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Issues:
1. Taxability of income arising from a legacy before distribution. 2. Entitlement of legatee to interest accruing on the principal amount. 3. Assessment of income in the hands of legatee versus executor. 4. Claim for set off of loss from a business in computing total income. Detailed Analysis: 1. The appeal challenged the order of the Commissioner (Appeals) regarding the taxability of income arising from a legacy before distribution. The deceased had taken out life insurance policies and bequeathed the amount to his widow. The widow claimed the insurance amount, including interest, which was disputed by the tax authorities. The Commissioner held that the interest accrued to the estate and could not be taxed in the hands of the legatee until distribution. The Revenue contended that the interest received by the legatee should be included in her total income. However, the Tribunal noted the provisions of the Income-tax Act, which specify that income of the estate is chargeable to tax in the hands of the executor until distribution to beneficiaries. As the income was not distributed, it could not be assessed in the hands of the legatee. 2. The issue of the legatee's entitlement to interest accruing on the principal amount was addressed by examining the legal framework of testamentary succession. The Tribunal considered the nominee's role in receiving the insurance amount on behalf of the estate, as the nomination does not confer ownership to the nominee. The administrator, in this case, the legatee, is required to account for the receipt to the estate. The Tribunal referenced sections of the Indian Succession Act, emphasizing that income from the estate is chargeable to tax in the hands of the executor until distribution to specific legatees. Therefore, the interest accruing on the life insurance moneys was deemed to benefit the legatee-assessee but not taxable until distribution. 3. The Tribunal analyzed whether the income should be assessed in the hands of the legatee or the executor. The Revenue argued that since the legatee received the amount, it constituted distribution. However, the Tribunal emphasized that the mere receipt of the amount does not imply distribution, especially when the executor is also the sole beneficiary. Referring to legal precedents, the Tribunal highlighted that evidence of appropriation for personal use is crucial to determine assessable income. In this case, the Tribunal found no evidence that the legatee received the amount unconditionally as a legatee, concluding that the receipt was in the capacity of an administrator. As per the provisions of the Income-tax Act, the income was not assessable in the hands of the legatee until distribution. 4. The cross-objection raised by the assessee regarding the set off of loss from a business assessed in the status of an AOP was dismissed. The Commissioner held that the question of set off had been finalized in an earlier assessment order rectified with the consent of the assessee. The Tribunal agreed with this reasoning, confirming that matters finalized in previous assessments could not be re-agitated in subsequent assessments. Therefore, the claim for set off of loss was not considered in the current assessment, and the order of the Commissioner on this aspect was upheld.
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