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Problems of reinvestment for joint families

Is there a general rule in Mitakshara Hindu Law that any asset acquired by a member, male or female, of a HUF out of the family's resources shall belong only to the HUF and not the member who acquired the property in his/ her name? I believe that "The Hindu Gains of Learning Act, 1930" was enacted to ensure that the salary and allowances and any savings therefrom earned from the job by such member shall belong only to him/ her and not the HUF.

My specific query in this connection is whether the long-term capital gains earned by a HUF from sale of its residential house and invested in a fresh residential house and/ or REC bonds, in the name of any member of the family, that is, the wife or son, singly or jointly in their names, without any partition (thus the HUF remaining intact under Section 171) shall be legally entitled to exemption under Sec. 54/ 54EC of the IT Act.

In the above case, no question of tax arises for the HUF as long as the house in which reinvestment is made is self-occupied. On the interest on REC bonds, the HUF shall be liable for income tax. Is this correct?

The reader is right in pointing out that income earned by individual effort or from one's personal funds will not be the income of the Hindu joint family. Even the income from salary or profession, where the member of the family has been educated with the resources of the family, can no longer be treated as joint family income after the Hindu Gains of Learning Act, 1930.

This legislation was enacted to protect government servants (mainly officers of the ICS cadre) from the claims of their family to occupy government accommodation and claim maintenance out of their salary income.

In the case of sale of a residential house, the Hindu joint family, like an individual, can avail itself of the benefit of Sec. 54/ 54EC for avoiding or reducing capital gains tax on such sale.

It goes without saying that where the assessee is a HUF, re-investment should also be that of the HUF to avail itself of the reliefs.

There is no bar in Hindu law for the property of a Hindu joint family standing in the name of any one member or a group of members and not necessarily in the name of the karta, so that in law there is no bar for REC or any other bonds to stand in the name of any one member of the family or jointly with the karta or with any other member. But it is understood that the corporations that issue the bonds in the name of a HUF are governed by their own rules, which do not permit application for bonds except in the name of the karta. Nomination facility is also not made available for the HUF.

There is a problem if the karta expires before maturity, unless the application gives the name of other coparceners/ members with an indication of the successor karta in line. There is no such requirement in the application, but it may be advisable to volunteer such a declaration disclosing such information to avoid difficulties.

There is also the problem of convincing the assessing officers, who are also usually rule-bound, notwithstanding the clear provisions of the Hindu law that the investments of the HUF can stand in the name of any member of the family. The expectation is that the investment should be in the same name in the sale document to merit exemption. It is in view of such practical difficulties, one wishes to avoid hassles from the corporations issuing the bonds and the Income-tax Department.

The reader is right in assuming that if he occupies the house in which he has reinvested, there will be no liability, if that is the only house self-occupied by him. Interest on these bonds covered by Sec. 54EC will be taxable.

S. Rajaratnam

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