Pre-constitution expenditure remains deductible when successor heirs are taxed on the estate's full-year income.

Where an estate's agricultural income is assessed for the full crop year in the hands of successor legal representatives, expenditure incurred by the deceased before the successor firm was constituted remains deductible if it was part of earning that year's income. The fact that the expense was incurred before the firm came into existence does not by itself defeat deductibility when the estate, with its assets and liabilities, devolves on the successors and no part of that income was taxed in the deceased's hands. The revisional disallowance was therefore found erroneous, and the deduction was restored.

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Issues: Whether, in computing the agricultural income of a firm formed by the legal representatives of a deceased estate-holder, expenditure incurred by the deceased before the firm's constitution was allowable in the firm's assessment.

Analysis: The assessment related to the income of a coffee estate for the whole crop year, and the income from that estate was taxed in the hands of the firm constituted by the deceased's legal heirs after his death. Since the estate devolved upon the legal representatives along with the attendant assets and liabilities, the expenditure incurred to earn the year's income was part of the computation of that income and did not lose deductibility merely because it was incurred before the firm came into existence. The earlier assessment of the deceased had not taxed any part of that year's estate income in his hands, so allowing the expenditure in the firm's assessment avoided an artificial disallowance.

Conclusion: The expenditure incurred before the constitution of the firm was allowable in the firm's assessment, and the revisional order disallowing it was erroneous.

Final Conclusion: The order of the Deputy Commissioner was restored and the revision was decided in favour of the assessee on the question of deductibility of pre-constitution expenditure.

Ratio Decidendi: Where the income of an estate is assessed for the whole year in the hands of successors, expenditure incurred to earn that income is deductible in the successor's assessment even if it was incurred before the successor entity was formed.

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