1. This is a case referred to us under Section 66(1), Income-tax Act, 1922, by a strong Bench of the Income-tax Appellate Tribunal. The assessee is Rani Amrit Kunwar Sahiba, hereinafter referred to as 'the Rani.' The Rani is the wife of Raja Ravi Sher Singh Bahadur, the Ruler of Kalsia State, and is the sister of His Highness the present Maharaja of Nabha State. Kalsia and Nabha States were formerly part of what were known as the Cis-Sutlej States, which are now under the superintendence of the Agent to the Governor-General, Punjab States.
2. The Rani for some years past has lived at Dehradun in British India with her sons and daughters who are being educated there and it is common ground that in the year of assessment she was resident in British India within the meaning of Section 4A, Income-tax Act, 1922. The relevant accounting year is 1938-39; and the relevant assessment year is 1939-40. In the assessment year, the Rani received at Dehradun a sum of Rs. 14,744 from Kalsia State and a sum of Rs. 8910 from Nabha State. On the facts as they have been found by the Income-tax Tribunal it may be taken that similar payments had been made to the Rani of varying amounts in each of the years she had lived at Dehradun and that they represented allocations for her benefit made in the relative State budgets. In the case of the payments out of Kalsia State they were made for the purpose of meeting the Eani's household and living expenses and the education of the children at Dehradun; and, in the case of the allowance from Nabha State, it was made as an annual 'wardrobe allowance' and as presents on certain specified days of festival in each year. Each payment, as I have said, was specifically budgeted for in the annual budget of each State and the evidence is that they had been made in each year consecutively for a period of almost twenty years. It is also common ground that the Rani has never been asked to give any account of her expenditure of these monies and that any surplus she may have had over at the end of the year has been tacitly assumed to be her personal property. Indeed we are told that the Rani has been able to effect considerable savings during this period and has invested them in house property at Lahore, Dehradun and Mussoorie. These facts may be taken to be common ground, as also the fact that, although the payments made to the Rani appear in the relative budgets as items of State expenditure, there is no dividing line between that part of the income of the State which the Ruler spends on public purposes and that part which he spends for his own private purposes. In neither case is the Ruler himself resident in British India, nor is there any evidence that either Ruler is assessed on any income in British India.
3. In these circumstances, the Rani was assessed under Section 4(1)(a), Income-tax Act, 1922, to income-tax by the Income-tax Officer of Dehradun in August 1939 on (inter alia) the two sums in question. This assessment was upheld by the Appellate Assistant Commissioner of Income-tax, Meerut, but was set aside in June 1940 by the Commissioner of Income-tax, Central and United Provinces, on the ground that there were insufficient findings of fact to support it. He accordingly directed the Income-tax Officer to start assessment proceedings afresh'after reaching findings of fact, first whether Kalsia State was an Indian State; secondly, whether the remittances received by the Rani were made out of the income of the State as such or out of the private income of its Ruler; and, thirdly, to what particular 'vested right' the payments were respectively to be attributed. The Income-tax Officer in January 1941 found that Kalsia State was an Indian State and that the remittances received by the Rani were out of State income and not out of the private income of the Ruler; but he was unable to reach any conclusion as to any 'vested right' to which the payments were to be attributed. He apparently reached the same conclusion as regards the payments received from Nabha State. In the result he took the view that they were received by the assessee from the two States respectively as 'her income in view of a vested customary right recognized by the State and its Ruler.' He, therefore, again treated them as taxable and the Rani was again assessed on them as income from other sources under Section 4(1)(a), Income-tax Act. This assessment was upheld by the Appellate Assistant Commissioner of Income-tax, Agra, and in due course came on appeal before a Pull Bench of the Income-tax Appellate Tribunal.
4. The Full Bench consisted of four members - two of them judicial members, who have since been elevated to the Benches of the High Courts of Madras and the Punjab respectively. This Bench was divided in opinion, it being held by the President, first, that the Rani, notwithstanding that she was the wife of the Ruler of Kalsia State, was not exempt from assessment to income-tax in British India under the Income-tax Act, 1922, and, secondly, that the payments in question were not income of the assessee under Section 4(1) of the Act; and that, if they had been, they would not have been assessable to tax because they were casual and non-recurring within the meaning of Section 4(3)(vii) of the Act. On the other hand the other learned judicial member of the Pull Bench of the Tribunal, while agreeing that the Rani was not entitled to exemption from taxation on the ground that her husband was the Ruler of a sovereign State, took the view that the payments made to the assessee both from Kalsia State and from Nabha State in the accounting years did form part of the total income of the Rani for the purpose of assessment in British India. The two other members of the Tribunal agreed with the latter view and accordingly the assessment was once more upheld. It is in these circumstances that the matter now comes before us. The actual questions put to us by the Tribunal under Section 66(1), Indian Income-tax Act, are these:
(1) (a) Whether the allowances received by the assessee from the Kalsia State constitute her personal income assessable under the Indian Income-tax Act? (b) If so, whether they are of a casual and non-recurring nature and as such exempt under Section 4(3)(vii) of the Act?
(2) (a) Whether the moneys received 'by the assessee from the Nabha State constitute her personal income assessable under the Indian Income-tax Act? (b) If so, whether they are of a casual and non-recurring nature and as such exempt under Section 4(3)(vii) of the Act?
(3) Whether, by reason of her being the wife of the Euling Chief of Kalsia, the assessee, who is a resident in British India, is exempt under the canons of International Law from taxation under the Indian Income-tax Act, in respect of her personal incomes accruing, arising or received in British India?
Omitting question 3 for the moment, I think that the first two questions in reference to Kalsia State are susceptible of a short answer. The question reduced to its simplest terms is whether the payment of the Rupees 14,744 in question received by the Eani in the accounting year at Dehradun from Kalsia State was in her hands 'income...from whatever source derived...received or deemed to be received in British India...' within the meaning of Section 4(1)(a), Indian Income-tax Act, 1922. If it did constitute, or is to be deemed to have constituted, her 'income' then it was properly assessed, subject to any question which may arise under Section 4(3)(vii) of the Act as to whether it was of a casual and non-recurring nature.
5. In my view, in the case of the payments which emanated from Kalsia State we are relieved by Sub-section (2) of Section 4 of the Act from any inquiry whether these payments actually constituted the Rani's 'income,' because, when that sub-section is examined, it is found that, whether or not they were her income, they were, by virtue of their character as 'remittances received by' her, 'deemed' to be part of her income accruing in British India. Sub-section (2) of Section 4 of the Act is in this language:
(2) For the purpose of Sub-section (1), where a husband is not resident in British India, remittances received by the wife resident in British India out of any part of his income which is not included in his total income shall be deemed to be income accruing in British India to the wife.
6. In the case before us the Eani's husband, the Raja of Kalsia, was admittedly not resident in British India. The Rani herself was at all material times resident in British India. The Rs. 14,744 received by her in the accounting year must, I think, be taken to have been paid to the Rani out of her husband's income, since it has not been and cannot be suggested that there is any distinction between the personal income of the Raja and the revenues of his State which are allocated under the annual State Budget. There is no suggestion that the payments made to the Rani from Kalsia were paid out of any income of the Raja which satisfies the definition of 'total income' contained in the Act, nor, indeed, that the Raja had any income in British India at all. Upto this point, therefore, the conditions of Sub-section (2) appear to be fulfilled exactly. But the noticeable point about Sub-section (2) of Section 4 of the Act is that what it 'deems to be income of the wife accruing in British India' are all 'remittances' received by her out of her husband's income not included in his total income as defined by the Act. The word 'remittances' is most noticeable. The word is not used anywhere else in the charging section and it stands in marked distinction to the word 'income' which is elsewhere used to describe what is taxable. The only conclusion to be drawn from this is that Sub-section (2) has been very careful, and, indeed, is designed for no other purpose than, to make it clear that, where the wife residing in British India is found to be receiving money from her husband residing outside British India and that money has not already been taxed in British India, the actual 'remittances' themselves are to be 'deemed' to be the wife's income, irrespective of whether by any other test they would fulfil that definition. Sub-section (2) says that these 'remittances' are to be 'deemed to be income accruing in British India to the wife'; and, in my opinion, the object of this sub-section is, in view of the obvious difficulty in the way of the British Indian taxing authorities investigating the real character of such payments, to raise an absolute presumption against the wife that the 'remittances' as such are themselves taxable under the head of what is deemed to be her income irrespective of its true character. On the other hand, in a case in which the remittances to the wife are shown to have been already included in the total income of the husband and presumably already taxed or taxable as such the Act has given the wife the benefit of the doubt and has at any rate provided no irrebuttable presumption that they are to be 'deemed' to be her income.
7. I do not think that in either of the judgments of the learned judicial members of the Appellate Tribunal the full significance of the word 'remittance' in Sub-section (2) of Section 4, Indian Income-tax Act, 1922, in reference to the payments emanating from Kalsia State has been appreciated. If this view of the true construction of this sub-section is correct, then we are relieved from the necessity of considering whether, for other reasons and on other principles, the Rs. 14,744 in question was in income-tax law the Rani's actual income, since by the Statute they are to be 'deemed' to be her income. Nor in my view is it necessary for us to go so far as to decide whether the payments out of Kalsia State were casual and non-recurring. If the view taken above of the true construction of Section 4(2) of the Act is the right one, then the remittances as such have to be 'deemed' to be the income of the Rani irrespective of their actual character either as income or as casual and non-recurring payments. In other words, Section 4(3)(vii) of the Act cannot be regarded as having any reference to a 'remittance' by a husband to a wife, which the Act itself has by Section 4(2) expressly declared to be one which is to be 'deemed' in any case to be income of the latter. I feel it right, however, to add that, but for Section 4(2) of the Act I should have felt the force of the conclusion reached by the learned President of the Tribunal expressed in para. 10 of his judgment that the payments in question ex Kalsia State have not in fact been shown ever to have become the moneys of the Rani (except perhaps as regards any unexpended balances) as distinct from monies which she was charged to expend as the agent of her husband on the maintenance and upkeep of his wife and children. But, since the payments in question were undoubtedly 'remittances' by the Raja to the Rani, this does not arise, no question being involved, in view of Section 4(2), whether they became her actual income or not. Being remittances to her, they must be 'deemed' to be her income.
