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Taxability of Karta in Dual Capacity after Separation from HUF

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Last Updated on March 28, 2024 by Kanakkupillai

A HUF or Hindu Undivided Family is formed by Indian Citizens of Hindu Ethnicity with the intention of saving or reducing tax liability. The Indian Law holds various rules and laws pertaining to the HUF, and one of such rules is individual and separate PAN for HUF, which can be used by members for filing their returns. Now, Karta is the senior-most male member of the HUF who acts as a representative of the HUF, acts on behalf of the same, and also makes proper management and management decisions. The article given here discusses the taxability of a person in a dual capacity after separation from an HUF with the help of a small case study situation.

Case Study

Mr. Sanjeev is a member of a Hindu Undivided Family (HUF). After graduation, he went abroad to Australia to pursue his post-graduation studies. After studies, when he returned to India, he brought his girlfriend, Miss. Aleena Mathew was an Australian. After reaching India, he married Miss. Aleena Mathew as per the Special Marriage Act. They were together for 5 years, during which they had a baby boy named Adinew, who was not baptized as per the Christian law. When they parted after 5 years, Aleena returned to Australia with their son Adinew. But later, the court gave custody of Adinew to Mr. Sanjeev.

As Mr. Sanjeev was earning a huge amount as income apart from his interest in the HUF, he wanted to separate from the HUF and form a new one with his son, with only two of them being members of the HUF. Mr Sanjeev would now like to know whether he can be assessed in the dual capacity as an Individual and Karta of HUF after he separates from the previous HUF and starts this new one.

Answer

As per the provisions of section 19 of the Special Marriage Act, it is evident that:

The alliance or proposal of marriage that is honoured under this particular Act of any associate of a family that is undivided and professes the Hindu, Buddhist, Sikh, or Jain religions shall be deemed to affect his severance from such family. And severance here means ending a connection or relationship with someone or something, which in this case is the HUF. So technically, we can say that when Mr. Sanjeev married Aleena himself, he was separated from the HUF by law. And by this, he has acquired the right to share the properties of HUF as per the law. But the law also specifies those circumstances in which the person shall not have the right to acquire any ancestral property, some of which include:

– Murder,
– Lunacy,
– Unchastity, etc.

So, after marriage, we can conclude that Mr Sanjeev was not a member of any HUF and was only an individual, and he can form a HUF with his son Adinew if the son is brought up as a Hindu. As stipulated before, his son was not baptized as a Christian. But for being a Hindu, it is vital that the requirements as per various laws like the Hindu Succession Act Hindu Marriage Act, Hindu Adoption and Maintenance Act, or other acts may be applicable. The apt definition for a Hindu shall be as follows:

Any child, who isgenuine or illegitimate, one of whose family are belonging to the Hindu, Jain, Buddhist, or Sikh, by discipline or religion and who is brought up as a member of the community, tribe, or group to which such family or parents especially are belonging or belonged to.

Now, on analysing the present case of Mr Sanjeev in the light of all the above-stipulated points, we can say that as Adinew was taken away during his infancy by his mother Aleena to Australia, he was not brought up as a Hindu, possibly as he did not grow as a part of the tribe or community to which his Hindu parent Mr Sanjeev belonged to. If he had stayed back in India and been brought up by Mr Sanjeev instead of Aleena, then Adinew would have been counted as Hindu as per the law and would have been eligible to form a HUF along with his father. But as Adinew was not brought by Mr Sanjeev in India and his HUF, we cannot say that Adinew is a Hindu as per the law and cannot, therefore, form a HUF along with his father. But in the future, if Adinew was brought up as Hindu either in India or abroad due to a change in circumstance, then he can form HUF with his father, Mr Sanjeev.

Hence, it is now clear that Mr. Sanjeev should be taxed as an Individual from the date of his marriage and does not count for dual capacity. We can also say that the analysis of the same shall be done on the basis of the circumstance and the assessee’s scenario.

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