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Kunwar Bishwanth Singh Vs. Commissioner of Income-tax, C. P. and U. P. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad
Decided On
Reported in[1942]10ITR322(All)
AppellantKunwar Bishwanth Singh
RespondentCommissioner of Income-tax, C. P. and U. P.
Excerpt:
- - after an appeal, which was unsuccessful, to the assistant commissioner there was a reference to this court and this very bench decided the reference, which is reported as maharaja of benares v. in spite of proper service of the afosaid notice kunwar bishwanath singh failed to appear, nor was any communication receive from him by post. 2 and 3 were not referred to us and a separate application under section 66 (3) was filed before us and it was prayed that we should require the commissioner to state a case on those two questions as well, but have rejected that application. 'learned counsel for the assessee contended at the very outset that the learned commissioner ought not to have limited the scope of the first question inasmuch as the notice was challenged not only on the basis of......this is a reference under section 66 (2) of the indian income-tax act and has been made by the commissioner and united provinces, at the instance of kunwar bishwanath singh, the assessee in the present case. it appears that the income-tax authorities hold the view that the income of his highness the maharaja of benares who is 'a person residing out of british india, if it has any connection, direct or indirect, with any business or property in british india, can be chargeable to income-tax on the ground that it shall be deemed to be income accruing or arising within british india and they, therefore, started certain proceeding for the assessment year 1934-35. the income-tax officer of benares issued a notice directly on his highness the late maharaja and on a return being filed made an.....
Judgment:

.

This is a reference under Section 66 (2) of the Indian Income-tax Act and has been made by the Commissioner and United Provinces, at the instance of Kunwar Bishwanath Singh, the Assessee in the present case. It appears that the income-tax authorities hold the view that the income of His Highness the Maharaja of Benares who is 'a person residing out of British India, if it has any connection, direct or indirect, with any business or property in British India, can be chargeable to income-tax on the ground that it shall be deemed to be income accruing or arising within British India and they, therefore, started certain proceeding for the assessment year 1934-35. The Income-tax Officer of Benares issued a notice directly on His Highness the late Maharaja and on a return being filed made an assessment.

After an appeal, which was unsuccessful, to the Assistant Commissioner there was a reference to this Court and this very Bench decided the reference, which is reported as Maharaja of Benares v. Commissioner of Income-tax. The contention advanced then on behalf of His Highness was that the entire proceeding taken by the income-tax authorities in the case were direct violation of the mandatory procedure prescribed by the act inasmuch as the income-tax authorities had not, before proceeding to assessment, fixed upon an agent of the non-resident principal under Section 42 of the Act. We acceded to the contention advanced on behalf of His Higness and held that granting that the assessee was a non-resident, the Income-tax Officer was precluded by certain provisions of the Indian Income-tax Act from serving a notice on him without appointing an agent within the meaning of Section 43 of the Act.

On receipt of a copy of our judgment the Commissioner of Income-tax forwarded it to the Assistant Commissioner, and he on the 14th of February 1938 set aside the assessment in connection with the assessment year 1936-37, regarding which an appeal had been filed earlier before him, and directed a fresh assessment to be made after the appointment of an agent under Section 43 of the Act. We do not know exactly how the situation stood regarding the assessment year 1934-35 about which reference had been made us. The Income-tax Officer of Benares then after entering into correspondence with the Chief Secretary of the Benares State and getting a reply from him to the effect that the proper person to be appointed as agent was not the Chief Secretary, but Diwan Nizamat Kumar Bishwanath Sing, issued a notice to the latter intimating to him the intention of the Income-tax Officer to appoint him as agent to Captain His Higness the Maharaja Sir Aditya Narain Singh Bahadur, K. C. S. I, D. Litt., within the meaning of Section 43 of the Indian Income-tax Act. In spite of proper service of the afosaid notice Kunwar Bishwanath Singh failed to appear, nor was any communication receive from him by post. The Income-tax Officer then passe an order treating Kunwar Bishwanath Singh as the agent of His Higness the Maharaja of Benares for the assesment year 1936-37, and in this reference we are conceerned with that assessment yar alone. It is conceded on all hands that a notice unde Section 22 (2) of the Act calling for a return must be issued within the assessment year, that is before the 31st of March 1937 in the present case. The Income-tax Officer, however, could not issue an ordinary notice undeer Section 22 (2) because by the time the record came to him from the Assistant Commissioner the financial year 1936-37 was over and he, therefore, issued notice under Section 34 read with Section 22 on the agent on the 2rd of February, 1938, that it within one year of the end of the year 1936-37.

