A gift passed on to HUF is HUF property

G P Khungar

We are a joint Hindu family of which my grandfather is the karta and the other co-partners are my grandmother, my parents and my two uncles who are still unmarried. My grandmother, besides being a member of the HUF, is also a tax assessee in her own right and has always had independent means of income provided by her parents. Recently my great grandmother passed away and bequeathed Rs 25 lakh to my grandmother who in turn passed it to the HUF with a condition that the money in question would only be used for the welfare and the benefit of the family. My grandfather in his capacity as karta of the HUF decided to utilise the funds for the purchase of a house (making up the difference in cost from HUF funds) and got the new house jointly registered in the name of their three sons. The property post purchase has been rented and commands an annual rent of Rs 3 lakh.

The income tax officer, whilst assessing my grandmother's case, has treated the sum of Rs 25 lakh to be my grandmother's investment and also theproportional rental income from the house as her personal income. Is he correct in doing this, particularly when the ownership of the property jointly vests in her three sons and the rent cheques are being credited to HUF's account in the bank?--R Mahabaleshwarvala, Pune

Your case is very similar to the case of CIT vs K Satyendra Kumar (1998) in which the Supreme Court of India has upheld the decision of the High Court that the gift received by a lady relative and inducted by her into the HUF specifically for the welfare and the benefit of members of the HUF will indeed be treated as the property of the HUF. It would, therefore, appear that the income tax officer has erred in treating it as the individual income of your grandmother. I would therefore strongly urge that you discuss this matter with your income tax consultant and ask him to profer an appeal with the appropriate authority.

I'm an NRI and am interested in acquiring a residential house in Calcutta. On my last visit I did contact some builderdevelopers to book space in their under construction projects but could not finalise the deal due to their general reluctance to subject their title and documentation to independent legal scrutiny. Then I approached some brokers to tap the secondary property market but here again securing a clear and marketable title proved elusive. I have, therefore, been wondering whether application of international standards of transparency and good house keeping to property transactions in India is indeed practical. Please advise on the minimal investigation norms that it should be possible to follow in the Calcutta property market with a view to reasonably ensuring that one is not duped.--J Kartik Sarkar, UK

Your concern is ensuring that the title to the property that you may consider purchasing is clear and marketable is indeed understandable particularly when you are not located in India. The documents that should be thoroughly checked by you and preferably through your solicitor are:

The deed by which thepresent owner has acquired title to the property. Specifically check if the deed contains any restricted covenants that may affect the creation of a clear and marketable title to the portion of the property that you wish to purchase.

The property tax valuation and the latest tax payment receipt.

The latest water and electricity bills. Particularly check if they are in the name of the person wishing to sell the property and that there are no dues/ arrears.

The agreement with the builder or the power of attorney must be registered.

Nil encumbrance report be obtained from the Registrar of Assurances particularly to cover the period of past 25 to 30 years.

The solicitor be appointed to undertake title search and it should span a period of not less than 30 years.

The copy of the sanctioned plan provided

by the owner be checked with the original sanctioned plan with him to ascertain if there are any deviations/unauthorised alterations and additions.

In the eventpurchase of a ready built flat is contemplated, check that the owner has secured the occupancy certificates and that is not conditional. Obtain a certified copy of the same for your records.

Also check from the court of law in whose jurisdiction the property is situated by filing a position slip if there is any litigation pending adjudication.

After the above information has been studied, you should deliberate in a conference with your solicitors whether the owners do indeed have a clear and marketable title to the property. You should enter into commercial negotiations with the seller only if the title to the property is clear.

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