8. That, I think, is sufficient to dispose of the first part of the case, so far as it relates to the payments made to the Rani from Kalsia State in the accounting year. The question, however, of the payments made to the Rani from Nabha State is a different one, because no remittance to her from her husband is involved in that case. The source of the payment was the Maharaja of Nabha, who was the Rani's brother, and accordingly no question arises of applying Section 4(2) of the Act. The question here involved seems to be simply whether the payments to the Rani in dispute were her 'income' within the meaning of Section 4(1)(a) of the Act. This question is a little more difficult. It is to be noticed that the Commissioner of Income-tax, Central and United Provinces, when he referred the matter back to the Income-tax Officer on 10th June 1940 required him to find what was the particular 'vested right' in the Rani's favour by virtue of which the allowance in dispute was paid The Income-tax Officer in answer to this confessed that no evidence had been adduced before him to show in what right the Rani received the money, but nevertheless hazarded the conclusion that
moneys received by the assessee from.... Nabha State are her income in view of a vested customary right recognized by the State and its Ruler.
9. This finding appears to involve a little difficulty. It makes use of the expression 'vested right,' without, I think, realizing quite what it involves. If it means strictly what it says, it would appear to infer that the Rani had an indefeasible right to the annual allowance which she could enforce at law, assuming there to have been the machinery of law available in Nabha State to enable her to do so. If we were to take this finding literally, it would a pear almost automatically to solve the question whether the payments in question were the Rani's income or not. But I think the true view is, both because of the circumstance that the Income-tax Officer himself confessed that there was no evidense on which he was able to base his conclusion and because it would be in any case a question as much of law as of fact, that we cannot take it as concluded that the payments in question from Nabha State were payments to which the Rani had an indefeasible and enforceable right. Both the learned judicial members of the Income-tax Appellate Pull Bench appear to have taken the same view because the major parts of their respective judgments were devoted to discussing the very question whether the circumstances in which the payments were made justified the conclusion that they were traceable to some sort of enforceable obligation - I should desire to avoid the use of the expression 'vested right' - which would clothe them with the character of 'income' in the hands of the Rani in British India. That undoubtedly is the substance of the question which we are called on to decide on this reference and there is little doubt that it is a question of law and is not concluded by the finding of the Income-tax Officer to which I have referred above. The question, therefore, is whether the payment of KS 8910 made ex Nabha State to the Rani in the accounting year was the Rani's 'income.' Section 4(1), Indian Income-tax Act, 1922, charges in the hands of the assessee 'all income, profits and gains from whatever source' received by the assessee in British India in the relevant year. There can be no suggestion in this case that the payments in question come within any of the first four heads of income chargeable to income-tax set out in Section 6 of the Act, and, therefore, the only question involved is whether they constitute 'income from other sources.' The facts, as provided for us, are that the sum in question was received by the Rani at Dehra Dun by cheque from Nabha State by equal quarterly payments of Rs. 2227-8-0 credited to the assessee's bank account in British India (see the Assessment Order dated 26th August 1939); these payments were received over 'a long course of years' (see the Statement of the Case); they were paid 'out of the State budget' (see the Assessment Order dated 25th January 1941); the allowance from Nabha State was a 'wardrobe allowance' which was in the nature of a present of clothes and monev presents at specified festivals, namely Tejan and Karwa (see the judgment of the President of the Income-tax Appellate Tribunal); the Rani was not asked to account in any way for her expenditure of the moneys in question and any surplus remaining over at the end of the year became her absolute property (see para. 10 of the judgment of Mr. Yahya Ali, as he then was, of the Income-tax Appellate Tribunal); and a certificate was furnished by the Prime Minister of Nabha State to the effect that the payments had been made continuously by the Nabha State Durbar to the Rani Bince prior to 1926, at first at the rate of Rs. 358 a year and later at the present rate of Rs. 910 (see para. 8, ibid.) These, I think, are the relevant facts on which we have to consider this question.
10. The first step is to see what is meant by the word 'income' as used in Section 4(1), Indian Income-tax Act, 1922. In using for this purpose English authorities on the construction of the Indian Income-tax Act, it is constantly necessary, I think, to remind oneself that the charging words of the English Income-tax Act are not the same as the charging words of the Indian Income tax Act. The English Income-tax Act of 1918 by Section 1 charges to tax 'all property, profits or gains' described or comprised in the schedules referred to in it. Schedule A is the schedule which charges tax on property. Schedule B is the schedule which charges tax on the occupation of land. Schedule C is the schedule which charges tax on interest annuities and dividends. Schedule D is the schedule which charges tax on 'annual profits or gains' arising from any trade, profession, employment or vocation. And Schedule E is the schedule which charges tax in respect of public offices or employments of profits, annuities, pensions, etc. The Indian Income-tax Act, on the other hand by Section 4(1), charges generally to tax 'all income, profits and gains from whatever sources derived.' It is clear, therefore, that the Indian Income, tax Act in employing the expression 'income' not only lays open to the charge of tax everything that can be properly brought within the description of 'income' (irrespective of any technical categories of income such as are contained in the Schedules to the English Act), but also treats the expression 'income' as something which is larger' and more general than 'profits and gains.' Their Lordships of the Privy Council pointed out in Gopal Saran Narain Singh v. Commissioner of Income-tax that the word 'income' is not limited by the words 'profits and gains' and that 'anything which can properly be described as income is taxable under the Act, unless expressly exempted.' The starting point, therefore, in my view, of any inquiry as to what is taxable under the Indian Act, must be that the word 'income' as used in Section 4(1) of the Indian Income-tax Act, 1922, not only may denote something larger than profits and gains, but may denote whatever may properly be described as 'income' in the ordinary parlance of language, unless expressly exempted from the charge of tax by the Act itself. I draw attention to this because we have been pressed to decide this case by reference to English authorities decided on the English Income-tax Act to the effect that payments made to a person which are ultimately dependent solely on the will of the giver and are not attributable to any right to receive on the part of the recipient can ex hypothes never be income in the income-tax sense so as to bring them within the charge of tax under the Indian Income-tax Act. Indeed, the learned Counsel who has appeared for the assessee in this case has on the strength of the English authorities gone so far as to say, if we have understood him rightly, that nothing can be taxable as income from other sources under the Indian Act, which cannot be shown to have an origin in some enforceable obligation to pay. We have been referred for this proposition to Stedeford v. Beloe 1932 (1932) A.C. 388, Ryall v. Hoare (1923) 2 K.B. 447 and Turner v. Cuxon (1889) 22 Q.B.D. 150. In my view the short answer to be given to this line of reasoning is that it is wholly misleading to apply authorities decided under the English Act to the question what is 'income' under the Indian Act in such circumstances as we have to deal with here. To take the case in Stedeford v. Beloe 1932 A.C. 388 in the House of Lords referred to above, an annual pension had been granted to a head-master of Bradfield College on his retirement and it was held that such a pension was not chargeable to income-tax under schedule E of the English Income-tax Act. The question, therefore, was whether the pension in question was such a profit or gain as arose or accrued to the retired headmaster from an office, employment or pension. It was held that it was not, because something which was merely voluntary could never be a profit or gain derived from an employment. But Viscount Dunedin in the course of his speech said,.it has been held again and again that a mere voluntary gift is not such a profit because it is not, in the true sense of the word, income. It is merely a casual payment which depends upon somebody else's good will.
It is true that the learned Law Lord there describes a mere voluntary gift as not being in the true sense of the word income; but it has to be remembered that he was speaking in reference to the English Income-tax Act and not in reference to the Indian Income-tax Act. In short, the English Income-tax Act by its charging provisions has taxed only those particular types of income which can be brought within the various schedules, whereas the Indian Income-tax Act has charged whatever is 'income, profits and gains' on the proper construction of those expressions. It would, in my view, be going altogether too far, on the strength of these words of Viscount Dunedin in the Bona field College case Stedeford v. Beloe (1932) 1932 A.C. 388 taken out of their context, to say that nothing whatever can be charged as income under the Indian Income-tax Act which has not an origin in some obligation to pay. I believe that the true test to be applied under the Indian Income-tax Act is that which has been prescribed by Lord Russell of Killowen in Gopal Saran Narain Singh v. Commissioner of Income-tax. , in which he says that anything which can properly be described as income is taxable under the Indian Income-tax Act, unless expressly exempted. I regard it as dangerous to take a sentence from a judgment even of the House of Lords decided under the English Act and to seek to found, on it wide assertions as to the true construction of the Indian Act.
11. We have next been pressed on the authority of Shaw Wallace's case Commr. of Bengal v. Shaw Wallace & Co. with a rather different variation of the same argument. On the strength of what, has been said by Sir George Lowndes in that case, the argument has been converted into the suggestion that, even though it may not be necessary that the origin of the receipt by the recipient should lie in some-obligation to pay, nevertheless the 'source' from which it is received must be one which connotes a 'return' in a sense ejusdem generis with the profits and gains which are the return either of business activity or investment. Sir George Lowndes, afterwards himself, pointing out the danger of relying on the case law evolved out of the English Income-tax statutes, when construing the Indian Act, went on to point out that the object of the Indian Act was to tax 'income', although it has not defined what it means by that word. He said:
The object of the Indian Act is to tax 'income' a term which it does not define. It is expanded, no doubt, into 'income, profits and gains', but the expansion is more a matter of words than of substance. Income, their Lordships think, in this Act connotes a periodical monetary return 'coming in' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree or the crop of a field. It is essentially the produce of something, which is often loosely spoken of as 'capital'....
