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The Commissioner of Income-tax, Andhra Pradesh, Hyderabad Vs. H.E.H. Osman Ali Khan Bahadur (Died), - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 39 of 1965
Judge
Reported in[1970]76ITR383(AP)
ActsIncome-tax Act, 1922 - Sections 4, 8, 60, 66 and 66(5); Transfer of Property Act, 1882 - Sections 3 and 130
AppellantThe Commissioner of Income-tax, Andhra Pradesh, Hyderabad
RespondentH.E.H. Osman Ali Khan Bahadur (Died), ;h.E.H. Barkat Ali Khan Bahadur Nizam of Hyderabad
Appellant AdvocateT. Anatha Babu, Adv.
Respondent AdvocateAnwarullapasha, Adv.
Excerpt:
.....section 66(5) of the act which is the relevant provision reads thus: since the high court had failed to do so, the supreme court in that decision reframed a question by the assessee......on behalf of the assessee as his private property, but for the purpose of discharging the obligations imposed on them under the trust deeds. since the government loans ceased to be the private property of the assessee, the supreme court held that they do not come within the purview of the exemption granted by item 8 of the notification.10. at the same time, the supreme court also held, that the interest accrued on the government income-tax free loans were exempt form income-tax alone (and not super tax) in the hands of the assessed, because it came within the scope of proviso 3 to s. 8 of the act. section 8 with its third proviso read as follows:----'interest on securities:----the tax shall be payable by an assesses under the head 'interest on securities' in respect of the interest.....
Judgment:

Sambasiva Rao, J.

1. H. E. H. Mir Osman Ali Khan Bahadur, who was the erstwhile Ruler of Hyderabad State prior to its integration with the Union of India was the assessee in this case. he filed returns of income for the assessment years of 1952-53, 1953-54 and 1954-55 claiming various exemptions and deductions. The Income-tax Appellate Tribunal allowed some and refused some to her exemptions and deductions. Therefore, at the instance of the Revenue the following question has been referred to us.

'Whether on the facts and in the circumstances of the case the interest from the Nizam's Government Promissory notes received by the easiness is exempt form Tax'?

At the instance of the assessee the following three questions have been referred;

' (1) Whether, in the circumstances of the case and having regard to International Law and construction of the Municipal Law and/or the convenient dated 25-1-1950 between the assesse and the Government of India, the assesse was liable to tax under the Income-tax Act, 1922, in respect of any part of his income?

(2) Whether on the facts of the case the interest in respect of securities of the Government of India or of the Government of Hyderabad (including the Nizam Government promissory notes), which became payable to the assessee under the Trusts created by him knows as the housing Accommodation Trust, Pilgrimage Money Trust, Family Trust, jewellery for Family Trusts and Miscellaneous Trust was exempt form payment of tax in his hand by virtue of Item 8 of the Notification under S. 60 of the Indian Income- tax Act, 1922 dated 21-3-1922?

(3) Whether, on the facts of the case. the sum of Rs. 1, 00,000/- received by the assessee form the trustees of Princes Nilofer Trust was labial as income under the Income-tax Act and if so, whether the assessee was entitled to exemption form tax of the income under the e terms of the agreement entered into with the Government of India on 8-10-1949/'

2. It may be mentioned here that several of the exemptions and deductions which the assessee claimed in respect of the three years under question were also claimed by the assessee in earlier years. On the previous occasion the matter came up to this corrupt in R. C. No. 35 of 1959 and ultimately went up to the Supreme Court and was decided there. The said decision of the Supreme Court is reported as Commissioner of Income-tax, Andhra Pradesh v. H. E. H. Mir Osman Ali Khan Bahadur : [1966]59ITR666(SC) By the time the Income-tax Appellate Tribunal had adjudicated upon the assessment under consideration, the case before the supreme Court in respect of the earlier assessment was not heard and its judgment was not pronounced.

