A deep dive into the SC ruling on daughter's right to ancestral property

Even in families dissolve the HUF, they may still have to give the daughter her rightful share, say experts

Many modern women in India don't assert their right to own a car, open a bank account, or even a beer bottle, and the bitter truth is that they don't enjoy the liberty or financial freedom that men do. Thankfully, things are changing. 

Take, for instance, the inheritance laws in India, particularly those governing succession and inheritance among Hindu families. Last week, the Supreme Court held that daughters would have equal coparcenary rights in Hindu Undivided Family(HUF) properties, irrespective of whether the father was alive or not on September 9, 2005. 

Nirav Shah, Partner, DSK Legal says, "The earlier position was that there should be a living daughter of a living coparcener on the date of commencement of the Act of 2005." The previous legal position failed to appreciate that coparcenary rights come into existence by birth. Shah says, "This verdict has overruled this position and stated that the daughter would have an equal right in ancestral property from the date of her birth irrespective whether her father was alive at the time of her birth or not." Simply put, this judgment has bought the rights and responsibilities of daughters at par with the sons, in terms of inheritance of the joint family property.

Coparcenary: Sameer Jain, Founder & Managing Partner, PSL Advocates & Solicitors, says, "A Joint Hindu Family (JUF) is one that consists of all persons lineally descended from a common ancestor, with common worship and jointly held  assets. Coparcenary, which is a creation of law, is a narrower body of a JUF consisting of a prepositus (head of clan) and up to three lineal male descendants." Coparcenary property is the one inherited by a Hindu son from his father, grandfather, or great grandfather. Jain says, "The 2005 Amendment aimed to include daughters within this so-called 'premium club'." 

Note that a daughter born before September 9, 2005 can only claim her rights with effect from the date of the amendment. Also, any transaction relating to the property before December 20, 2004 will continue. The proviso to Section 6(1) and Section 6(5) saves any partition effected before December 20, 2004, through execution of a deed of partition duly registered under the Registration Act, 1908 or by a court decree. Other forms, such as oral partition have not been recognised under the definition of 'partition' in the explanation. 

Shinoj Koshy, Partner, L&L Partners says, "The Supreme Court, in this regard, has clarified that a plea of oral partition cannot be accepted as a statutorily recognised mode of partition and held that such a plea would be valid only in exceptional cases where it is supported by public documents and partition is finally evinced in the same manner as if it had been affected by a decree of a court. A plea of partition based on oral evidence alone cannot be accepted and will be outright rejected." The SC has urged that all matters pending adjudication on this issue be decided within six months. 

Impact on families: From now on, HUFs will need to be careful whenever they decide to partition or enter into a family arrangement. Shah says,"The document will have to spell out clearly the manner in which distribution of family assets takes place under the partition or family arrangement, and a daughter would have to be provided for in the same way as a son, and the distribution would have to be equitable in line with this judgment." Families may see possible re-opening of partitions and settlements that have taken place since the 2005 Amendment. 

Bijal Ajinkya, Khaitan & Co says, "In order to reopen a case of the partition (or family settlement) which has taken place after 2005, the female coparcener would need to challenge the partition or settlement deed and likely prove that she was not acknowledged as a coparcener or denied her legitimate share in the joint family property." Those who have partitioned HUF property orally, whether before or after 2005, may anticipate a challenge to the same. Ajinkya says, "Additionally, families who have executed a partition or family settlement in the past should bear in mind that the same has been executed and implemented. This can be shown through the separation of bank accounts, updating of title deeds by the registry, share transfer forms etc." 

Impact on succession: Jain says, "Now, the daughters can either choose to live in the coparcenary property, or seek monetary proceeds of their share of the partition and sale of such property. If the property is under a tenancy, they can seek their share of rent as well." A coparcener has the right to demand partition of a coparcenary property and has the right to inherit a property in case of intestate succession. Koshy says, "All of this can effectively be avoided if the family elders pay attention to succession planning and draw up a proper Will and formulate their succession plan through registered documents. This would avoid the need for looking to the Hindu Succession Act which kicks in case of intestate succession."  

What can be done: 

Dissolve: Shah says, "One possible outcome of this judgment is that families may start dissolving the HUF completely to ensure there is no complication with regard to the distribution of assets among the family members. Even if families do this, they will still have to give the daughter her legitimate share pursuant to the ratio of this judgment."

Total Partition: Families should consider carrying out a total partition of their HUF, by way of a registered deed. The partition deed should clearly specify how the division of assets is taking place and should be executed by every Coparcener and member in the joint family. Ajinkya says, "If a coparcener is a minor, he/she should also be a party with the guardian signing on his behalf. The partition must be implemented, and the shares should be distributed. Care should be taken that the deed is adequately stamped." 

Alternative: Families should also consider other succession planning vehicles. Ajinkya  says, "A Will allows lifetime-control over assets and hassle-free succession post-demise and may be considered as an essential succession planning tool." Trust structures are optimal for inter-generational wealth-planning and asset protection. Ajinkya says, "Gift and family settlement deeds may be used to restructure family holdings in an amicable manner; also if they are between family members, they are tax-exempt." 

How is your inheritance taxed?

• In India, inheritance tax was abolished in 1985.
• There is no inheritance tax if the property is inherited from a relative or friend either under a Will or under Hindu Succession Act or Sharia Law or Intestate Succession Act.
• On the sale of inherited property, capital gain tax will be payable by the inheritor.
• Once the property is inherited, any source of income, such as rent or interest, is transferred to the new owner.
• When the heir receives any such income from inherited property, she must declare it as a part of her income and pay tax.