12. It is this passage on which the assessee relies in this case for the purpose of saying that a payment the continuation of which can be interrupted by the giver can never be that sort of 'periodical monetary return' coming in from a definite source which is-contemplated as being taxable by the Indian Income-tax Act. It has to be remembered that, although Sir George Lowndes's words are general, the actual case with which he was dealing was one in which it was sought to tax a payment made to the assessee as compensation for the loss of a valuable business agency, and, in that sense, the actual matter before the Board was clearly something which had relation to the business of the assessees. No actual question of the sort we are dealing with was involved. In my opinion, however, Sir George Lowndes never intended to - and, in fact, by the language he used, never did - limit the construction of the word 'income' in the Indian Income-tax Act to something which must necessarily have its origin either in a business activity, an investment or an enforceable obligation. Indeed, the passage, when examined, bears no such meaning. He says that, in order to be income, it must be something which 'comes in' (1) periodically, (2) as a return, (3) with some sort of regularity or expected regularity and (4) from a definite source. It appears to me to be beyond argument that a series of payments may be made periodically and with regularity or with expected regularity, notwithstanding that they do not have their origin in business activity, investment or enforceable obligation. That such a payment is something which 'comes in' and in that sense may in the proper circumstance be 'income' in the wide sense in which that expression was explained by Lord Macnaghten in Tennant v. Smith (1892) 1892 A.C. 150 at p. 164, is, I think, equally beyond doubt. And I should add as a third self-evident proposition that there may be a great deal of practical difference between a payment which is one of a series of payments made with regularity or expected regularity on the one hand and what Viscount Dunedin describes in the Brad field College case Stedeford v. Beloe (1932) 1932 A.C. 388 as 'merely a casual payment' and what Sir George Lowndes describes in Commr. of Income-tax, Bengal v. Shaw Wallace & Co. as 'a mere windfall.' The principal emphasis, however, is laid on the words 'return' and 'definite sources' used by Sir George Lowndes. But these in my view present no difficulty. A regular payment or a payment expected to be regular may, I think, in principle be as much 'income' when it is received from a giver who makes it systematically and for a known and rational reason (and a fortiori when it is received in accordance with custom), as it is if it is made in pursuance of some binding obligation whether arising out of business dealings, out of an investment or out of some other enforceable obligation. And if the word 'return' had been used by Sir George Lowndes in the strict sense that-nothing could be income in India which was not the result of some outlay, it would be difficult to see how anything could be taxable which was not the produce of some valuable consideration given by the recipient-however binding might be the actual obligation under which it was paid. For these reasons in my view it cannot be taken that Sir George Lowndes intended to lay down a general test in every case that every payment must be the result of some outlay on the part of the assessee before it is taxable.
13. Under Indian law, therefore, we come back in my opinion, to the relatively simple test whether in the ordinary parlance of language what the assessee receives is 'income' or not. I should not dream of suggesting that every payment made by one person to-another is necessarily the recipient's income since it may, as Viscount Dunedin has said, be merely a casual payment or, as Sir George Lowndes has suggested, a mere windfall. Such a sweeping proposition would be absurd. Many things have to be considered. In the case of a payment by a, parent to a child or by a husband to a wife or by one relation to another obvious questions arise whether in the particular circumstances of each case the payments are made in such a way as to constitute what is paid the money of the recipient at all or whether the payments themselves are not merely a series of casual payments or windfalls. But there seems to me to be another class of cases altogether in which in particular circumstances-payments may be made by one person to another which can only be explained on the ground that the giver intends to give, and the recipient expects to receive, with regularity or expected regularity and from a source the nature of which is to produce such a payment, an 'income' which is in. the income-tax sense his own. I can find nothing in the Indian Income-tax Act to warrant any general conclusion that it is only in a case in which, if the payment is discontinued, the recipient will have an immediate right of action against the payer, that it will be income in his hands in the Indian income-tax sense. That is to put too-limited a construction on the word 'income.' If the payments are such as to come within the category of payments which are casual and non-recurring, then it is to be observed that the Act itself has taken them out of the category of 'income.' The very fact that the framers of the Indian Income-tax Act found it necessary by a special clause to exempt casual and non-recurring receipts from the category of income, profits or gains is itself, in my opinion, an indication that, but for that exemption, they are to be regarded as capable of falling within the class of income, profits or gains under the charging section. If it is to be assumed that ex hypothesi a casual and non-recurring payment could never be income, then, as I see 'it, the statutory exception of it would be otiose and unnecessary. Another reason is afforded by Section 4(3)(ii), Income-tax Act, for inducing me to think that so narrow a construction cannot be placed on the word 'income.' If the assessee were right in saying that the test of 'obligation' has in all cases to be applied in deciding what is or is not 'income,' it is difficult to see why voluntary contributions to a religious or charitable institution (whether applicable solely to religious or charitable purposes or not) should be specially excepted by the Act. The conclusion, therefore, I have reached is that, in construing the word 'income' in the Indian Income-tax Act, one has to ask oneself whether, having regard to all the circumstances surrounding the particular payments and receipts in question, what is received is of the character of income according to the ordinary meaning of that word in the English language or whether it is merely a casual receipt or mere windfall.
14. I have dealt generally so far with the meaning of the word 'income' in Section 4(1), Income-tax Act, 1922, since I have found it impossible to accept so large and general a proposition that nothing can in India be the 'income' of a recipient of money which cannot be traced to one of the first four sources set out in Section 6 or to some other source involving either the product of some outlay by, or some binding and irrevocable obligation to pay to, the recipient It remains then to consider the actual facts of the payments in this case to the Rani from Nabha State for the purpose of seeing on which side of the line they fall and whether they ought to be regarded as her 'income' or as something in the nature of mere recurring windfalls.
15. There can be no doubt that the payments have recurred with both actual and expected regularity for the better part of twenty years. Only once have they been varied in amount and they have been paid quarterly. The sanction for their payment has appeared in the annual budget of the State. I think, therefore, that they have become 'customary' payments in the limited sense at least that they were 'habitual' payments though I am inclined to agree with respect with the learned President of the Tribunal that no fact has been proved to warrant any finding that they are 'customary' payments in the legal significance of that term denoting something that has become legally enforceable by custom. Nor do I think that there is the slightest evidence, as the Income-tax Officer has himself admitted, of any 'vested right' in the Rani to receive the annual sum in question from Nabha State. I think that the use of the expression 'vested right' has been a little unfortunate and misleading. What we really have, therefore, is a series of payments made over a period long enough to entitle them to be described as habitual, orginating, so far as any evidence in this case goes, in nothing more than the bounty of the Ruler of Nabha State. We must at this stage accept the facts as they are given us. It may be that had further researches been possible, some more certain sanction for these payments might have been found than the mere annual bounty of the Ruler. But, if it exists it was for the Income-tax authorities to show it, since we cannot tax on facts which are not proved. I should be loath to say that there might not be special circumstances in which payments of this kind, though voluntary in the sense that if discontinued, there is no remedy, might be attributable to some custom, usage or traditional obligation which might invest them with the character of 'income' in the hands of the recipient. But, if there are, then it is, I think, for the Income-tax authorities to show it. In the present case nothing of the sort has been shown beyond the regularity or excepted regularity of the payments born of repetition. The case is a difficult one and may stand on the border line of what is income and what is not income. But, on the facts provided, I am persuaded that the Income-tax authorities have not discharged the burden of showing (apart from the mere circumstance of repetition) that there is any origin to account for these payments which could amount in its nature to a definite source so as to render each payment 'income' and not merely 'casual or a mere annual (though expected) windfall.' I do not reach this conclusion, as I have explained, on the ground simply that they are voluntary in the sense that they might be discontinued without the Rani having any enforceable remedv; but on the ground that it has not been proved in this particular case that there is anything more certain than the mere whim of the Ruler to support them. For these reasons, in my opinion, the first two questions put to us should (subject to any answer we may give to question 3) be answered thus : (1) The allowances received by the assessee from the Kalsia State during the accounting year should be deemed to be her income accruing in British India. No question arises in this case whether they are of a casual and non-recurring nature; (2) The moneys received by the assessee from the Nabha State during the accounting year do not constitute her personal income assessable under the Indian Income-tax Act. There then remains the third of the questions put to us:
Whether by reason of her being the wife of the Euling Chief of Kalsia, the assessee, who is a resident in British India, is exempt under the canons of International Law from taxation under the Indian Income-tax Act in respect of her personal income accruing, arising or received in British India?
16. On this question all the members of the Income-tax Tribunal were agreed upon an answer in the negative. In this conclusion I concur. The learned President of the Tribunal was of the opinion, on the authority of Bishwanath Singh v. Commissioner of Income-tax, Central and United Provinces ('42) 29 A.I.R. 1942 All. 295 that the Ruler of Kalsia State was not sovereign for the purposes of international law and consequently could claim immunity in British India neither from taxation under the British Indian taxing Act nor from proceedings in respect thereof in British Indian Courts. The other learned judicial member of the Tribunal came to the same conclusion on the ground that no Indian State was sovereign in the sense in which that word wa3 used in public international law and that the Ruler 'of an Indian State did not possess any vestige of 'international' personality. That the Ruler of Kalsia State is a ruling chief and enjoys internal sovereignty over his subjects within his State, except in certain specified respects, is admitted by Dr. Asthana, who appears in this case on behalf of the income-tax authorities. The State came under the protection of the British Crown in or prior to the year 1809 when it was protected by Proclamation against further encroachments. The British Crown imposed on it certain restrictions in respect of exercising jurisdiction over Europeans and Americans within its territory, of regulating the succession to the State, or correcting misrule and of regulating the strength of its armed forces. But in other respects it appears that its internal or domestic sovereignty over its own subjects remained unimpaired. Mr. Pathak, as he then was, has urged with considerable force that an Indian State, having originally internal sovereignty, continues to enjoy all those rights of sovereignty as between it and the British Crown which it is not shown to have parted with or been deprived of by agreement, treaty or superior power and it is only to that extent that the sovereignty of Kalsia State can be held to have been diminished by its contact with the British Crown. Moreover, one of the outstanding attributes of sovereignty is the Ruler's immunity from being sued in a foreign Court see Oppenheim's International Law, Edn. 5, Vol. I, page 590. In Duff Development Co. Ltd. v. Government of Kalantan (1924) 1924 A.C. 797, Viscount Pinlay said that, though it was obvioua that in order to have sovereignty there must be a certain amount of independence, it was not in the least necessary for sovereignty that there should be complete independence. He said:.It is quite consistent with sovereignty that the sovereign may in certain respects be dependent upon another Power; the control, for instance, of foreign affairs may be completely in the hands of a protecting Power, and there may be agreements or treaties which limit the powers of the sovereign even in international affairs without entailing a loss of the position of a sovereign Power. In the present case it is obvious that the Sultan of Kelantan is to a great extent in the hands of His Majesty's Government....