In response to these notices the late Maharajas agent filed a return of income and in response to futher notices under Section 23 (2) and 22 (4) made an appearance by counsel before the Income-tax Officer, who on the 1st of August, 1938, passed an order assessing Kunwar Bishwanath Singh, agent of His Highness the Maharaja of Benares, on an income of Rs. 40,908, which consisted of Rs. 19,618 as income from property and Rs. 21,290 as income from 'other sources'. The latter income was made up among other things of a sum of Rs. 2,702 on account of zar-i-chaharum and Rs. 3,033 on account nazrana.

An appeal agianst this order was preferred before the Assistant Commissioner of Income-tax, who dismissed it on the 22nd of September 1938. The assessee Kunwar Bishwanath Singh then applied to the Commissioner for reference to this Court under Section 66 (2) of the ACt. Five questions of law were formulated in the applicati0n which are mentioned at page 11 of the printed statement of the case.

Question Nos. 2 and 3 were not referred to us and a separate application under Section 66 (3) was filed before us and it was prayed that we should require the Commissioner to state a case on those two questions as well, but have rejected that application. The Commissioner, however, referred question Nos. 1,4 and 5 with some verbal alterations to us.

The first question which the assessee wanted to be referred to us was :-

'Whether the notice dated the 23rd February 1938 alleged to have been issued under Section 34 of the Indian Income-tax was invalid'.

When the matter was before the Assistant Commissioner, a plea was taken there to the effect that the notice purporting to have been issued under Section 22 and Section 34 was invalid, illegal and ultra vires. These two pleas challenged the validity of the notices on all possible grounds on which it could be challenged, but the learned Commissioner has referred the question of law arising out of this plea in the following terms :-

'Whether the notice dated the 23rd February 1938 issued to Kunwar Bishwanth Singh was valid in law in view of the decision of the Calcutta High Court in the case of Messrs. Mahaliram Ramjidas? '

Learned counsel for the assessee contended at the very outset that the learned Commissioner ought not to have limited the scope of the first question inasmuch as the notice was challenged not only on the basis of the decision of the Calcutta High Court just referred to but on other grounds as well Learned counsel for the referor has drawn out attention to the appellate order of the Assistant Commissioner and has siad that the only contention which was advanced before the Assistant Commissioner was a contention based on the Calcutta case of Mahaliram Ramjidasm, and he has drawn out attention to certain observations of their Lordships of the Privy Council in the Commissioner of Income-tax, BIhar & Orissa v. Kameshwar Singh of Darbhanga, where it is said :-

'The duty of the High Court under Section 66 (2) is to decide the questions of law raised by the case referred to them by the Commissioner and it is for the Commissioner to state formally the questions which arise. Here the Court itself formulated the question to be decided as being-

'Whether the interest (i.e., the sum of Rs. 6,09,571 due as interest by the debtor) can be considered to have been received and assessable? '

Their Lordships deprecate the departure from regular procedure, but in the circumstances have not thought it proper to decline to express their view on the question thus informally presented'.

The contention of the learned counsel for the Department, therefore, is that we should content ourselves by answering the question as referred by the Commissioner and should not frame the question ourselves.

We think that, if we make the alteration as suggested by learned counsel for the assessee, we shall not be formulating any question ourselves, but only giving effect to the question that was raised by the assessee throughout and to which effect was also given by the learned Commissioner in a limited manner. The Assistant Commissioner had before him the plea that the notice issued under Section 22 read with Section 34 was invalid, illegal an ultra vires, and when he proceeded to decide that plea he thought that the learned counsel for the assessee meant by that plea that the Income-tax Officer had failed to make a preliminary enquiry as laid down by their Lordships of the High Court of Judicature at Calcutta in the matter of Messrs. Mahaliram Ramjidas and it was only on that ground that the Assistant Commissioner repelled the general plea of the assessee and he was of the opinion that the 'income altogether escaped assessment'. Mr. Banerji on behalf to the assessee has contended that no income escaped assessment, and it is on that ground also that the notice is being attacked. We think we are not attempting to do anything which might, even within the scope of the observations of their Lordships of the Privy Council, be considered to be irregular, but we are answering the question referred to us by the learned Commissioner without the imposition of the limitation contained in the phrase 'in view of the decision of the Calcutta High Court in the case of Messrs. Mahaliram Ramjidas'.

