child acquires a right from the time it is in the womb of its mother.
In the above position of law, a karta or a member of the joint family has no need to report his interest in the joint family property in India in his income-tax return, unless the foreign law has any provision requiring report of such interest in such joint family in a return for the joint family as under the law in India or Sri Lanka.