17. It is also clear from the Duff Development Co. case Duff Development Co. Ltd. v. Government of Kalantan (1924) 1924 A.C. 797 in the House of Lords that British Courts have always adopted the practice of relying on a statement made by His Majesty's Government as to the Crown's relations in respect of sovereignty with a foreign Ruler and that in the face of any such statement British Courts will not in their judicial capacity inquire into and decide whether any restrictions submitted to by any such foreign Ruler are or are not such that the Ruler has ceased to be sovereign. We could have wished that the same course had been followed in the present case before us by the income-tax authorities. This was what was done in the case relating to Benares State referred to above : Bishwanath Singh v. Commissioner of Income-tax, Central and United Provinces ('42) 29 A.I.R. 1942 All. 295. It would, I think, have been proper to obtain from the Crown Representative a certificate or statement in relation to the status in respect of the sovereignty of the Ruler of Kalsia State. But this has not been done in this case and, if by this omission the income-tax authorities have in any way been prejudiced, they have themselves alone to blame for it. I should not myself feel disposed to direct a reference to be made to the Crown Representative at this late stage, in view of the conclusion at which I have arrived.
18. In my opinion, the only view which on the evidence before us we can properly take in this case is that the Ruler of Kalsia State has, notwithstanding the protection of the British Crown, continued to enjoy a full measure of internal and domestic sovereignty except to the particular extent to which it has been admitted that the British Crown has imposed and exercised rights restrictive of it. Those rights do not include any derogation from the accepted immunity of an otherwise sovereign Ruler from being sued in the Courts of a foreign power. And I cannot help thinking that the test of whether the Ruler of an Indian State can be made the subject of taxation in British India under a British Indian taxing Act must ultimately rest on whether he is capable of being sued in British Indian Courts, since it cannot be contemplated that any British Indian Legislature would pass legislation against a foreign Ruler or against anyone else which the Courts in British India have no power to enforce. Moreover, there is considerable authority to the effect that a ruling prince is not normally capable of being sued in a British Indian Court or in a Court in England. In Statham v. Statham (1912) L.R. (1912) P. 92 it was held in reference to the State of Baroda that its ruling prince was not capable of being made a co-respondent in a suit for divorce in the High Court in England. In that case Sir Henry Bargrave Deane said that 'suzerainty' was a term applied to certain international relations between two sovereign States whereby one, whilst retaining a more or less limited sovereignty, acknowledged the supremacy of the other; and, in his opinion, that aptly expressed the true status of the Gaekwar of Baroda and was consistent with the status of a sovereign prince, who was not capable of being sued in Courts of the suzerain power. There are other authorities in India to the same effect which have been referred to in the judgment of the learned President of the Tribunal. In the result, therefore, in my opinion the better view is that, on the facts, before us, it must be held that nothing has been shown which deprives the Ruler of Kalsia State of his position as a sovereign Ruler and, therefore, of his personal immunity from proceedings in British Indian Courts. And from this it seems to me to-follow that he must necessarily be immune from taxation in British India under an Act, which no Court in British India has the power to enforce against him.
19. But I am at the same time respectfully-inclined to agree with the learned member of the tribunal who observed that sovereignty in this sense may well be something; less than the retention - if, indeed, he ever had it - of an international personality in. public international law in the fullest sense. No case, with one possible exception, has been brought to our notice in which there has ever been put forward successfully a claim on behalf of the Ruler of an Indian, State to recognition of sovereignty in the full sense in which that word is used in public international law so as to extend the-privilege of personal immunity from proceedings in Courts of British India to the Ruler's wife. The only possible exception is the case relating to Kapurthala State which is reported in Movastak Rae v. Lady Randheer Singh of Kapurthala State ('70) 54 P.R. 1870, p. 139. But, in my opinion, that case when examined is no authority for so general a proposition that the personal immunity founded on his-domestic sovereignty of a Ruler of an Indian State from suits in Courts in British India, extends by international usage to his wife. What the Court in British India said in that case was that it would not assume jurisdiction in British India in a suit which arose between the Maharaja and his subjects within his own State. It was held that a-British Indian Court would not adjudicate in British India on rights in issue within his own State between the wife of a politically independent Raja and a subject of that State; in other words, that a British Indian Court would not examine and adjudicate on the position of the Maharaja's consort within the Maharaja's own State with reference to an issue arising within the State itself. That is a very different thing from saying that every British Indian Court will extend to the wife of every Ruler of an Indian State recognition of her husband's sovereignty in the full sense of an international personality as recognized by Public International Law in relation to w proceeding in which the rights in issue do not arise within the State itself but within British. India. We have been referred to no authority which would, in my opinion, justify us in extending the incidents of the domestic sovereignty of the Ruler of Kalsia State to this extent. For these reasons, whether or not the Ruler enjoys a personal immunity, I should respectfully agree with the conclusion at which the Income-tax Appellate Tribunal has arrived that, such immunity, if it exists, does not extend to the Rani in this case. The answer to the third question propounded to us should, in my opinion, therefore, be : The assessee, by reason of her being the wife of the Ruling Chief of Kalsia, is not exempt under the canons of international law from taxation under the Indian Income-tax Act in respect of whatever is, or is deemed to be, her income accruing, arising or received in British India.
20. This is a reference under Section 66(1), Indian Income-tax Act by the Income-tax Appellate Tribunal. The assessee, Rani Amrit Kunwar, is the wife of the Raja of Kalsia State. She has been living in Dehra Dun for some years and owns house property in Dehra Dun, Mussoorie and Lahore. The Income-tax Department assessed her to income-tax for the assessment years 1939-40 and 1940-41 on the basis of her income in the years 1938-39 and 1939-40. During the accounting year 1938-39 the assessee received a sum of Rs. 14,744 from the Kalsia State and a sum of Rs. 8910 from the Nabha State. In the next year, 1939-40, the assessee received from the Kalsia State Rs. 8000 and from the Nabha State Rs. 8910. The Income-tax Department included these sums in the total income of the assessee and assessed her accordingly. The assessee raised certain objections, but it appears that the objections raised by her before the Income-tax Officer were not the same as the objections that she ultimately raised before the Appellate Tribunal. No useful purpose would be served by making any reference to the objections raised by her earlier in the proceedings till we come to the proceedings before the Income-tax Appellate Tribunal. Before the Tribunal two objections were raised, firstly, that the sums received by the assessee from Kalsia and Nabha were not assessable income as they were purely voluntary gifts made to the assessee and were, therefore, of a casual and non-recurring nature. The second objection raised was that the assessee being the wife of the Eaja of Kalsia, who was an independent sovereign, was not liable to pay any income-tax in British India. The matter was considered by a Full Bench of the Tribunal. The President of the Tribunal, Mr. M. Munir, held on both points dn favour of the assessee and was of the opinion that she was not liable to pay income-tax on these sums. Mr. Yahya Ali, Judicial Member, was on both the points against the assessee. The two other members of the Bench agreed with Mr. Yahya Ali and it was held by the majority that the assessee was liable to pay income-tax on the sums mentioned above.
21. The assessee then applied to the Tribunal that eight questions be referred to this Court under Section 66(1), Indian Income-tax Act. The Tribunal, however, reframed the questions and referred to us the following questions for our decision:
1. (a) Whether the allowances received by the assessee from the Kalsia State constitute her personal income assessable under the Indian Income-tax Act?
(b) If so, whether they are of a casual and nonrecurring nature and as such exempt under Section 4(3)(vii) of the Act?
2. (a) Whether the moneys received by the assessee from the Nabha State constitute her personal income assessable under the Indian Income-tax Act?
(b) If so, whether they are of a casual and non-reourring nature and as such exempt under Section 4(3)(vii) of the Act? and
3. Whether, by reason of her being the wife of the Ruling Chief of Kalsia, the assessee, who is a resident in British India, is exempt under the canons of International Law from taxation under the Indian Income-tax Act, in respect of her personal incomes accruing, arising or received in British India?
22. My answer to the questions enumerated above, for reasons given by me later, are as follows:
1. (a) Yes;
2. (a) No;
(b) Yes; and
23. The provisions of the Indian Income-tax Act are so complex and are so hedged in by various provisos, exceptions and explanations that it is difficult to generalise about any matter. It may, however, be said, bearing in mind that it is a bare generalisation and is subject to various exceptions, that income, profits and gains are divided for the purposes of ascertaining the liability of an assessee, who is 'resident in British India,' who is 'ordinarily resident in British India' or who is 'not resident in British India,' into three heads according to the place where it has accrued or arisen, namely, (1) income, profits and gains which have accrued or arisen or are deemed to have accrued or arisen in British India (2) income, profits and gains which have accrued or arisen outside British India but have been received in British India or are deemed to have been received in British India and (3) income, profits and gains which have accrued or arisen outside British India. Whether an assessee is 'resident in British India' or is 'not resident in British India' or is 'not ordinarily resident in British India,' he is liable to have his income under the first two heads mentioned above included in his total income for the purpose of assessment, unless such income or any portion thereof is specially exempted. Section 4, Sub-section (1) sets out what income is to be included in the total income of an assessee if he is 'resident' and if he is 'not resident' and if he is 'not ordinarily resident' in British India. This is followed by a number of provisos and explanations which deal mostly with income that has accrued outside British India and are not necessary for our purposes.
24. If an assessee (that is, a person liable to pay income-tax in British India) makes a voluntary allowance to any person out of the assets which remain, his property, he is not entitled to deduct such sums from his total income. Section 16(1)(e) provides that all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939, from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor. This again is followed by a number of provisos which are not relevant for our purpose, but bearing in mind the fact that the principle against double taxation is accepted by the Indian Income-tax Act it is evident that such sums, when they are included in the income of the settlor, transferor, or disponer, cannot be taxed in the hands of the transferee as they are already taxed in the hands of the transferor. In the case of a wife and a minor son, even if the assets are transferred to the wife otherwise than for adequate consideration or in connection with an agreement to live apart, income from such assets is included in the total income of the assessee, see Section 16(3). Whatever may be the reason for the rule and apart from the question of the amount not being taxable twice over, both in the hands of the transferor and the transferee, it appears to me that it is difficult to bring a voluntary allowance made by a husband to his wife or by a father to his son under any of the five heads of taxable income enumerated in Section 6, Indian Income-tax Act. It is clear that it cannot come under the first four heads of income, profits and gains mentioned in Section 6; the only head under which it may be brought is 'income from other sources' i.e., the last head.
