Income tax returns for HUF: Deadline critical for Hindu Undivided Family; lesson this taxpayer learnt

A Hindu Undivided Family (HUF) taxpayer filed its original return of income for Assessing Year 2010-11 on October 1, 2010. Subsequently, the taxpayer filed a revised return of income on November 20, 2011 as it had omitted to claim deduction of Rs 1 lakh under section 80-C of the Income Tax Act ('the Act').

During the course of assessment, the tax officer scrutinised both returns and accepted the revised return. However, during the course of audits conducted by the I-T department on assessments by tax officers, it was observed that in this case, the tax officer had made an error by accepting the revised return. The audit objection noted that the taxpayer is an HUF and not an individual. 

As per the due dates prescribed under the Act, a working partner in a firm, whose accounts are liable to audit, is required to file his return of income by September 30. All other individuals are required to file their tax returns by July 31. The Act defines working partner as an individual who is actively engaged in conducting affairs of the business or profession of the firm of which he is a partner.

The objection further stated that in the said case, as the taxpayer is an HUF and not an individual, the relaxation for the due date as applicable to a working partner is not applicable. Consequently, the taxpayer had filed a belated return (return filed beyond the due date). Under the relevant provisions of the Act and as decided under various cases, a belated return cannot be revised. In the wake of this audit objection, the tax officer passed an order rectifying his mistake and disallowed the claim of Rs 1 lakh.

The taxpayer filed an appeal and the first level appellate authority, relying on judicial precedents, confirmed the tax officer's revised stand.

Before the tax tribunal, the taxpayer argued that the Karta of the HUF is a partner in the said firm only in his representative capacity and is involved in the conduct of the firm's business. It was pointed out that the relevant section, under which the objection was raised, was in the limited context of salary payable by the firm to a working partner. In the given case, no salary was paid to the HUF and accordingly the taxpayer argued that the explanation of the term working partner as provided under the Act, in context of the remuneration provisions, cannot be applied to provisions relating to due date of filing returns; where no such explanation has been provided under the Act.

The taxpayer further argued that the tax officer was wrong in passing a rectification order on his own accord, as the Act provides that such rectifications in orders may be made only where there is any apparent mistake. Any error, which can be detected only by a process of reasoning cannot be used as a ground to rectify the order.

The taxpayer also submitted that its claim for deduction of Rs 1 lakh should be allowed on the backing of the department's circular that a permissible and valid claim can be allowed even if it is made during assessment proceedings.

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On the basis of facts and precedents, the tax tribunal held that HUF cannot be a working partner in a firm and hence the benefit of extended due date to file tax returns is not available to the taxpayer. However, it provided some relief to the taxpayer by allowing its claim under section 80C.

By: Arvind Rao
(The writer is a Sebi-registered investment adviser)

Source: DNA Money