3. The question referred to us at the instance of the Revenue can easily be disposed of. Under this head, the amounts of interest in dispute are Rs. 10,875/- for 1952-53, Rs. 19,504/- fro 1953-54 and Rs. 3699/- for the year 1954-55. These amounts of interest were realised by the assesse as interest on the N. G. P. Notes held by him. the claim of the assessee is that by virtue of the notification dated 21-3-1922 (item NO. 8) issued under Section 60 of the Indian Income-tax Act, 1922 (hereinafter called the Act) the interest received by him was totally exempt from tax. An identical question arose in the prior assessment years and a reference in respect thereof was made to its Corrupt in C. R. No. 35 of 1959 (reported in ILR (1963) A P 17). this Court answered the question infavour of the assessee. Following that decision, the Tribunal held that the three amounts should be deleted form the assessment of the assessee. However, at the time of the reference both parity agreed before the Tribunal that the answer to the question should follow and be identical with the decision of the Supreme Court which would be given in the appeal then pending before it against the decision of this Court in C. R. No. 35 of 1959. The Supreme Court gave a finis to this question by holding that interest on these securities which were held by the assessee as his private property, were entitled to the exemption under Item 8 of notification No. 878 F dated 21 st Marhc, 1922 . It therefore, follows that these three amounts relaised by the assessee by way of interest on these securities are exempt from tax, The first of the four questions viz., the question referred at the instance, of the Revenue is, therefore, answered inn the affirmative and in favour of the assessee.

4. The next question had also been raised in the earlier reference which went up to the Supreme Court. That relates to the claim of the assessee that he was totally immune form taxation, because as a sovereign Prince he was not amenable to the Municipal Law of another State. The Supreme Corrupt held in : [1966]59ITR666(SC) that nether the erstwhile Hyderabad State nor the assessee as its Nizasm acquired international personality under international law and so he cannot claim immunity from taxation on his personal properties. It further held that on and first 1st April, 1950, he was not a ruling chief but was only an ordinary citizen of India, residing within the meaning of Section 4 of the Indian Income-tax Act, 1922 in that part of India which was a part of the Hyderabad State and so he was liable to income-tax on 1st April, 1950, for the assessment year 1950-51 in respect of the total income of the previous year in the taxable territories. The resistance to the taxation based on the Convenient dated 25-1-1950 was also found to be without force by the Supreme Court on the earlier occasion. Following its own earlier decision, the Supreme Court held that the privileges guaranteed by the relevant articles of 25-1-1950 were only personal privileges of the assessee as an ex-ruler and that those privileges did not justify his claim to immunity form taxation. it was thus finally deduced that the assesse was not immune from income-tax on either of the two grounds referred to in the question and that he was liable to tax under the Income-tax Act, 1922 in respect of any part of his income. The second question referred to us, viz., the first of the three questions formulated at the instance of the assessee is therefore, answered in the affirmative and against the assessee.

5. In regard to the second question referred to us at the instance of the assesee, his learned counsel has appealed to us to refrain this question by deleting the last portion of the question starting from the words 'by virtue of Item 8.........................' or by adding to the question the following passage:

'or by virtue of the third proviso to Section 8 of the Indian Income-tax Act, 1922.'

The reason for the request is this should the question remain as it is, the assessee would be entitled to seek exemption only under Item 8 of the notification dated 21-3-1922, and it would not be open to him to press to his aid, the exemption given under proviso 3 to Section 8 of the Act. The contention of the learned counsel is that all along, the assessee has been claiming exemption under both the heads. Two of the trusts mentioned in this question viz., the family and miscellaneous trusts were the subject-matter of adjudication in the assessments for earlier years also, and exemption under both the heads was even then sought by the assessee in respect of the two trusts. The Supreme Court, which finally decided the matter, considered the claim for exemption under both the heads and gave its decision. Even in the present assessment, it is stated, tat the third proviso to section 8 of the Act, in addition to Item 8 of the notification dated 21-3-1922, was sought to be pressed into service by the assessee. Our attention has been invited to the memoranda of appeals filed before the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal in respect of the assessment now under consideration. A reading of the two memoranda of appeal clearly shows that exemption under the proviso to Section 8 has also been claimed by the assessee before the Lower authorities. It is true that in its order, the Tribunal has not specially adverted to this claim and considered it. But there is not doubt under the circumstances and in views of the facts stated above, the omission was only by inadvertence on the part of the Tribunal. We have no doubt that the reference to the exemption under the notification dated 21-3-1922 alone and the failure to refer to the other exemption under Section 8 in the question framed by the Tribunal rose only out of inadvertence. Since the claim of the assessee in regard to the interest acquired under the Trusts was exempted from payment of tax on account of both the provisions we think it proper and desirable to reframe the issue accordingly. The essence of the matter is the real dispute between the parties should be brought out by the question framed. As we have stated, there is no doubt about the real dispute between the parties in its regard. it is undoubtedly a claim for exemption form tax under both the heads.