25. Section 12 of the Act deals with this last head of 'income from other sources.' The case for the department is that the allowances given by the Raja of Kalsia to his-wife fall under this last head, that is, 'income from other sources.' Section 4(1) read with Section 12 of the Act makes it clear that the words 'from whatever source derived' in Section 4(1) and the words 'if not included under any of the preceding heads' in Section 12 were intended to extend the net as widely as possible so as to catch all possible sources of income. It must, however, be borne in mind that Section 6 of the Act does not say 'any other income' but it is 'income from other sources' and there must, therefore, be a 'source' from which the income is derived before it can fall under the fifth head enumerated in Section 6. In the case of a voluntary allowance paid by the husband to the wife it will be difficult to class the husband as the source of the income. Their Lordships of the Judicial Committee have quoted with approval from Ingram on Income-Tax that' 'source' means not a legal-concept but something which a practical man would regard as a real source of income' : see Rhodesia Metals Ltd. (Liquidators) v. Commissioner of Taxes (1940) 1940 A.C. 774. If, however, the husband is bound to pay a certain sum periodically under an order of a Court or under an agreement, the order or the agreement may be deemed to be the source of the income. Their Lordships of the Judicial Committee in Kamakshya Narain Singh v. Commissioner of Income-tax, B. & O. , held that the agreement to pay the royalty by the lessee of a coal mine was the 'source' of the income Ordinarily, therefore, if a person makes a voluntary allowance to his wife or his children, he is not entitled to get a deduction for such payment and the money in the hands of his wife or children would not be deemed to be their income. It has been held in England that the word 'income' must be construed in the popular sense of the word : see Simpson v. Teignmouth and Shaldon Bridge Co. (1903) 1 K.B. 405 at pp. 411-412 and Aikin v. Macdonald's Trustees (1894) 3 Tax Cas. 306 at p. 308. In Smelting Co. of Australia Ltd. v. Commrs. Of Inland Revenue (1896) 2 Q.B. 179 at p. 184 it was held that the popular sense of the word 'income' connotes a periodical and recurrent receipt arising out of personal exertion or investments in property, securities or business (including activities in the nature of trade). The dictionary meaning of the term 'income' is as follows:
That which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money)' or 'annual or periodical receipts accruing to a person or corporation.' (See Oxford Dictionary.)
It is defined in the Oxford Concise Dictionary as: 'Periodical receipts from one's business, lands, work, investments, etc. (income-tax levied on this).' In the Webster Dictionary it is defined as:
That gain or recurrent benefit (usually measured in money) which proceeds from labour, business or property; commercial revenue or receipts of any kind, including wages or salaries, the proceeds of agriculture or commerce, the rent of houses or return on investments.
26. Learned Counsel for the assessee has drawn our attention to the decision of their Lordships of the Judicial Committee in Commr. of Income-tax, Bengal v. Shaw Wallace & Co. , and has argued that their Lordships have held that the words 'income, profits and gains' are more a matter of words than of substance and really mean the same thing. That may be so, but then in ordinary English it is more appropriate to call certain kinds of receipts as profits or gains and certain other kinds as income, for example, the fees paid to a Barrister could hardly appropriately be called profits or gains, the more appropriate term for the purpose would be 'income.' In Gopal Saran Narain Singh v. Commissioner of Income-tax it was argued that the word 'income' should be construed as including only such income as constitutes or provides a profit or gain to the recipient, i.e., that the word 'income' is in some way limited by its association with the words 'profits' and 'gains.' Their Lordships, however, held that they agreed with the opinion expressed by the learned Chief Justice of the Patna High Court that the word 'income' was not limited by the words 'profits' and 'gains' and anything which could properly be described as income was taxable under the Act unless expressly exempted.
27. Section 4(2), Indian Income tax Act, engrafts an exception to this general rule and it provides that in the case of a wife-resident in British India who receives remittances from her husband who is not resident in British India out of any part of his income which is not included in his total income the remittances so received shall be deemed to be income accruing in British India to the wife. There can be no doubt, therefore, that the sums received by the assessee from Kalsia are to be deemed to be income of the assessee which has accrued to her in British India. For the purposes of that sub-section three conditions are necessary, firstly, that the husband was not resident in, British India, secondly, that he should have made remittances which were received by his wife resident in British India, and lastly, that such remittances should have been made out of any part of his income which is not included in his total income. If these three conditions are fulfilled, then the remittances received must 'be deemed to be income accruing in British India to the wife.' It will be noticed that the word here used is 'remittances' and there can be no doubt that the moneys received by the assessee were remittances. It was admitted by learned Counsel for the assessee that in Kalsia the whole income of the State is at the disposal of the Raja although a budget is prepared for the purpose of allocating moneys to different heads of expenditure. It is all Raja's money to be spent as he pleases and there is no constitution which makes any sharp distinction between the Raja's privy, purse and the rest of the income which does not belong to him and cannot be touched by him. The moneys, therefore, received by the assessee, though provided for in the State budget, must be deemed to be remittances received by his wife. It is also not disputed that the wife, the assessee, is a resident in British India, while the Raja is not a resident in British India. Lastly, the question is whether the remittances were made out of any part of the income of the Raja which was included in his total income.
28. All the members of the tribunal were of the opinion that Section 4(2) was not applicable because 'the husband has not been assessed1 to income-tax' on his total income. To my mind, the section has been completely misunderstood by the Members of the Tribunal. I have already in the earlier part of my judgment said that a non-resident is liable to pay tax for moneys which he has received in British India or which is deemed to have been received by him in British India. To my mind, Section 4(2) is an extension of that principle and what is attempted is, to tax such income when it is not re6eived by the husband in British India but is received by his wife in the shape of remittances received in British India. The provision that such remittances should not be out of any part of his income which is included in his total income is obviously for the purpose of avoiding double taxation. I can find no reason why the remittances received by the wife should be taxable only when the remittances are made from other income, but the husband has some income which can be included in his total income and not when he has no income which can be included in his total income. All that the section requires is that the remittances should be from income not included in his total income and obviously in the latter case the remittances must be from income which is not included in his total income. There can be no doubt that no part of the money out of which these remittances have been made was included or could be included in the total in come of the Baja for the purposes of the Indian Income-tax Act and it is, therefore, clear to me that the remittances received by the wife are taxable as receipts 'deemed to be' income accruing to her in British India.
29. Learned Counsel has argued that a gift of money is never taxable as income in the hands of the donee. He has in support of this proposition cited before us Halsbury's Laws of England, Hailsham Edn., Vol. 17, p. 14, para. 16 and again p. 265, Para. 531. Apart from the question that little can be gained by trying to construe an Income-tax Act of one country in the light of a decision upon the meaning of the income-tax legislation of another, as was remarked by their Lordships of the Judicial Committee in Gopal Saran Narain Singh v. Commissioner of Income-tax p. 242 the proposition, to my mind, as stated by learned counsel, is far too general. I shall deal with this matter in greater detail when I come to deal with the question of allowances paid to the assessee from the Nabha State. In Section 4, Sub-section (2) the Legislature has laid down that the remittances received by the wife in British India are taxable as income which has accrued to the wife in British India. The word 'remittances' means sending of money. There can be no doubt that the moneys received by the assessee were remittances to her within the meaning of Section 4, Sub-section (2) and, therefore, they shall be deemed to be income which has accrued to the wife in British India. The last point urged in this connection was that the remittances being voluntary must be deemed to be of a casual and non-recurring nature as the husband had the right to stop the remittances at any moment he liked. Section 4(2) is in the nature of an exception to Section 4(1) which is the general section and, to my mind, the exceptions in Section 4(3) cannot be engrafted on Section 4(2) and the question about the remittances being of a casual and non-recurring nature, therefore, does not arise.
30. There is further reason for this conclusion. If the husband had himself come to Dehra Dun and received these moneys in Dehra Dun, it could not be urged that the receipts by him were of a casual and nonrecurring nature. There was a definite source, viz., the income of his State, from which moneys were bound to come to him and the amount could, therefore, be taxed in his hands as his income, provided he could not claim exemption from taxation under the International Law on the basis of his being sovereign. I have already held that Section 4, Sub-section (2) is an extension of this principle and for the purposes of that section the amount is taxable, even though it is not the husband but the wife who has received it. I am, therefore, of the opinion that the amounts received by the assessee from the Baja of Kalsia are taxable as income which must be deemed to have accrued to the assessee in British India under Section 4(2) of the Indian Income-tax Act and that no question as to whether they are casual and nonrecurring arises.
31. Next arises the question of the allowances made by the Nabha State. The findings of fact recorded by the tribunal are that there is a practice of making allowances by the Buling Prince to his sister and to his other dependents, but this depends entirely on his will and pleasure, that is, if the Maharaja of Nabha at any time chose to stop the allowance, the assessee would have no right to claim it from him either in the British Courts or in his own Courts. Learned Counsel has argued that the allowances made to the assessee were not income at all, and he has ffelied on Halsbury's Laws of England, Hailsham Edition, Vol. 17, p. 14, para. 16 which is in these words:
Unless gifts or voluntary allowances are part of the emoluments of an office, employment or vocation, they are not income....
and at p. 265, para. 531 of the same volume:
Gifts or voluntary allowances are not income in the hands of the recipient unless they are attached to and form part of the emoluments of an office, employment, or vocation.
