🔹 Facts of the Case
- The assessee, Surjit Lal Chhabda, was an individual taxpayer.
- He converted his self-acquired property into Hindu Undivided Family (HUF) property by declaring it so.
- He claimed that income from this property should be taxed in the hands of the HUF, not him individually.
- The Income Tax Department rejected this claim and taxed the income as individual income.
🔹 Issue
Whether a person can convert his self-acquired property into HUF property unilaterally and thereby shift tax liability to the HUF.
🔹 Held (Judgment)
The Supreme Court of India held:
- A person can throw self-acquired property into the common stock of an HUF.
- However, mere declaration is not enough for tax purposes.
- Since the assessee’s family consisted only of himself, his wife, and unmarried daughter, there was no coparcener (as per classical Hindu law at that time).
- Therefore, the property did not truly become HUF property in the legal sense for tax purposes.
🔹 Key Legal Principle
- For income to be taxed as HUF income, there must be a valid HUF with coparceners.
- Without coparceners, income remains individual income, even if declared as HUF property.
🔹 Final Outcome
- Income from the property was taxed in the hands of the individual (assessee).
- The assessee’s attempt to reduce tax liability failed.
🔹 Importance of the Case
Clarifies the distinction between:
- Property conversion under Hindu law
- Tax recognition under Income Tax law
Prevents misuse of HUF structure for tax avoidance.
