Estate income taxable with executor until distribution; finalised loss claim cannot be reopened in a limited reassessment.

Income arising from a deceased person's estate remains assessable in the hands of the executor or administrator until actual distribution, and a specific legatee is not taxable on such interest unless the amount has been clearly appropriated for the legatee's benefit. On the facts, the post-death interest on life insurance moneys was excluded from the legatee's total income. A business loss issue that had already attained finality in earlier proceedings could not be reopened in a later assessment confined to a limited direction under section 263, so the set-off claim was rejected.

---

---

Issues: (i) whether interest accruing on life insurance moneys received after the testator's death but before distribution of the estate was assessable in the hands of the legatee, and (ii) whether a business loss already concluded in earlier proceedings could be set off in an assessment made pursuant to a limited direction under section 263.

Issue (i): whether interest accruing on life insurance moneys received after the testator's death but before distribution of the estate was assessable in the hands of the legatee.

Analysis: The amount was recovered by the assessee initially in the capacity of nominee and administrator, and the will required discharge of liabilities before any residue could be taken by the specific legatee. Under the law of succession, the estate vests in the administrator, and a specific legatee's title is completed only on assent. Section 168 of the Income-tax Act, 1961 charges income of the deceased's estate in the hands of the executor until complete distribution, and specifically excludes from the legatee's assessment any income not actually distributed or applied for the legatee's benefit. On the facts, there was no unequivocal evidence that the receipt had been appropriated by the assessee as a legatee during the previous year.

Conclusion: The interest was not assessable in the hands of the legatee and the exclusion from her total income was upheld.

Issue (ii): whether a business loss already concluded in earlier proceedings could be set off in an assessment made pursuant to a limited direction under section 263.

Analysis: The assessment made in consequence of the section 263 direction was confined to the taxability of the insurance amount. The claim for set-off of the business loss had already attained finality in the earlier assessment proceedings and could not be reopened in the restricted assessment. The prior finality of the loss issue, together with the rectification made with the assessee's consent, barred its reconsideration in the present proceedings.

Conclusion: The loss set-off claim was not entertainable and the disallowance was sustained.

Final Conclusion: The main addition sought by the revenue failed, while the cross-objection also failed, leaving the order below undisturbed.

Ratio Decidendi: Income arising from a deceased person's estate is assessable in the hands of the executor or administrator until actual distribution, and a matter that has already attained finality cannot be reopened in a later assessment confined to a different issue.

---