The question that we propose to decide is whether the notice dated the 23rd of February 1938, issued to Kunwar Bishwanath Singh was valid in law in view of the decision of the Calcutta High Court in the case of Mahaliram Ramjidas or otherwise. We fell that the contention of the assessee was general all along and the Assistant Commissioner noticed only the main argument advanced in this connection and might have ignored other arguments as being without substance.

It has been conceded by learned counsel for the assessee that in view of the decision of their Lordships of the Privy Council in Commissioner of Income-tax, Bengal v. Messrs Mahaliram Ramjidas it is not necessary for the Income-tax Officer to hold a preliminary enquiry and to give the result of that enquiry (after convening and in the presence of the assessee) on the question in the shape of a finding that the income has escaped assessment, but that if for any reason the Income-tax Officer holds the view that some income has escaped assessment a notice under Section 34 can be issued. What is, however, contended is that income in the present case has not escaped assessment and reliance in the main is placed on the case of Rajendranath Mukerjee v. Commissioner of Income-tax, Bengal, more particularly on the passage which occurs at page 290 et seq. The facts of the Privy Council case may be stated. There were two firms, Burn & Co., and Martin & Co. The partners of Martin & Co., as invividuals purchased the shares of the partners of Burn & Co., and thus became owners of Burn & Co., but the partners had not purchased the business of Burn & Co., with funds belonging to Martin & Co., but with other funds belonging to themselves as individuals. A notice was issued to Burn & Co., calling for a return of their total income and a notice was also issued to Martin & Co. The returns were made by both firms, but Burm & Co., made a note that they should not be assessed but their income should be included in the income of Martin & Co. The Income-tax Officer combined the incomes of Burm & Co., and Martin & Co., and assessed them as one on the return made by Martin & Co. The return made by Burm & Co., was not made the subject of any assessment order. The high Court held that the was illegal and therefore the assessment order passed on Martin & Co., was revised by the income-tax authorities and the income of Burm & Co., was omitted. The income-tax authorities then proceeded to assess the income of Burn & Co., without taking any action under Section 34, merely treating the assessment as not having been completed and proceeded therefore under Section 23. When the assessment had been made on Burn & Co., they appealed to the Assistant Commissioner, who rejected the appeal and confirmed the assessment. They then asked for a reference under Section 66 (2). The High Court held that the Income-tax Officer could proceed under Section 23 (1) and it was not correct that the income had escaped assessment and that therefore the only remedy left to the income-tax authorities was to proceed under Section 34. The assessee, Burm & Co, then appealed to their Lordships of Privy Council and the passage to which we have referred to above summarizes the argument of the assessee and the view of their Lordships. Their Lordships Say :-

'The appellants, however, submit that this is a case of income escaping assessment within the meaning of Section 34. Assessment, they argue, is a definite act, indeed the most critical act in the process of taxation. If an assessment is not made on income within the tax year, then that income, they submit, has escaped assessment within that year, and can be subsequently assessed only under Section 34 with its time limitation. This involves reading the expression has escaped assessment as equivalent to has not been assessed.

Their Lordships cannot assent to this reading. It gives too narrow a meaning to the word assessment and to wide a meaning to the word 'escaped'. That the word 'assessment' is not confined in the statute to the definite act of making an order of assessment appears from Section 66 which refers to 'the course of any assessment'. To say that the income of Burn & Co., which January 1928 which returned for assessment and which was accepted as correctly returned, though it was erroneously included in the assessment of Martin & Co., has 'escaped' assessment in 1927-28 seems to their Lordships and inadmissible reading. The fact that Section 34 requires a notice to be served calling for a return of income which has escaped assessment strongly suggests that income, which has already been duly returned for assessment, cannot be said to have 'escaped' assessment within the statutory meaning.'

