TaxTMI 
TaxTMI 
Taxation of Hindu Undivided Families after Partition : Clause 315 of the Income Tax Bill, 2025 Vs. Section 171 of the Income-tax Act, 1961
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....isting principles enshrined in Section 171 of the Income-tax Act, 1961. This commentary provides a detailed analysis of Clause 315, its legislative context, objectives, and practical implications, followed by a comparative analysis with Section 171 to highlight both continuities and departures in the proposed law. Objective and Purpose Clause 315 is aimed at ensuring the integrity and enforceability of tax obligations arising from the income of HUFs, particularly in scenarios where a partition-total or partial-has taken place. The legislative intent is twofold: * To prevent tax evasion through artificial or undisclosed partitions; * To allocate liability for tax, penalties, interest, and related sums in a manner that aligns with the a....
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.... place. This formal finding is critical, as it triggers the subsequent assessment and liability provisions. 3. Assessment and Liability Post-Partition (Sub-sections 4 and 5) Sub-section (4) addresses the scenario where a partition is found to have occurred during the tax year. The total income of the HUF up to the date of partition is to be assessed as if no partition had taken place. Each member or group of members is made jointly and severally liable for the tax on such income, in addition to any separate liability they may have. This ensures that the tax authorities can recover the full amount from any or all of the former members, thereby safeguarding revenue interests. Sub-section (5) deals with partitions occurring after the expiry....
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.... prior finding to that effect is null and void); * The family shall continue to be assessed as if no partial partition had taken place; * All members and the family remain jointly and severally liable for all sums due under the Act, regardless of the partial partition. This provision is a direct response to the historical misuse of partial partitions to fragment HUF property and income for tax avoidance, and reflects a clear legislative policy to disregard such partitions for tax purposes. 7. Computation of Several Liability (Sub-section 9) Sub-section (9) provides that the several liability of each member or group of members shall be computed according to the portion of joint family property allotted to them at partition, whether to....
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.... and collection, ensuring that the HUF's income is taxed in full up to the date of partition or for the relevant year. * Allocation of Liability: The proportional allocation of liability based on the property received ensures fairness among former members and aligns tax responsibility with economic benefit. Comparative Analysis with Section 171 of the Income-tax Act, 1961 Structural and Substantive Parity A close reading of Clause 315 and Section 171 reveals substantial structural and substantive continuity. Both provisions: * Deem a HUF to continue as an undivided entity for tax purposes unless a finding of partition is recorded; * Require a formal inquiry and finding by the AO before recognizing a partition; * Provide for a....
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....plication to Schedule III: Clause 315(4)(b) refers to Schedule III (Table: Sl. No. 2), which is not present in Section 171. This may reflect cross-referencing to new schedules in the 2025 Bill for tax rates or rules. * Consolidation of Provisions: Clause 315 integrates the computation of several liability within the main body of the section, whereas Section 171 addresses this in the explanation and sub-sections. * Modern Legislative Drafting: Clause 315 is more streamlined and avoids repetition, reflecting modern legislative drafting standards. Policy Continuity and Rationale Both provisions reflect a consistent policy rationale: to prevent fragmentation of the tax base through unrecognized or artificial partitions, to ensure that tax....
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....reference to new sections and schedules in the 2025 Bill necessitates careful harmonization to avoid gaps or overlaps in assessment procedures. Practical Implications for Stakeholders For HUFs and their members, the implications are significant: * Any partition must be bona fide, properly documented, and formally recognized by the tax authorities to have effect for tax purposes. * Members remain exposed to joint and several liability for all pre-partition tax dues, penalties, and interest, and cannot escape liability by simply withdrawing from the HUF. * Tax planning involving partitions must be approached with caution, especially in light of the continued disregard of partial partitions post-1978. * Tax professionals must ensure ....