This matter is further discussed in the same volume from paras. 435 to 438 at pp. 213-217. Before accepting the proposition enunciated above, we must bear in mind that the scheme of the Indian Income-tax Act is entirely different from the scheme of the English Act. Under the latter Act the profits and gains that are taxable are set out in the various schedules to the Act and before a tax can be levied the profits and gains which are sought to be taxed must fall under one or other of the heads specified in the schedules. On the other hand, under the Indian Income-tax Act all income, profits and gains are made taxable unless they fall within the exceptions mentioned in the Act. After having enumerated the four heads of 'salaries, interest on securities, income from property' and 'profits and gains of business, profession or vocation,' the Act provides the last head of 'income from other sources.' Section 4, Sub-section (1) makes it clear that such income may be from whatever source derived, and Section 12 says that it may be of every kind which is not included in any of the preceding heads. It will, therefore, be unsafe to go by mere analogy of the English Act, and their Lordships of the Privy Council have in two cases, Commr. of Income-tax, Bengal v. Shaw Wallace & Co. and Gopal Saran Narain Singh v. Commissioner of Income-tax warned the Courts against construing the Indian Income-tax Act in the light of decisions upon the meaning of income-tax legislation of other countries. In the latest decision in Kamakshya Narain Singh v. Commissioner of Income-tax, B. & O. their Lordships have, at p. 496, observed:
The Indian Income-tax Act of 1922, which was a consolidating Act, is both in its general framework and its particular provisions different from the English Income-tax Acts, so that decisions upon the English Acts are in general of no assistance in construing the Indian Act. But on some fundamental concepts reference may be to some extent usefully made to English decisions, in particular as to the meaning of the word 'income'.
In view of this observation it may have been necessary to consider what was the meaning of the word 'income' under the English Statute. Their Lordships have, however, themselves attempted to define the word 'income,' but as they have pointed out that when the Legislature did not define the word 'income,' it did not do so 1946 A/41 & 42 because there could be no definition which would be entirely satisfactory. What is taxable income of an assessee would differ in each case according to the facts and circumstances of that case. This may be illustrated by the following example which is given in one of the decisions of their Lordships of the Judicial Committee. A person who owns certain shares wants to sell them with the object of either obtaining cash or with the object of investing the money in fresh securities. He sells those shares and gets money for them. The shares are sold at a premium. The difference between the purchase price and the sale price would not ordinarily be taxable as it is an augmentation of the capital. If, on the other hand, a person, who is a regular share dealer and speculates in shares on the stock exchange, by judicious buying and selling of shares has in the course of the year made a lakh of rupees as profit, there can be no doubt it will be treated as his income and, as such, be taxable.
32. The leading case on the subject which attempted to define this most difficult word 'income' is the decision of their Lordships of the Judicial Committee in Commr. Of Income-tax, Bengal v. Shaw Wallace & Co. . There the assessees were given a certain solatium for the compulsory cessation of their business as agents, and the question was whether the payment thus made was in the nature of a capital receipt or was it a receipt from business or other sources which were taxable. Their Lordships held that, income should be (1) in the nature of a periodical monetary return, (2) 'coming in' with some sort of regularity and (3) from definite sources, the source being not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. It must be remembered that this definition was given by their Lordships when dealing with the question whether the amount paid to the assessees was in the nature of a capital receipt or was an income from business. Their Lordships held that it was not an income from business. It is true that dealing with the question whether it was income from other sources their Lordships held that the reasoning previously given by them applied to that question also and the payment was in the nature of a solatium which was a windfall and was not an income at all. This definition has been accepted by the Courts in India, as it was bound to be, as the leading case on the definition of the term 'income.' In the next case before their Lordships, Gopal Saran Narain Singh v. Commissioner of Income-tax where the question was whether an annuity payable under an agreement for consideration amounted to a payment of the purchase price by instalments, it was held that the annuity was not a capital asset but was taxable income under the head 'other sources.' Their Lordships reaffirmed and accepted the definition of the word 'income' as given in the decision of the case in Commr. f Income-tax, Bengal v. Shaw Wallace & Co. and quoted it with approval. Both these cases, it must be remembered, were cases where the question was whether the money received by the assessee was in the nature of a capital receipt or was taxable income. The latest case is the case in Kamakshya Narain Singh v. Commissioner of Income-tax, B. & O. where the question was whether the royalties realised from lessees of coal mines under certain leases were in the nature of capital payments or were taxable income. Their Lordships held, relying on the terms of the lease, that the sources of 'the royalties may properly be deemed to be the lessees' covenants to pay them, and hence royalties fall under 'other sources'.' Their Lordships, while dealing with the meaning of the word 'income,' observed:
Income, it is true, is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation. Its definition has, however, been approached in recent decisions of this Board. The first to which their Lordships think it is desirable to refer is Commr. Of Income-tax, Bengal v. Shaw Wallace & Co. .
Their Lordships then quoted the definition given in Commr. of Income-tax, Bengal v. Shaw Wallace & Co. and went on:
That definition was followed and in substance repeated in a decision of the Board delivered by Lord Russell of Killowen in Gopal Saran Narain Singh v. Commissioner of Income-tax .... Lord Bussell, adopting generally the definition already quoted, added the following important amplification:
The word 'income' is not limited by the words 'profits' and 'gains.' Anything which can properly be described as income, is taxable under the Act unless expressly exempted.
Their Lordships then observed:
It is not in their Lordships' opinion correct to regard as an essential element in any of these or like definitions a reference to the analogy of fruit, or increase or sowing or reaping or periodical harvests. Lord Cairns (loo. cit.) used these expressions because he was distinguishing mineral leases from agricultural leases. Sir George Lowndes (loc. cit.) speaks of 'income' being likened pictorially to the fruit of a tree or the crop of a field. But it is clear that such picturesque similes cannot be used to limit the true character of income in general, and particularly when it is constituted by mining rent or royalties.
Then their Lordships go on to hold:
Income is not necessarily the recurrent return from a definite source, though it is generally of that character. Income again may consist of a series of separate receipts, as it generally does in the case of professional earnings. The multiplicity of forms which 'income' may assume is beyond enumeration. Generally, however, the mere fact that the income flows from some capital assets, of which the simplest illustration is the purchase of an annuity for a lump sum, does not prevent it from being income, though in some analogous case the true view may be that the payments, though spread over a period, are not income, but instalments payable at specified future dates of a purchase price. Such a case is illustrated by Scoble v. Secretary of State for India (1903) 1903 A.C. 299.
33. As regards the argument of learned Counsel that a gift is not taxable at all, I may mention that many gifts or voluntary payments are made expressly taxable by the Indian Income-tax Act itself, or, at any rate, it contemplates the possibility of their being taxed, for example, in Section 4(3)(ii) any income of a religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitable purposes is not taxable which implies that if it is not applied solely to religious or charitable purposes it would probably be taxed. Further, any annuity or even a gratuity paid to a servant is taxable under the head 'salaries.' It is true that in construing the Income-tax Act it is not always safe to deduce from an exemption that the contrary must be taxable income. There are certain classes of income made expressly taxable and certain exemptions separately mentioned to override or overrule the decisions of the Courts which did not find favour with the Legislature, or it may be that they are expressly mentioned due to the over-anxiety of the draftsman to make the point clear beyond all possibility of doubt. Referring to the argument that Section 4(3)(v) suggests that the word 'income' in the Act may have a wider significance than would ordinarily be attributed to it, their Lordships of the Judicial Committee have expressed the view, in Commr. of Income-tax, Bengal v. Shaw Wallace & Co. that they do not think that any of the sums mentioned in that clause, apart from their exemption, could be regarded in any scheme of taxation as income and they think that the clause must be due to the over-anxiety of the draftsman to make this clear beyond any possibility of doubt. It is, however, not necessary to pursue this matter further as the question really is whether the remittances made by the Maharaja of Nabha to the assessee are her income or are taxable income. I am inclined to hold that in any case the remittances are not taxable income. The remittances made by the Maharaja of Nabha to the assessee may be income but to my mind they are expressly exempted under Section 4, Clause (3)(vii). That sub-clause provides that any receipts not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature, or are not by way of addition to the remuneration of an employee are not taxable.
34. There can be no doubt that the allowances made by the Maharaja of Nabha to the assessee were of a casual nature. The case in Stedeford v. Beloe (1932) 1932 A.C. 388 dealt with the question whether the allowances and pensions, given to the headmaster of a school on his retirement when his service was not a pensionable service and the pension depended entirely upon the goodwill of the governing body, who might at any time, if they wished, rescind the minute under which they granted the pension, fell under Schedule E, Income-tax Act of 1918, as amended by Section 18, Finance Act, 1922. Viscount Dunedin observed:.it has been held again and again that a mere voluntary gift is not such a profit because it is not, in the true sense of the word, income. It is merely a casual payment which depends upon somebody else's goodwill.
Lord Warrington of Clyffe observed:
Here each payment is wholly voluntary. The case is only an instance of a succession of voluntary payments, each of which is voluntary and none o which need necessarily be continued.
Lord Thankerton said:
It was a mere donation, given each year with no certioration that it would be repeated the year following.
In that case the pension was not an instance of an isolated payment but a series of payments, and yet Viscount Dunedin characterised it as a mere casual payment which depended upon somebody else's goodwill. That decision of the House of Lords, to my mind, conclusively establishes that the payments made by the Maharaja of Nabha to the assessee, depending as they did on the pleasure of the donor, were 'casual' payments. It is, however, argued on behalf of the department that the fact that the payment has been regularly made during the last six years before the year of assessment showed that it was not of a non-recurring nature and Section 4(3)(vii) requires that for the purpose of exemption not only the payment should be 'casual' but that it should also be of 'a non-recurring nature.' In none of the cases cited before us have the words 'nonrecurring nature' been considered by the Judicial Committee or by any Court in India. As I understand those words, they mean not that the payment has, as a matter of fact, recurred but that it was bound to recur. If the Maharaja of Nabha had in any one year made a present of a sum of money to his sister, it is conceded that it would not be taxable income as it would be of a casual and non-recurring nature, If it is made a second time, it is said that that too may be casual and non-recurring, but if the payment is repeated a third or a fourth or a fifth time, from the fact of the repetition itself it is said the Courts may be able to deduce that it was not a mere casual payment of a nonrecurring nature and Was, therefore, not exempt from taxation. To my mind, the word 'non-recurring' does not mean that it has, as a matter of accident or as a matter of fact, recurred, but that there was a claim or a right in the assessee to expect its recurrence. I think a mere voluntary payment, not being receipts arising from business or the exercise of a profession, vocation or occupation and not being by way of addition to the remuneration of an employee or not having been made expressly liable is not liable to be taxed; and as I understand the exception, a voluntary payment must be deemed to be of a casual and non-recurring nature unless there is a liability on the donor to pay, which liability may arise out of a contract, a custom or some order which is binding on him.