We have for ourselves italicized the word 'duly' and we think some importance is to be attached to that word. We think it was argued for the assessee Burn & Co., that, since there had been no assessment order in respect to that income during the year of assessment, their income bad 'escaped' assessment and then assessment under Section 34 alone could be made subsequently, subject to its time limit. The privy Council repelled that argument. They held that since Burn & Co., had duly made a return of their income in response to a notice it could not be said that third income had escaped assessment within the statutory meaning. Their Lordships then went on to say that they found 'themselves in agreement with the view expressed in In re Lachiram Basant Lal by the learned Chief Justice (Rank-in) : Income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessees income which have not yet terminated in a final assessment thereof.' It will thus appear that their Lordshis were of the opinion that the assessment of Burn & Co., was pending all along and there was no necessity to issue a notice under Section 34. They further observed :

'It may be that, if no notice, calling for a return under Section 22, is issued within the tax year, then Section 34 provides the only means available to the Crown of remedying the omission, but that is a different matter.'

Learned counsel for the Department has argued that in the present case no notice had been issued to the assessee, but a notice had been issued to the Maharaja, who was not the assessee and on whom notice could not be issued by reason of Sections 42 and 43 of the Indian Income-tax Act and the return that was filed by the late Maharaja was not a due return, that the notice was invalid and the assessment, if any, was invalid- which assessment was of course set aside by the Assistant commissioner- and the position, therefore, is that there had been no notice, no return and no assessment, and the case comes within the observations, of their Lordships when they say that 'if no notice calling for a return under Section 22 is issued within the tax year, then Section 34 provides the only means available to the Crown of remedying the omission'. It was arged on behalf of the assessee, relying on the case of Krishan Kishore v. Commissioner of Income-tax, that it was impossible to hold, on the facts of the present case, that the income had escaped assessment. We might mention that this case has been overruled by the Full Bench case of the Lahore High Court itself in Madan Mohan Lal v. Commissioner of Income-tax, punjab, where the entire case law on the subject has been reviewed and where the two learned Judges of the Court who formed the majority had expressed their opinion as to the true scope of the meaning of the passage which we have quoted.

It is not necessary for us to say anything more than what we have already said in this connection except to point out emphatically that in the present case we hold the view, a view supported by our decision in an earlier case, to which we shall rear presently, that the former notice issued to His Highness the Maharaja was not a notice within the meaning of Section 22 (2) and the return filed by the Maharaja was not a due return and the assessment proceeding were started inillegality and conducted in illegality and irregularity and the entire proceedings were void from start to finish; and, as their Lordships point out in the case of Commissioner of Income-tax v. Khemchand Ramdas, the word assessment is used in Income-tax Acts of other countries and in the Indian Income-tax Acts as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable, and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. In our judgment, the whole procedure adopted by the Income-tax Officer on the former occasion was illegal and irregular and income had escaped assessment so far as the assessee was concerned. We might at this stage quote usefully from what we said when the earlier reference came to us at the instance of His Highness the Maharaja of Benares, in the case reported in Maharaja of Benares v. Commissioner of Income-tax. We said :-

'It will be seen that the word agent for the purpose of Section 42 has a wider scope than it has in ordinary use................ When the agent in British India is invested with the character of assessee in the mandatory terms which we find Section 42 (1) and to the apparent exclusion of the principal, it would seem to follow that the non-resident principal is divested of that character........................

It appears to us that in the case of a person residing out of British India who has property or business connection in British India, the Income-tax authorities are not competent to serve notices upon him; suchnotice must be served upon his agent in British India or upon such person as may deemed to be his agent within the meaning of Section 43 and who will be treated as such. The provision to Section 42 does not, to our minds, militate against the view that we have taken and does not support the opinion of the Commissioner that it is open to the Income-tax Officer to address notices direct to the assessee even though he be a non-resident.'

