Assessment After HUF Partition and Tax on Shipping Business of Non-Residents

The Income-tax Act, 2025 continues the special rules for assessment after partition of a Hindu undivided family and for levy and recovery of tax from non-resident shipping businesses. The current provisions are Sections 315 and 316.

Section 315 - Assessment after partition of Hindu undivided family

A Hindu family that has previously been assessed as undivided is deemed to continue as a Hindu undivided family for income-tax purposes unless and to the extent that the Assessing Officer records a finding of partition under Section 315.

Claim of total or partial partition

Where, during an assessment under Section 270 or best judgment assessment under Section 271, a member claims that a total or partial partition has taken place, the Assessing Officer must inquire into the claim after giving notice of the inquiry to all members of the family. After the inquiry, the Assessing Officer records whether a partition occurred and, if so, its date.

Partition after expiry of the tax year

If the partition occurs after the end of the tax year, the total income of that tax year is assessed as if no partition had taken place, and the statutory joint and several liability applies.

Partition discovered after assessment

If, after completing the assessment of an HUF, the Assessing Officer finds that a total or partial partition had already occurred, tax may be recovered from every person who was a member before the partition. Each such person is jointly and severally liable for the tax on the assessed income.

Penalty, interest, fine and other sums

The Section 315 mechanism also applies, so far as may be, to levy and collection of penalty, interest, fine or other sums relating to a period up to the date of partition.

Partial partition after 31 December 1978

A partial partition taking place after 31 December 1978 in an HUF previously assessed as undivided is not recognised for the purposes specified in Section 315. A claim of such partial partition is not inquired into, the family continues to be assessed as if the partial partition had not occurred, and the family together with the relevant members or groups of members remains subject to the statutory liability rules.

Meaning of partition and partial partition

Section 316 - Shipping business of non-residents

Section 316 is a special levy and recovery provision for a ship belonging to or chartered by a non-resident that carries passengers, livestock, mail or goods shipped at a port in India. It applies irrespective of the other provisions of the Act, subject to the terms of the section.

7.5 percent deemed income rule

Where the section applies, 7.5 percent of the amount paid or payable for the carriage is deemed to be income accruing in India to the owner or charterer, whether payment is made in India or outside India. The relevant amount includes demurrage charges, handling charges and other amounts of a similar nature.

Return before departure of the ship

Before departure from an Indian port, the master of the ship must prepare and furnish to the Assessing Officer a return of the full amount paid or payable for the relevant carriage shipped at that port since the ship's last arrival there. Where furnishing the return before departure is not possible and satisfactory arrangements are made for filing and payment by another person, the statutory alternative procedure may apply.

Assessment and payment of tax

On receiving the return, the Assessing Officer assesses the deemed income and determines the tax payable at the applicable rates. The Assessing Officer may call for accounts or documents required to determine the tax liability.

Port clearance

Port clearance is not granted until the competent customs authority is satisfied that the tax assessable under the provision has been paid or that satisfactory arrangements have been made for its payment.

Option for regular assessment

The statutory scheme also permits the owner or charterer to claim assessment of total income for the relevant tax year under the regular provisions within the prescribed period. Amounts paid under the special shipping provision are then dealt with as provided by the Act, and the resulting difference is payable or refundable, as applicable.

Former Sections 171 and 172 of the Income-tax Act, 1961

Former Section 171 contained substantially the special assessment machinery for an HUF after total or partial partition, including inquiry by the Assessing Officer, assessment up to the partition date, joint and several liability, treatment of partial partitions after 31 December 1978, and definitions of partition and partial partition.

Former Section 172 provided the special tax mechanism for non-resident shipping, including the 7.5 percent deemed income rule, return by the master of the ship, assessment and tax payment, port clearance, regular-assessment option and inclusion of demurrage, handling and similar charges.

1961 Act and 2025 Act correspondence

Practical points

1. An HUF previously assessed as undivided continues to be treated as such until the statutory finding of partition is recorded.
2. A post-1978 partial partition is not recognised for the income-tax treatment specified in Section 315.
3. For non-resident shipping, identify whether passengers, livestock, mail or goods were shipped at an Indian port.
4. The deemed shipping income is 7.5 percent of the prescribed carriage receipts, including specified ancillary charges.
5. Return, tax-payment and port-clearance requirements should be addressed before the ship departs.

This article is a general explanation of the statutory provisions. Actual tax treatment depends on the tax year, assessment history, nature and date of an HUF partition, shipping arrangements, receipts, applicable rates and other relevant provisions.