35. On the grounds given by me above I would hold that the allowances made to the assessee from Nabha do not constitute her personal income assessable under the Indian Income-tax Act and that they are of a casual and non-recurring nature and are, as such, exempt under Section 4(3)(vii) of the Act. To my mind, there was no justification in splitting up questions Nos. 1 and 2 into parts (a) and (b) as they appear to me to be contradictory to each other. If the case fell under Section 4(3)(vii) of the Act, it would necessarily not be personal income assessable under the Indian Income-tax Act, and I, therefore, do not see any reason why the questions were split up as they have been. To my mind, questions 1 and 2 may have been better framed in the words of the Privy Council in Commr. of Income-tax, Bengal v. Shaw Wallace & Co. that is, whether the moneys received by the assessee from Kalsia were in the nature of an income receipt and would fall to be assessed to income-tax? A similar question may have been framed with reference to the receipts from Nabha.
36. The last question that we have to consider now is whether the assessee being the wife of the Ruling Chief of Kalsia is exempt under the canons of International Law c from taxation under the Indian Income-tax Act in respect of her personal income accruing, arising or received in British India. The question presupposes that the Raja of Kalsia is a Ruling Chief and there is no question separately addressed to us whether the relationship for the purpose of taxation between the Raja of Kalsia and the Income-tax Department is to be regulated by considerations of International Law. The point was argued before us at great length, though in the view that I have taken it is not necessary to express any definite opinion on the point. I am of the opinion that even if the Raja of Kalsia was an independent sovereign and exempt from payment of income-tax in British India, his wife was not so exempt. The Central Government has been given authority by Section 60 of the Indian Income-tax Act to make an exemption, reduction in rate or other modification, in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any class of persons. Such power is to be exercised by a notification in the Official Gazette. It is admitted that no such notification in favour of the Ruling Chiefs has been made by the Government of India. It is, however, argued that on the well recognised principle of International Law par in parem non habet imperium a foreign sovereign is not entitled to be taxed by the Government of another country, and in support of that principle learned Counsel has cited before us Oppenheim's International Law, Vol. I, 5th Edn., pp. 590 and 591. It is not denied that the Legislature of an independent State has the power to override by appropriate legislation a rule of International Law : see the observations in Rochefoucauld v. Boustead (1897) 1 Ch. 196. It is argued that unless the rules of International Law have been expressly abrogated by statute, the Courts would interpret the Act, as far as its language admits, so as not to be inconsistent with the established rules of International Law or with the principles of comity of nations: see Maxwell on Interpretation of Statutes, 7th Edn., p. 127. There can be no doubt that these are sound principles of law and in interpreting the Income-tax Act it must be conceded that there is nothing in the language of the Act which would entitle us to hold that the Legislature intended to override any settled principles of International Law.
37. The distinction between British territory in India or the British India and the territory of the Indian States is well recognised, and it is admitted on all hands that the Indian States do not form a part of the British territory, though the Crown exercises certain rights through His Majesty's representative known as the Crown Representative including the right of conducting international relations, the right of exercising jurisdiction over Europeans and Americans, interference to settle disputes as to succession to the State, the suppression of grave misrule in the State, and the regulation of armaments and the strength of military forces. The question whether the Indian States can be called sovereign States merely because they exercised internal sovereignty is not free from doubt. It is recognised by some of the text-writers on International Law that a State may exist qua State, i.e., retain its 'political personality,' notwithstanding a very great 'imminutio imperii' resulting from its relation with other States or with a more powerful State. In spite of the fact that certain text-writers have expressed an opinion against the Indian States being sovereign States, the Courts have so far disclaimed all jurisdiction against a Ruling Chief. Hall in his book on International Law, p. 28, Westlake on his Collected Papers for International Law, p. 216, and Smith in his International Law, p. 59, have all expressed the view that Indian States are not subjects of International Law. Oppenheim has drawn a distinction between a vassal State and a protected State and is of opinion that the Indian States are all vassal States. The question of the liability to pay income-tax on the income of property situate in British India and owned by an Indian State arose in Bishwanath Singh v. Commissioner of Income-tax, Central and United Provinces ('42) 29 A.I.R. 1942 All. 295 Mr. Pathak on behalf of the assessee has attempted to distinguish that case on the ground that the status of the Raja of Kalsia was different from the status of the Maharaja of Benares. According to him the sovereign rights of the Maharaja of Benares flowed from an Instrument of Transfer dated 1st April 1911, see Aitchison's Treaties, Engagements and Sanads, Vol. 2, p. 89) and with respect to territories which were not included in the Benares State it was provided that
within the other estates now in possession of His Highness Sir Prabhu Narayan Singh, G.C.I.E., which are outside the State of Benares, he shall continue to have the status and responsibilities of a land-holder under the ordinary law and within the pargana of Kaswar Raja he shall assume that status and those responsibilities.
It is argued that with reference to house property in British India his position was that of any other owner and he could be taxed. It is further urged that the Maharaja of Benares having derived his sovereignty under the Instrument of Transfer of 1st April 1911, whatever rights were not transferred to him under that treaty still vested in the British Crown. As against that it is argued that the relations between the Kalsia State and the British Government are governed by treaty rights and the Kalsia State retains sovereign powers limited only by the clauses of the treaty. Moghul Emperors in the days when they were in power claimed to be the Emperors of Hindusthan and insisted on being recognised by the minor kings and chieftains as their overlord or sovereign, though these minor kings enjoyed a considerable amount of internal sovereignty. As the powers of Moghul kings declined their hold on these chiefs or chieftains gradually grew weaker and new chiefs or chieftains arose, but in name the kings of Delhi remained their overlord or sovereign. As the Marhatta power in the country increased the power of the Moghul Emperors declined and ultimately about the year 1760 the Moghul Emperors became practically puppets in the hands of the Marhattas. Thereafter they remained the virtual prisoners in the hands of the British till Bahadur Shah II was tried and formally deposed and deported after the Mutiny of 1857 and the claim for paramountcy of the Moghul Emperors was transferred to the British Crown, see State, 21 and 22 Vic, chap. 106, which enacted
that all territories in the possession or under the Government of the Company, and all rights vested in or which (if the Act had not been passed) might have been exercised by the Company in relation to any territories should become vested in Her Majesty.
Before the fall of the Moghul Empire, in theory at any rate, there were three independent States in India - the Moghul Empire, the kingdom of Maharaja Banjit Singh in the Punjab and the Marhatta Confederacy. The Cis-Sutlej States were on the east of the Punjab and were not included within the kingdom of Maharaja Ranjit Singh. The State of Kalsia was founded by Sardar Gurbakhsh Singh and was one of the Cis-Sutlej States. Gurbakhsh Singh had been succeeded by his son, Jodh Singh. Sir David Ochterlony issued a proclamation on 3rd May 1809, offering protection to the Cis-Sutlej States and guaranteed that the Chiefs who accepted the British protection shall remain in the exercise of the same rights and authority within their own possession which they enjoyed before they were taken under British protection. After some hesitation Jodh Singh decided to follow the example of the others and was also assured of protection, and treaties guaranteeing protection against Banjit Singh were entered into with nine States including Nabha, Patiala, Kalsia,. Alwar, etc : see Lee Warner's Native States of India, 1910 Edn., p. 55. The Treaty is set out in Aitchison's Treaties, Vol. 8 at pp. 186 and 294. The Chief of Kalsia received an adoption Sanad in 1862 and the State was transferred to the political charge of the Commissioner of Ambala Division in the year 1912. Before that it was under the political superintendence of the Commissioner of the Delhi Division. In 1916 the hereditary title of Baja was conferred, though the Raja is not entitled to any salute of guns or to the title of His Highness.
38. To my mind, the difference which is attempted to be drawn by learned Counsel for the assessee between an Indian State, the connections between which and the British started with a treaty, and the States which had fought and lost and were then recognised as feudatory Chiefs or Ruling Princes, has no substance. The question whether by reason of the fact that these Indian States which enjoyed internal sovereignty subject to the paramountcy of the Crown are to be treated as foreign sovereigns who are not amenable to the jurisdiction of the British Courts has arisen in several cases. It is true that under Section 57, Evidence Act, a Court may, on all matters of public history or the existence of title and national flag of every State or sovereign recognised by the British Crown, resort for its aid to appropriate books or documents of reference, and most of the text-writers are of opinion that for the purposes of International Law the Indian States cannot be treated as international units. The Crown has, however, always drawn a distinction between the territories in its possession and the territories of Ruling Chiefs over which it exercises rights of paramountcy. Before we come to the statutes where the sovereign status of the Indian Princes have been recognised, I may mention some of the cases where the question arose. In Statham v. Statham (1912) L.R. (1912) P. 92 the question arose whether His Highness the Gaekwar of Baroda could be cited as a co-respondent before the British Court. Bargrave Deane J. at p. 96 observed:
Grotiua (De Jure Belli ae Paois) says unequal leagues are made not only between the conquerors and the conquered, but also between peoples of unequal power, even such as never were at war with one another. Grotius, Pufendorf, and Vattel agree that in unequal alliances the inferior power remains a sovereign State. Its subjeots or citizens owe allegiance only to their own sovereign. Over their disputes and internal dissensions the suzerain power as such has no jurisdiction. In short, the weaker power may exercise the rights of sovereignty so long as by so doing no detriment is caused to the interests or influence of the suzerain power. It follows that the inferior power must in all alliances with other States be controlled by its suzerain.
Vattel says a weak State which in order to provide for its safety places itself under the protection of a more powerful one and engages to perform in return several offices equivalent to that protection, without however divesting itself of the right of Government and sovereignty, does not cease to rank among the sovereigns who acknowledge no other law than the law of nations.
It will be noticed that no distinction is drawn between a State which was conquered and a State which acknowledged its weakness and entered into a treaty and parted with certain of its sovereignty rights. It was held in that case that the Maharaja of Baroda was a sovereign prince and could not be sued in a British Court. The matter arose before the House of Lords in Duff Development Co. Ltd. v. Government of Kalantan (1924) 1924 A.C. 797. The position of the State of Kelantan was analogous to the position of the Indian States, yet their Lordships held that
a Government recognised as sovereign by His Majesty's Government is not the less exempt from the jurisdiction of our Courts because it has agreed to restrictions on the exercise of its sovereign rights.
