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Issues: (i) Whether income from the deceased's estate, credited by the executrix to her personal bank account, could be treated as income distributed to or applied for the benefit of a residuary legatee under section 168(4) of the Income-tax Act, 1961, before administration of the estate was completed; (ii) Whether unpaid estate duty meant that the administration of the estate remained incomplete so that the estate income was not assessable in the hands of the assessee as residuary legatee.
Issue (i): Whether income from the deceased's estate, credited by the executrix to her personal bank account, could be treated as income distributed to or applied for the benefit of a residuary legatee under section 168(4) of the Income-tax Act, 1961, before administration of the estate was completed.
Analysis: Section 168(4) contemplates inclusion of estate income in the hands of a beneficiary only where there is a completed distribution or application of that income in the relevant statutory sense. A residuary legatee can take only after the residue is ascertained, and that cannot happen until the estate has been fully administered. Mere crediting of the amount to the executrix's own account does not, by itself, amount to a valid distribution to a residuary legatee while the estate is still under administration.
Conclusion: The income could not be treated as distributed to the assessee as residuary legatee before completion of administration, and the inclusion was not justified.
Issue (ii): Whether unpaid estate duty meant that the administration of the estate remained incomplete so that the estate income was not assessable in the hands of the assessee as residuary legatee.
Analysis: Estate duty remaining unpaid showed that the estate had not been fully administered and the residue had not been finally ascertained. Until that stage is reached, the executrix does not become entitled to distribute estate income as residuary legatee. The fact that the executrix and the residuary legatee were the same person did not alter the legal position.
Conclusion: The administration of the estate was incomplete, and the income from the estate was not assessable in the hands of the assessee as residuary legatee.
Final Conclusion: The reference was answered in favour of the assessee because estate income of an unadministered estate cannot be taxed in the hands of a residuary legatee merely on the footing of a credit entry in the executrix's personal account.
Ratio Decidendi: Under section 168(4) of the Income-tax Act, 1961, income from an estate cannot be treated as distributed to a residuary legatee until the estate is fully administered and the residue has been ascertained.
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