The Hindu Business Line : Smaller family suffers

THE ongoing initiative of the UPA Government at the Centre to correct the age-old sexist bias in favour of males under the Hindu law is indeed commendable. As a result, females born into a HUF would as much be its coparceners as males, and they would get just as much share in the family property as males do. But more needs to be done. As it is, a son born to a coparcener begets the same share in the family property as his father. After the amendment is put in place, a female thus born would also get a similar share. But the Government seems to have forgotten to correct the age-old slant in favour of bigger branches of the family. Why should a son with five children get a greater share as compared to his sibling who unfortunately is issueless? The former together with his wards walks away with a slice of the family property that is six times as much as that of the latter's. Obviously this places premium on the size of the family to the detriment of those who either practice family planning or are condemned by nature to remain issueless. This invidious slant in favour of bigger families ought to have been corrected long ago. Well, it is never too late.

The genesis of HUF might have had laudable filial and social objectives — togetherness and caring for one another. But as pointed out by successive committees on tax reforms in India, HUFs have essentially been used as a tax avoidance technique. The trick is very simple. Larger the number of taxable units, lesser the tax burden, given the slab or progressive rate of taxation. Hence, the keenness to float as many HUFs as possible. The Wanchoo Committee of the yore in its report in December 1971 made this point tellingly:

"The number of income-tax files in respect of each family was found to be more than the total number of members in the family and in one case, the income-tax and wealth-tax avoided for a particular assessment year was as high as 60 per cent and 50 per cent respectively."

The Raj Committee was even more forthright in its denunciation of the HUF as it was used solely as tax avoidance tool:

"The Hindu Undivided Family as a unit of assessment is retained in most cases only when it enables the persons to reduce their tax liability and that in other cases it is promptly partitioned without consideration of sentiment coming in the way... We are therefore of the view that the recognition given to HUFs should be totally withdrawn for tax purposes."

Briefly, the Government experimented with a dual system of taxation of HUFs — HUFs with at least one member having independent taxable income was assessed at higher rates vis-à-vis those not having any such member. While this was not a deterrent enough to stop the HUF juggernaut, at least it extracted a small price from the tax avoiders. So much so, the sudden discontinuance of the dual system gave a no-holds-barred encouragement to them.

There is no reason why HUF should not be subjected to a flat rate of tax at the maximum marginal rate. This would knock the bottom out of the tax planning technique premised on togetherness as fig leaf for an unstated but eminently discernible ulterior purpose.

It is an established position of Hindu law that no one can create a Hindu joint family by his voluntary act. A mere declaration that a person, henceforth, will not treat his separate property as joint family property will not bring a joint family into existence. Yet this hoary position of the Hindu law was disturbed by the Supreme Court's verdict in SurjitLal Chhabda vs CIT (1975 101 ITR 776).

This verdict, it is respectfully submitted, opened the floodgates for those wanting to create a HUF out of thin air as it were. Curiously, Parliament has not overruled this verdict through an explicit amendment. Section 64(2) of the Income-Tax Act brings to naught such endeavours only when a HUF is already in place and any of its members throws his separate property into the family hotchpotch by continuing to treat income from such property as the individual income of the member who did so. It does not target HUFs created afresh.

(The author is a Delhi-based chartered accountant.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Regulating the NBFCs

Should all deductions and exemptions go?

Smaller family suffers

Where the assessee won because the taxman slept on

When reopening turns revolting

Truckloads of confusion — II

A shaft of sunlight

After disaster people don't give up, but bounce back