39. The same point again arose in Jwala Prasad v. Rana of Dholpur (1863) 1863 S.D.A. 579, Sirdar Gurdyal Singh v. Raja of Faridkot (1894) 1894 A.C. 670, Movstak Rae v. Lady Randheer Singh of Kapurthala State ('70) 54 P.R. 1870, Lachmi Narain v. Raja Partab Singh or Rampur ('78-80) 2 All. 1, Ladkuverbai v. Ghoel Shri Sarangji Pratabsangji ('70) 7 Bom. H.C.R. 150, the ease relating to the Thakur of Palitana, Phumanlal v. Raja Shamsher Parkash ('75) 93 P.R. 1875 and Beer Chunder v. Nobodeep Chunder Deb ('83) 9 Cal. 535 at p. 552. In all these oases it was held that Ruling Chiefs of Indian States were sovereign princes and were not amenable to the jurisdiction of civil Courts in British India. To my mind, the decision in Bishwanath Singh v. Commissioner of Income-tax, Central and United Provinces ('42) 29 A.I.R. 1942 All. 295 does not go against that principle. Under the International Law a foreign sovereign, an ambassador and an envoy of a foreign Government enjoy immunity from taxation. Any immovable property, even though it may be owned by a foreign sovereign, is under the jurisdiction of the Court of that country. It is only to be deemed as foreign territory when it is the official residence of the sovereign or his ambassador. The income of the house property owned by the Maharaja of Benares over which income-tax was held to be payable in Bishwanath Singh v. Commissioner of Income-tax, Central and United Provinces ('42) 29 A.I.R. 1942 All. 295 was not income from such property which could be said to be outside the jurisdiction of the Indian Courts.
40. The Indian States have been recognised as sovereign States by various statutes in India and in England. Under the Civil Procedure Code beginning from 1859 the restriction of the British Courts over Indian princes has been well recognised. The present Sections 85 and 86 of Act 5 [v] of 1908 make Indian princes liable to be sued on three grounds which are exactly the same as under the well recognised principles of International Law, that is, if they have immovable property in British India and the suit is brought with reference to that property, if they have themselves brought a suit and brought themselves under the jurisdiction of the British Courts, and lastly if they trade within the local limits of the jurisdiction of the Court; and such suit can only be brought with the consent of the Governor-General in Council. A reference to Sections 85, 86 and 87 would show that a sovereign prince and a ruling chief of an Indian State are placed exactly on the same footing. The Foreign Jurisdiction Act, 53 and 54 Vict. chap. 37, was made applicable to the Indian States by an Order-in-Council dated 11th June 1902.
41. Section 4(3) of the Indian Income-tax Act was amended by the Indian Income-tax Amendment Act, (23 [XXIII] of 1941), and a Sub-clause (10) was added, and it was made clear that an accredited representative in British India for political purposes of a Ruling Chief is not liable to pay income-tax on any remuneration received by him in such capacity. That sub-section, to my mind, recognises in part the rule of public International Law that an ambassador of a foreign state is not liable to pay tax in the country where he may be posted by his Government. Further under Section 49A of the Act, which was added by the Indian Income-tax Amendment Act, (7 [VII] of 1939), the Central Government may, by notification in the Official Gazette, make provision for the granting of relief in respect of income on which has been paid both income-tax (including super-tax) under this Act and Dominion income-tax, and 'Dominion in-come-tax' has been defined to include any income-tax or super-tax charged under any law in force in any Indian State. These provisions in the Indian Income-tax Act incline me to the view that the Legislature recognised that the territory of the Indian States was outside British India and the ruling Chief of an Indian State was a sovereign prince who had the same immunity from taxation as any other foreign sovereign.
42. Learned Counsel has drawn our attention to Section 47, Government of India Act, where the word 'sovereignty' has been used with respect to certain territories of His Exalted Highness the Nizam of Hyderabad. That the Kalsia State is an Indian State within the meaning of Section 3(27), General Clauses Act of 1897 and Section 311, Government of India Act of 1935 admits of no doubt. The President of the Appellate Tribunal, Mr. M. Munir, was of the opinion that he was bound to hold 'that the Kalsia State is not a subject of International Law and its ruler not an independent sovereign.' Mr. Yahya Ali, with whom the other two members of the Tribunal, Mr. A.L. Sahgal and Mr. N.N. Chakravarty, agreed, held as follows:
It is from the authorities abundantly clear therefore that the appellant's husband as a Ruler of Kalsia is not entitled to the rights of extraterritoriality (including the right of exemption from taxation) which a sovereign is entitled to under the Code of International Law.
All the members of the Tribunal were, therefore, agreed that the Ruler of Kalsia was not entitled to immunity from taxation under the International Law. So far as I can see, the question has not been referred to us for our opinion. The question reads as follows:
Whether by reason of her being the wife of the Euling Chief of Kalsia, the assessee, who is a resident in British India, is exempt under the canons of International Law from taxation under the Indian Income-tax Act, in respect of her personal incomes accruing, arising or received in British India.
If I had to consider the question whether the Ruling Chief of Kalsia was exempt from taxation under the International Law, as at present advised, I would probably have held against the Commissioner of Income-tax. One point that strikes me at the outset is that if it were held that a ruling chief is not exempt under the Indian Income-tax Act, then if he were to become resident in British India, as defined in Section 4A of the Act his total income would have included not only the amounts that were received by him or had accrued to him in British India but all such income which may have accrued to him in that year even without British India and on that basis he might have been called upon to pay income-tax on the total revenue of his State. The proposition has only to be rejected as absurd. I may point out that by the Indian Income-tax Amendment Act (23 [XXIII] of 1941) a new Clause (c) was added to Section 14(2) which reads as follows:
The tax shall not be payable by an assessee - in respect of any income, profits or gains accruing or arising to him within an Indian State, unless such income, profits or gains are received or deemed to be received in or are brought into British India in the previous year by or on behalf of the assessee, or are assessable under Section 42.
This exemption did not come into force before 1st April 1944 and before this amendment therefore the Ruling Chief resident in British India could easily have been taxed on the total income of his State unless it could be said that he was exempt by reason of the fact that he was a sovereign prince. Learned Counsel for the department has relied on Section 135, Government of India Act, 1935, and has urged that it presupposes the liability of the Indian States to taxation, but that section only relates to Federal taxes and it refers to only those States which had decided to come within the Federation under Section 5 of the Act. The portion of the Act dealing with Federation has not yet come into effect. The argument that the wife of a sovereign is exempt from taxation is based on certain observations in Oppenheim's book on International Law, Vol. I, pp. 590-591. He says:
The wife of a sovereign must likewise be granted ex-territoriality, but not other members of a sovereign's family.
Oppenheim based it on the authority of Rivier, while according to Bluntschli ex-territoriality need not in strict law be granted to the wife of a sovereign. A reference to Sections 85 and 86, Civil P.C. (5 [V] of 1908), would, however, show that there is no such protection given to the wife of Indian princes against their liability to be sued in British India, The only case in which the question of the wife of an Indian Chief being sued arose was the case in Movstak Rae v. Lady Randheer Singh of Kapurthala State ('70) 54 P.R. 1870 p. 139. A reference to that case, however, would show that the suit had been filed with reference to moneys lent to Lady Randhir Singh, Rani of Kapurthala, while she was living inside the State with the Maharaja. The suit was brought in British India where she happened to be present and the Court held that the cause of action had arisen in the State and the Court would not entertain a suit between a State subject and the Ruler or his wife on a cause of action which had accrued inside the State and outside British India merely on the ground that the defendant happened to be in British India. A reference to Section 155, Government of India Act, 1935, would also show that the exemption from Federal taxation with respect to lands, or buildings situate in British India or income accruing, arising or received in British India is given only to the Ruler of a Federated State and not to his wife.
43. Learned Counsel for the assessee has argued that in case of doubt the benefit of the doubt must go to the assessee and his client must, on the opinion of Rivier, be given the exemption. I am, however, inclined to follow the opinion of Bluntschli whose opinion seems to have been tacitly accepted in the Civil Procedure Code and in the Government of India Act. If the wife of a Ruling Chief is not exempt and can be sued in British Courts, there seems to be no principle under which we can say that she is exempt from taxation.
44. Our attention was also drawn to the Government Trading Taxation Act of 1926 and it was urged that if Indian Princes were liable under the Indian Income-tax Act, it was unnecessary to have the Government Trading Taxation Act of 1926 on the Statute. Dr. Asthana on behalf of the Department has argued that the Government Trading Taxation Act was intended to include not only the Indian States but any part of His Majesty's dominions exclusive of British India. That may be so, but there can be no doubt that the Government Trading Taxation Act of 1926 was intended to include not only His Majesty's dominions but also the Government of the Indian States trading in British India and that, to my mind, is some indication that the Ruling Chiefs of Indian States, as such, are not liable to taxation under the Indian Income-tax Act. However, in the view that I have taken that the wife of an Indian Chief is not entitled to the same exemption, it is not necessary for me to go into the question of the liability of the Ruling Chiefs any further. My answer to the question, therefore, is in the negative.
Iqbal Ahmad C.J.
45. I have had the advantage of reading the judgment of my brothers Braund and Malik and I agree with the conclusions arrived at by them. The answer to the questions referred should, in my opinion, be as formulated by my brother Braund.
46. The answer to the questions referred is as follows : (1) The allowances received by the assessee from the Kalsia State during the accounting year should be deemed to be her income accruing in British India. No question arises in this case whether they are of a casual and non-recurring nature. (2) The moneys received by the assessee from the Nabha State during the accounting year do not constitute her personal income assessable under the Indian Income-tax Act. (3) The assessee, by reason of her being the wife of the Ruling Chief of Kalsia, is not exempt under the canons of International Law from taxation under the Indian Income-tax Act, in respect of whatever is, or is deemed to be, her income accruing, arising or received in British India.
47. In the circumstances of the present case we direct the parties to bear their own costs of this reference. We assess the fee of the counsel for the department at Rs. 500.