6. We are satisfied that we have necessary power to recast the question so as to bring out the whole of the dispute between the parties into consideration Section 66(5) of the Act which is the relevant provision reads thus:

'The High Court upon the hearing of any such case shall decide the question of law raised thereby and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the Court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.'

The jurisdiction to reframe a questioning appropriate cases is conferred on the High Court under this provision, by necessary implication. that is also the view taken by a Division Bench of this Court in Commissioner of Income-tax v. G. M. Chennabasappa, : [1959]35ITR261(AP) . Their Lordships observed at p. 270 (of ITR) ; (at p. 670 of AIR):

'In our opinion, the power to recast or reframe question is imposed in this subsection (S. 66(5) ), although it does not specifically invest the court with such a power: The only condition is that question of law should be raided by the reference. The High Court has not only the power but is duty to referee the questions in such a way as to bring out the real dispute between the parties. The Court is not confined to the questions which the Tribunal was directed to submit.'

7. In an earlier decision viz., Raja Rameswara Rao v. Commissioner of income-tax : [1957]32ITR552(AP) this Court expressed the same view, In Variain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax : [1954]26ITR765(SC) the Supreme ?Court laid down the same rule. their lordships observed that the High Court should have raised a question which arose as a corollary to the answer given by them to another question. Since the High court had failed to do so, the Supreme Court in that decision reframed a question by the assessee.

8. The Supreme Court again in Commissioner of Income - tax v. Scindia Steam Navigation Co., Ltd. : [1961]42ITR589(SC) held that if the contention is within the scope of the question as framed by the appellate Tribunal and is really implicit therein, the High Court has jurisdiction to deceased the question even if it was not raised and argued before the Tribunal. We, therefore, reframe the second question in the following manner;--

'Whether on the facts of the case, the interest in respect of securities of the Government of India or of the Government of Hyderabad (concluding the Nizam Government Promissory Notes) which becomes payable to the assessee under the Trusts created by him knows as the Housing Accommodation Trust, Pilgrimage Money Trust, Family Trust, Jewellery for Family Trust and Misc. Trust was exempt form payment of tax in his hands.'

9. The answer to this question also is practically covered by the decision of the Supreme Court in : [1966]59ITR666(SC) . the assessee was the sole beneficiary under these trusts. s we have stated earlier, exemption was claimed by him under both the helds even in earlier assessments. But, the family and the Miscellaneous Trusts are concerned the Supreme Court held that the assessee was exempt only form the payment of income-tax and that he was not exempt from the payment of super tax. This result flowed form the conclusion of the Supreme Court that the income form the said two trusts did not earn the exemption under Item 8 of the notification of 21-3-1992. item 8 of the said notification exempted form tax, which includes super tax also, 'the interest on Government securities is held by or on behalf of Ruling Chiefs and Princes of India as their private property.' The Supreme Court held that the Government loans, ceased to be the private property of the assessee and after the execution of the trust deeds, they were held by the trustees not on behalf of the assessee as his private property, but for the purpose of discharging the obligations imposed on them under the trust deeds. Since the Government loans ceased to be the private property of the assessee, the Supreme Court held that they do not come within the purview of the exemption granted by Item 8 of the notification.

10. At the same time, the Supreme Court also held, that the interest accrued on the Government Income-tax free loans were exempt form Income-tax alone (and not super tax) in the hands of the assessed, because it came within the scope of proviso 3 to S. 8 of the Act. section 8 with its third proviso read as follows:----

'Interest on Securities:----The tax shall be payable by an assesses under the head 'interest on securities' in respect of the interest receivable by him on any security of the central Government or of State Government, or on debentures or other securities for money issued by or on behalf of a local authority or a company:

(3) Provided further that the income-tax payable on the interest receivable on any security of a State Government issued.


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