Escheat claim pending prevents taxation of estate income until vesting in the State is judicially determined.

Assessment of estate income cannot validly proceed while a State claim of escheat and consequent vesting of the property remains undetermined; taxation of property alleged to have vested in the State is precluded until the vesting question is judicially decided. A pending title suit does not itself resolve or displace the State's escheat claim, and revenue authorities cannot sustain an assessment against the estate manager without first determining whether the estate has vested in the State and is therefore beyond Union taxation; on these grounds the impugned assessment was held illegal and found in favour of the assessee.

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Issues: Whether on the facts and circumstances of the case the assessment for the assessment year 1956-57 could lawfully be made upon the Manager of the Court of Wards, Bettiah Estate, in respect of the income from the Bettiah Estate.

Analysis: The assessment was imposed on the Manager while the State of Bihar had advanced a claim that the entire Bettiah Estate had vested in the State by escheat under Article 296 of the Constitution and thereby its income would be exempt from Union taxation under Article 289. The question of heirship was the subject of a pending title suit and the income-tax authorities and appellate bodies had not decided the State's claim of escheat. The income-tax department conceded that taxation of property claimed to have vested in the State by escheat cannot be validly imposed unless the claim of vesting is determined. A title suit being pending does not itself establish or displace the State's escheat claim; hence the tax assessment could not be sustained without first determining whether the property had vested in the State under Article 296 and was thus beyond Union taxation by Article 289.

Conclusion: The assessment made upon the Manager, Court of Wards, Bettiah Estate, in respect of the income of the Bettiah Estate for the assessment year 1956-57 is illegal. The question is answered in favour of the assessee and against the income-tax department.

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