Vested interest in inherited estate governs tax treatment unless heirs operated the legacy as an Association of Persons.

On intestate succession, a legal heir acquires an immediate vested interest in the deceased's estate, so income or loss arising from inherited assets and liabilities is not excluded merely because the estate has not yet been fully ascertained or distributed. The existence of liabilities exceeding assets does not, by itself, prevent assessment in the heir's hands. However, if the heirs were in fact carrying on the legacy as an Association of Persons, that factual position could affect the tax treatment. The lower authorities' contrary approach was set aside, and the matter was remitted for fresh determination on whether the estate was being worked as an AOP.

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Issues: Whether the income or loss arising from the inherited estate of the deceased was assessable in the assessee's individual hands as legal heir, or could be excluded on the footing that the estate was separately assessable until actual distribution.

Analysis: The assessee, being one of the legal heirs, acquired an immediate vested interest in the deceased's estate on intestate succession. The fact that the assets and liabilities of the estate had not been fully ascertained or distributed did not postpone vesting in the heirs. The existence of liabilities exceeding assets did not justify excluding the inherited income or loss from the assessee's assessment. Such income or loss, if arising from the inherited assets and liabilities, had to be considered in the hands of the legal heir unless the facts showed that the heirs had carried on a joint enterprise as an Association of Persons in relation to the legacy. The question whether the estate was being worked as an AOP and the totality of the legacy therefore required factual reconsideration by the assessing authority.

Conclusion: The assessee's contention was accepted, the contrary view of the lower authorities was set aside, and the matter was remitted for fresh determination in accordance with law.

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