[THURSDAY, SEPTEMBER 18, 2003 12:26:15 AM]

My family consists of my father and mother-in-law (living at our native place), my husband & my nine-year-old son (we live in Bangalore) and my brother’s younger brother and his wife (currently staying at the US). We are a Hindu family, not yet formally split. My father-in-law looks after our ancestral farming business. The lands have been divided equally between my father-in-law and his two sons to avoid government acquisition. My father-in-law keeps an account of agriculture income and expenses. Can this be called partition of the hindu undivided family (HUF)?

According to Hindu law, partition can be partial or total. A partial partition can be partial as regards property, that is, it relates to only a part of the HUF property or can be partial regarding members, that is, it relates only to some members. A partial partition after December 31, ‘78, is not recognised by the I-T Act for assessment of an HUF.

For sake of simplicity, we assume that your question refers to a total partition. It appears from your question that though the agricultural lands are divided equally between the father and the two sons, it is only for the purpose of avoiding government acquisition. The income's benefit seems to be for the whole family. Your father-in-law, who is the HUF's karta, still looks after the agricultural business and maintains an account thereof. You have also stated that there has been no formal split in the family. Therefore, in our view, though the agricultural lands stand in names of different HUF members, the property continues to belong to the HUF. In such a case, all the income and property will continue as HUF's for income-tax purposes.

My husband and myself are regular tax assessees. Our friends have suggested creating an HUF file for tax planning purposes. How do we create an HUF file? Can it be created by mere gifts without seeking either a partial or total partition of bigger HUFs as referred above?

PA Ginde

In law, there cannot be creation of an HUF. Your husband, you and your nine-year-old son constitute an HUF, with your husband as the karta. Apparently, the HUF does not have any corpus or property. For the HUF to enjoy the property, it is not necessary to partition the bigger HUF. Corpus can be formed by receipt of an ancestral property or also by way of gifts received by the HUF and accretions thereto. Your HUF can receive gifts from your husband’s brothers and their families, or also from other relatives and friends. There must be specific evidence to establish that the gift is to the HUF and not to any individual. A letter can do this from the donor addressed to the karta. It is necessary to point out that the I-T department often verifies the case’s genuineness and thus, the gift grant and donor’s capacity to do so have to be clearly established.

I have a query on claiming income-tax refund for tax deducted at source on perquisite amount received for medical treatment. Details are: I am a salaried person and my employer has reimbursed 75% of the expenditure actually incurred by me on medical treatment for brain haemorrhage of my dependent mother. The chief commissioner of income tax, Pune, has granted the approval to subject hospital (Deenanath Mangeshkar Hospital, Pune) for the purpose of the Act. As this approval was not there during the period of stay, my employer has deducted I-T at source on the amount paid to me as perquisite. Based on this, can I claim refund of income tax paid for this perquisite amount while filing return for FY02-03?

Normally, an approval or recognition is effective from the date of approval, but is generally granted from the date of application. It appears from your question that the concerned hospital applied for approval prior to March 25, ‘03 and the actual approval was received on that date. If that is the case and the application was made prior to January 5, ‘02, you should be entitled to the benefit (provided that the approval was for the relevant ailment as well). If the application was not made prior to January 5, ‘02, there may be some difficulty.

However, we believe that a liberal view of the matter needs to be taken and as long as the hospital had the requisite facilities when the expenditure was incurred, the exemption ought to be available. The fact that the approval was received on March 25, ‘03 should not be a fetter. We must also point out that the exemption is available only for expenditure incurred for treatment at the hospital and not for post hospitalization expenses. You would have to attach with the return, a certificate from the hospital specifying the ailment, which was treated and the receipt for the amount paid to the hospital. In our view, you should claim an exemption after disclosing all the facts by way of a note annexed to the return.

Gautam Nayak & Anil Sathe

Courtesy: Bombay Chartered Accountants’ Society

The views expressed here are the personal views of the contributors. The answers to the questions should not be construed as legal or professional advice. Neither the publication nor the contributors are responsible for any decision taken by readers on the basis of the answers.