We differed in this respect from the view taken by the learned Judges of the Madras High Court in Chief commissioner of Income-tax, Madras v. Bhanjee Ramjee & co. At the instance of His Highness and invited by him, we took the view that the notice issued to him was wholly illegal and it comes with ill grace from the mouth of his agent that the former notice and the former proceedings which culminated in assessment order could be considered for any purpose whatsoever and that the income of the assessee did not escape assessment within the meaning of that expression in Section 34 of the Act. We are, therefore, of the opinion that the notice dated 23rd of February 1938 issued to Kunwar Bishwanath singh was valid in law and we answer the first question in the affirmative.

The Second Question is :-

'Whether the income form nazrana and from zar-i-chaharaum was agricultural income within the meaning of Section 2 (1) of the Act? '

Learned counsel for the assessee had to condede, and indeed it is not open to argument, that the income derived from zar-i-chaharum was not agricultural income. Zar-i-chaharum is one-fourth of the sale price of houses when houses are transferred by one person to another, and according to custom His Highness is entitled to this one-fourth of the sale price. This can in no sense be called agricultural income and would not therefore be exempt. This settles the matter so far as the sum of Rs. 2,702 is concerned. There is however, another sum, namely Rs. 3,033 on account of nazrana and it was contended on behalf of the assessee that this nazrana represented not only sums received from persons to whom building permission had been accorded by the State but sums from cultivatory tenants to whom land had been let out. We, however, find that now where was it pleaded on behalf of the assessee that the sum of Rs. 3,033 included the nazrana received from cultivator tenants. The Assistant Commissioner held that the nazrana in the present case meant the consideration received for granting permission to a person to build a house on a plot of land, and the Commissioner also said in the statement of the case that this was a customary fee taken by the Maharaja for permission to build houses onlands owned by him. None of these sources of income can, therefore, be said to come under agricultural income, and they were, therefore, rightly taxed by the Department.

Our answer to question No. 2 is in the negative.

We now propose to consider question No. 3. It runs as follows :-

'Whether the fact that the late His Highness the Maharaja of Benares was a Ruling Chief of an Indian State exempted him from taxation under the Act in respect of income form property owned by him in British India? '

When this case was before us on the 4th of October 1940 we passed the following order :-

'One of the questions that has been referred to us in this case by the learned Commissioner of Income-tax, Central and United Provinces, for our decision is whether the fact that the late His Highness the Maharaja of Benares was a ruling Chief of an Indian State exempted him from taxation under the Act in respect of income from property owned by him in British India, and learned counsel for the assessee at the very threshold of the discussion on this point drew our attention to the case of Duff Development co v. Kelantan Government, and pointed out that in matters like these there was a well established practice and we should follow the same. In that case Viscount Cave, after stating the facts, observed as follows :-

'First, it was argued that the Government of Kelantan was notion independent sovereign State, so as to be entitled by international law of the immunity against legal process which was defined in the Parliament Belge. It has for some time been the practice of our courts, when such a question is raised, to take judicial notice of the sovereignty of a State, and for the purpose (in any case of uncertainity) to seek information from a Secretary of State; and when information is so obtained the Court does not permit it to be questioned by the parties. Information of his character was obtained from a Secretary of State and accepted without question in Taylor v. Barclay and Mighell v. Sultan of Johore and those cases were followed in Foster v. Golbe Venture Syndicate and in the Gagra. In the present casd the requisite inquiry was addressed by Master Self (while the summons to enforce the awards was pending before him) to the Secretary of State for the Colonies (and an answere was received from the Under Secretary.) '

It is submitted before us that we should also enquire from the political Department about the exact status of His Highness the late Mharaja of Benares and after takin judicial notice of the fact determine the question as to how far under internation law certain privileges can be extended to His Highness the Maharaja of Benares. We, therefore, direct the Registrar of this Court to write a letter to the Political Secretary to the Government of Indian to let us have an anwer to the following question :-

Was His Highness the late Maharaja of Benares recognised by the Government of Indian as the Ruler of a Soverign State?

While answering the quesion the Political Secretary may care to study the English case to which reference has already been made and more paricularly what has been said at page 814 of the Reports. The case will be listed before us on receipt of the reply.'

