My friend is having an HUF account. Till 2016 he had business income in HUF. He has two sons and a spouse. Both sons are not interested in continuing the business, hence he wants to close his HUF account with the bank as well as the income tax department. Request your advice on how to close HUF account with the income tax department.

Pravin Shah

Hindu Undivided Family (‘HUF’) is dissolved only on the partition of property between the members. It is important to note that as per the provisions of section 171(9) of the Income-tax Act, 1961 (‘the Act’), partial partition of HUF is not recognised. Under the provisions of Act, partition means ‘full partition’.

For the purpose of dissolution of the HUF, your friend will need to draw up a deed of full partition and get the same registered. Once the partition of HUF is complete, it will cease to exist.

Till the date of such dissolution, the HUF shall be assessed in its capacity as a HUF and the return of income for such period should be filed by your friend. Also, your friend may make an application for surrender of PAN of HUF with the jurisdictional assessing officer by submitting a request in this regard after the partition of the HUF and related compliances (like filing of return) are complete.

In one of answers to a query earlier, you had stated that in view of the amendment to Sec. 55 of the Income tax Act, where the property is purchased before April 1, 2001, the fair market valuation as per the valuation by a registered valuer as at April 1, 2001 would be considered the cost of acquisition, which has been capped from April 1, 2021 at the stamp duty value, wherever available. A search on the site of the Inspector General of Valuation of Registration, Tamil Nadu reveals that fair valuation as revised from 9.6.2017 is available only from April 1, 2002. The site states that the information provided online is updated and no physical visit is required for services provided online. Do we then assume that since the stamp duty value is not available as on April 1, 2021, the fair market valuation by the valuer could be considered as the cost of acquisition for property sale in Chennai ?

Murli Krishnamurthy

As per the provisions of section 55(2)(b)(i) of the Income-tax Act, 1961 (‘the Act’), in case of a property purchased before April 1, 2001, the cost of acquisition shall be considered as any of the following at the option of the assessee:

– the fair market value (‘FMV’) of the property as on April 1, 2001; or

– the actual cost of acquisition of the property.

As per amendment made vide Finance Act, 2020, in case of a capital asset being land or building or both, the FMV of such asset (as on April 1, 2001) for the purpose of section 55, shall not exceed the stamp duty value (‘SDV’), wherever available, as on April 1, 2001.

In the instant case, I understand that SDV as on April 1, 2001 is not available for the subject property. In such scenario, you may consider FMV as on April 1, 2001 as the cost of acquisition of the property for the purpose of section 55 of the Act.

The writer is a practising chartered accountant

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