31. Mr. Prakash is a member of HUF, and he throws his self-earned property into the common hotchpot of the family. The members are his elder brother, brother’s wife, their two minor sons and his own wife and two minor daughters. The self-earned property is Rs. 20,00,000 and it fetches income of Rs 3,00,000 Per annum. Asses taxable income of HUF.

1. Facts of the Case

• Mr. Prakash, an individual, is a member of a Hindu Undivided Family (HUF).
• He owns a self-earned property worth ₹20,00,000, which earns annual income of ₹3,00,000.
• Mr. Prakash voluntarily throws this self-earned property into the common hotchpot of the HUF.
• The HUF consists of:
  • Mr. Prakash’s elder brother,
  • The brother’s wife,
  • Their two minor sons,
  • Mr. Prakash’s own wife, and
  • His two minor daughters.
• The query is to assess the taxable income of the HUF after such property transfer.

2. Issues in the Case [Questions]

1. Can Mr. Prakash’s self-acquired property, once thrown into the common HUF hotchpot, be treated as HUF property?
2. Will the income from such property (₹3,00,000 per annum) be taxable in the hands of the HUF or continue to be taxed in the hands of Mr. Prakash?
3. Are there any implications of clubbing provisions or gifts to HUF under the Income Tax Act?
4. What is the taxable income of the HUF, and how will it be computed?

3. Legal Principles Covered

A. Conversion of Self-Acquired Property into HUF Property

• Under Hindu law, a coparcener can voluntarily contribute his self-acquired property to the HUF, thereby treating it as family property.
• This act is known as blending, and the property becomes HUF property unless there is an express condition to the contrary.

Therefore, Mr. Prakash’s property, once thrown into the common hotchpot, becomes the property of the HUF.

B. Taxability under Income Tax Act – Section 64(2)

• Section 64(2) of the Income Tax Act, 1961 deals with the transfer of self-acquired assets to HUF.

If an individual, being a member of an HUF, transfers his self-acquired property to the HUF without adequate consideration, then income arising from such property will continue to be clubbed in the hands of the individual who made the transfer.

Thus, although the legal ownership is with the HUF, the income of ₹3,00,000 per annum will be taxable in the hands of Mr. Prakash (the transferor).

C. Members of HUF and Clubbing Provisions

• The other HUF members (elder brother, wives, minors) will not be taxed individually, since the income originates from the transferred property.
• Clubbing provisions ensure that Mr. Prakash cannot avoid tax liability by shifting ownership to HUF.

D. Judicial Support

1. CIT v. M.R. Doshi (1995) – Clarified that income from self-acquired property voluntarily converted into HUF property must be clubbed under Section 64(2).
2. CIT v. Keshavlal Lallubhai Patel (1965) – Held that blending does not change tax liability unless legally allowed.

4. Possible Judgement / Advisory

Based on the law and facts:

• The property of ₹20,00,000, once thrown into the HUF, becomes part of the HUF corpus.
• However, the annual income of ₹3,00,000 generated from this property shall be taxable in the hands of Mr. Prakash under Section 64(2) of the Income Tax Act.
• The HUF will not have any taxable income from this property unless it earns income from other independent sources.
• Mr. Prakash must include the ₹3,00,000 in his individual income return, and the HUF return will show nil income from this property.