In reply to the letter sent by the Registrar of his Court the Secretary to His Excellency the Crown Representative has sent the following certificate in connection with the status of Captain His late Highness Maharaja Sir Aditya Narayan Singh bahadur, K. C. S. I., Maharaja of Benares :-

'Captain His late Highness Maharaja Sir Aditya Narain Singh Bahadur, K. C. S. I., Maharaja of Benares, had been recognised by His Majesty as the Ruler of the Indian State of Benares. His Majesty Government did not regard or treat His Highness or his subjects as subjects of His Majesty and they did not reqard or treat Benares Stat as being part of British India or of His majestys dominons. Benares is an Indian State and the late Maharaja was a Ruler and defined in sub-section (1) of Section 311 of the Government of Indian Act, 1935.

But, though His late Highness was thus not independent, HIs Majestys Government accorded to him the status of a sovereign Ruler unde the suzerainty of His Majesty exercised through His Majestys Representative for the exercise of the functions of the Crown in its relations with Indian states. As such he possessed various attributes of sovereignty, including internal sovereignty, which was not derived from British law but was inherent in the Ruler; subject, however to the suzerainty of His Majesty and to the exercise by his Majestys Representative of such rights, authority and jurisdication as had by treaty, grant, usage, sufferance, or otherwise, passed to and were exercisable by His Majesty. These included the conduct of international relations, the exercise of jurisdication over Europeans and Americans, interference to settle disputes as to succession to the state, the regulation of armaments and the strength of military forces.

The late Maharaja was, in regard to proceedings in the civil courts in India, covered by the provisions of SEction 85 and 86 of the Indian Code of Civil Procedure.'

Our attention has also been drawn by the learned Advocate-General to the Instrument of Transfer dated 1st April, 1911, by which certain powers were conferred on the Maharaja (this Instrument of Transfer is to be found at page 89 in Vol. II of Aitchisons Treaties, Engagements and Sanads). By this Instrument of Transfer parganas Bhadohi and Kera Mangraur of the Family Domains of the Rajas of Benares at present administered by the British Government, as well as the tract (comprising the Fort of Ramnagar and its apportenances) defined in the Schedule to the instrument, were constituted as a State under the suzerainty of His Majesty and granted in that condition to the Rajas of Benares under such restrictions and coditions as may be necessary for safeguarding to the residents of those territories the rights and privileges they had enjoyed under the British administration, and whereas the said Maharaja was established as a Ruling Chief with full powers in the said territories subject to the suzerainty of His Majesty, it was declared by paossession of His Highess 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 landholder under the ordinary law and within the paragana of kaswar Raja he shall assume that status and those responsibilitiews'.

When an earlier reference which is reported as Maharaja of Benares v, Commissioner of Income-tax, was before us, it was conceded before the Assistant Commissioner of Income-tax that the property and the sources of income which formed the subject matter of the contested assessment belonged personally to His Highness the Maharaja and were not part of the State of which he was the Ruler. Mr. Banerji on behalf of theassessee submitted that any concession made on the former occasion could not be made applicable to the present assessment because the assessment year is different and the property may be different, and further because the proceedings relating to assessment were not initiated properly on the former occassion. We have not thoght fit to remit an issue as to the nature of the property and it is not necessary to get a clear finding on the question as to whether the property from which income is derived and which is sought to be assessed belongs personally to His highness or is a part of the State. It is conceded on behalf of the Department that income derived from properties owned by the State would be exempt, but it is sais that in the present case the income was derived by His Highness in his personal capacity. We shall, therefore, answer the question referred to us on the assumption that the property which yields income in the present case is property belonging to the Maharaja in his personal capacity and is not property belonging to the State. Mr. Banerji then proceeded with his argument on the main question and drew our attention to Maxwells Interpretation of Statutes, seventh edition, page 127, where the learned author says :-

'Under the same general presumption that the Legislature does not intend to exceed its jurisdiction, every statute is to be so interpreted and applied as far as its language admits, as not to be inconsistent with the comity of nations, or with the established rules of international law. If, therefore, it designs to effectuate any such object, it must express its intention with irresistible clearness to induce a Court to believe that it entertianed it, for if any other construction is possible, it would be adopted to avoid imputing such an intention to the Legislature...........

