Blending of self-acquired property into HUF stock determined capital gains taxability in the smaller HUFs.

Capital gains from sale of property were treated as taxable in the smaller HUFs, not the larger assessee HUF, because the property had been purchased by Onkar Nath and Kishan Chand in their individual capacity and then voluntarily blended into their respective HUFs. Under Hindu law, self-acquired property may be thrown into the common stock, and once so blended, it can be held and dealt with by the relevant HUF. On that basis, the sale was treated as made by the two individuals representing their respective HUFs, with the resultant capital gains belonging to those HUFs and not to the assessee HUF.

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Issues: Whether the capital gains arising from sale of the property were assessable in the hands of the assessee HUF or in the hands of the smaller HUFs of Onkar Nath and Kishan Chand.

Analysis: The Tribunal accepted the appellate finding that the property did not belong to the assessee HUF. On the material on record, Onkar Nath and Kishan Chand had purchased the property in their individual capacity and had voluntarily thrown it into their respective HUFs. Under Hindu law, self-acquired property can be blended with the common stock. The sale was therefore treated as having been made by them as co-owners representing their respective HUFs, so the resultant capital gains belonged to those smaller HUFs and not to the larger assessee HUF.

Conclusion: The capital gains were not taxable in the hands of the assessee HUF.

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