For instance, although foreigners are subject to the criminal law of the country in which they commit any breach of it, and also, for most purposes, to its civil jurisdiction, a foreign sovereign, an ambassador, the troops of a foreign nation and its public property are, by the law of nations, not subject to them, and statutes would be read as tacitly embodying this rule'.

He alsoquoted the case of Forbes v. Attorney-General for Mantitoba where it was laid down at page 268 that an income-tax was the most typical form of direct taxation, and submitted that sovereigns had immunity from direct taxation. To support the latter submission several books on international lawwritten by eminent authors were cited. In Halls International Law, eighth editions, at page 220, it is written that 'A sovereign, while within foreign territory, possesses immunity from all local jurisdiction in so far and for so long as he is therein his capacity of a sovereign.

He cannot be proceeded aginst either in ordinary or extraordinary civil or criminal tribunals, he is exempted from payment of all dues and taxes, he is not subject to police or other administrative regulations, his house cannot be entered by the authorities of the State, and the members of his suite enjoy the same personal immunity as himself'.

Holland in the Lectures on International Law observes at page 201 :-

'An ambassador is exempt from the taxation and also from customs dues; by right as to property held in his representative capacity and by courtesy as to property held otherwise.'

It is contended that if an ambassadro is exempt from taxation not only with respect to property held in his representative capacity but also with respect to property held otherwise, a soverign is all the more so exempt. The passage in Holland is based upon another passage in Halls International Law at page 235 where the learned author says :-

'The person of a diplomatic agent, his personal effects, and the property belonging to him as representative of his sovereign are not subject to taxation. Otherwise h enjoys no exemption form taxes or duties as of right. Bu courtesy however, most if not all, nations permits the entry free of duty of goods intended for his privat use.'

Oppenheim in his book on International Law, Vol. I, fifth edition, at page 590, Says :-

'He (Meaning a sovereign) must be granted so-called exterritoriality conformably with the principle, par in parem non habet imperium, according to which one sovereign cannot have any power over abother soverign. He must, therefore, in every point be exempt from taxation, rating and evefy fiscal regulation and likewise from civil jurisdiction, except when he himself is the plaintiff.' Later on where the various priveleges of diplomatic envoys are discussed, at page 626 the fifty privilege of an envoy in reference to his exterritorality is said to be exemption from taxes and the like. Our attention is also drawn to the case of the Parlement Beldge where it was held that 'as a consequence of the absolute independece of every sovereign authority and of the internatiinal comity which indues every soverigh state to respect the independence of every other sovereign State, each state declines to exercise by means of any of its Courts any of its territorial jurisdiction over the person of any soverign or ambassador, or over the public property of any state which is destined to its public use, or over the property of any ambassador, ' though sudch soverign, ambassador, or pproperty be within its property be within its territory.' The point and force of the above principle was explained at page 210 and it was said :-

'..... that the public property of every state, being destined to public uses, cannot with reason be submitted to the juridication of the Courts of such state, because such jurisdiction, it exercised must divert the public property from its destined public uses; and that, by international comity, which acknowledges the equality of states, if such immunity grounded on such reasons exist in each state with regard to its own public property, the same immunity must be granted by each state to similar property of all other sates. The dignity and independence of each state require this reciprocity.'

It was contended on behalf of the assessee that no privilege was being claimed for the property, in which case the question whether the property was the property of the state or the personal property of the Ruler might be relevant, but the privilege was being claimed for the person of the Ruler who was claiming immunity from the procedure by which an attempt was made to levy direct taxation on him.

We are not called upon to give a decision on the question of what would happen in the case of an independent sovereign Ruler when the authorities cited on behalf of the assessee and the argument of the learned Advocate-General that under Section 3 and Section 4 of the Indian Income-tax Act income and not the person is taxed might have to be seriously considered, but we have to deal with the income which the Maharaja of Benares receives from property in British India, and the letter from the Secretary to His Excellency the Crown Representative and the Instrument of Transfer to which reference has been made in an earlier portion of our judgment make it clear that His Highness cannot claim the immunity which an independent sovereign might claim. Although His Majestys Government did not regard or treat His Highness or his subjects as subjects of His Majesty and although they did not regard or treat Benares State as being part of British India or His Majesty's Dominions, yet his status was that of a sovereign Ruler under the suzerainty of His Majesty and His Majestys Representative exercised certain rights including the condut of internaitonal relations, the exercise of jurisdiction over Europeans and American, interference to settle disputes as to succession to the state, the suppression of gros s mis-rule in the state, and the regulation of armaments and the strength of military forces, and it was specifically recognized that His Late Highness was 'not idependent'. The exercise of rights mentioned above by the suzerain state is inconsistent with the idea of soverienty in the state over which the suzerainty is exercised. As Oppenheim at page 165 in his book says :-

'Suzerainty is a term which was originally used for the relation betwween the feudal lord and his vassal; the lord was said to be the suzerain of the vassal... But although such suzerainty has disappeared, modern suzerainty involves only a few rights of the suzerain State over the vassal State' ans such rights, are principally international rights it being a kind of international guardianship

A distinction is drawn by Oppenheim between vassal States and protected State and Oppehein says that when 'a weak state surrenders itself by treaty into the protection of a strong and mighty State in such a way that it transfers the management of all its more important international affairs to the protecting State then an international union is called into existence between the two States, and the relation between them is called protectorate' and that learned author is of the opinion that the position of the Indian State to Great Britian is like that of vassal States which have no international relations whatever either between themselves or with foreign States (pp. 165 and 166). Hall, however, is of the opinion that the State in the Indian Empire, of great Britian are protected States, but even then, according to him, 'they are not subjects of international.' He says at Page 28.

'Indian Native States are theoretically in possession of internal sovereignty, and their relations ot the British Empire are in all cases more or less defined by treaty; but in matters not provided for by treaty a 'residuary jurisdiction' on the part of the Imperial Government is considered to exist, and the treaties themselves are subject to the reservation that they may be disregareded when the supreme interests of the Empire are involved, or even when the interests of the subjects of the native Princes are gravely affected. The treaties really amount to little more than statements of limitations which the Imperial Government, except in very exceptional circumstances, place on its own action. No doubt this was not the original intention of many of the treaties, but the conditions of English sovereignty in India have greatly changed since these were concluded, and the modifications of their effect which the changed conditions have rendered necessary are thoroughly well understood and acknowledged.'

In Section 26 of the Instrument of Transfer it is distincly mentioned that in the other estates in possession of His HIghness which are outside the State of Benares-and presumably the income derived in the present case which is sought to be assessed is from such estates-he shall continue to have the status and responsibilities of a landholder under the ordinary law, and this implies that for such estates he shall be subject to the payment of land revenue, ect.

It is therefore, not possible to give to His Highness the same immunity from taxation which might be possessed by other independent sovereign Rulers.

It was mentioned in the certificate of the Secretary in the Political Department that His Highness was a Ruler as defined in sub-section (1) of Section 311 of the Government of India Act, 1935, and although Federation has not come in yet, some indication of the status and rights of His Highness is afforde I from Section 155 of the Government of Indian Act sub-section (1), clause (b), provides that a Ruler shall not be exempt from any Federal taxation in respect of any lands, buildings or income being his personal property or personal income.

Under Section 60 of the Indian-tax Act the General Government may, by notification in the Gazette of India, make an exemption, reduction in rate or other modification, in respect of income-tax in favour of any class of income, or inregard to the whole or any part of the income of any class of persons, and the Finance Department Notification No. 878-F (Income-tax), dated the 21st of the March 1932, as amended or added to from time to time, does not exempt the income derived by Ruling Chiefs and Princess of Indian from their private property. Nothing would have been easier than to make a provision to that effect Just as the interest on Government securities held by, or on behalf of by, Ruling Chiefs and Princess of India as their private property has been exempted at No. 8 of the various exemptions. In striking contrast we have NO. 1 where the official salaries and fees which a representative or consular employee of a foreign State receives are exempt.

In our view question No. 3 ought to be answered in the negative and we answer accordingly.

The assessee will have to pay the cost of this reference. The Advocate-General is entitled to a fee of Rs. 200. Let a copy of our judgment be sent to the Commissioner of Income-tax, under the seal of the court and the signature of the Registrar.

Reference answered accordingly.


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