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The Commissioner of Income-tax Vs. Nawab of Rampur - Court Judgment

LegalCrystal Citation
SubjectConstitution;Direct Taxation
CourtAllahabad High Court
Decided On
Case NumberI.T. Ref. No. 386 of 1962
Judge
Reported inAIR1966All440; [1966]62ITR1(All)
ActsConstitution of India - Articles 363 and 372(1); Income Tax Act - Sections 66 and 66(5)
AppellantThe Commissioner of Income-tax
RespondentNawab of Rampur
Appellant AdvocateR.L. Gulati, Adv.
Respondent AdvocateJagdish Swarup, Adv.
Excerpt:
direct taxation - privileges - article 363 of constitution of india and section 66 of income tax act - personal income of nawab of rampur - immunity to pay tax - power of high court - assessee did not enjoy the immunity - no question whether the provisions of article 363 prohibit the court from considering the provisions of the merger agreement. - - under the government of india act, 1935, the rampur state like any other state was under the suzerainty of his majesty the king of great britain. by article 2 the nawab was to continue to enjoy the same personal rights, privileges, immunities, dignities and titles which he would have enjoyed had this agreement not been made'.by article 3 the nawab became entitled to receive for his life time from the revenues of the state a certain sum.....desai, c.j.1. this statement of a case submitted under section 66(1) of the indian income-tax act by the income-tax appellate tribunal, delhi bench at the instance of the commissioner of income-tax, u. p., has been laid before a full bench because of the importance of the question arising in it. the question referred by the tribunal is:--'whether the personal income of the assessce is immune or exempt from taxation under the indian income-tax act?'the assessee is his highness the nawab of rampur and the assessment year is 1952-53.2. his highness the nawab of rampur, who would be referred to as 'the nawab' for the sake of brevity, was the ruler of the former state of rampur. since 1944 there was in force in the state 'the rampur state income-tax act, 1944', the main provisions of which.....
Judgment:

Desai, C.J.

1. This statement of a case submitted under Section 66(1) of the Indian Income-tax Act by the Income-tax Appellate Tribunal, Delhi Bench at the instance of the Commissioner of Income-tax, U. P., has been laid before a Full Bench because of the importance of the question arising in it. The question referred by the Tribunal is:--

'Whether the personal income of the assessce is immune or exempt from taxation under the Indian income-tax Act?'

The assessee is His Highness the Nawab of Rampur and the assessment year is 1952-53.

2. His Highness the Nawab of Rampur, who would be referred to as 'the Nawab' for the sake of brevity, was the ruler of the former State of Rampur. Since 1944 there was in force in the State 'The Rampur State Income-tax Act, 1944', the main provisions of which were similar to those of the Indian Income-tax Act. By Section 3, on the enactment of an Act of the Rampur State Legislative Assembly providing for the charging of income-tax for any year at a certain rate, income-tax at that rate was to be charged for that year in respect of the total income of every individual; but by Section 3-A the Act was not to 'apply to His Highness, Her Highness, Heir-Apparent and his wife'. By Section 4(1) the total income was to include all income, profits and gains received or deemed to be received or accrued or arisen in the State and all income, profits and gains accrued or arisen to a person resident in the State, it accrued or arisen during the previous year or brought into or received in the State during the previous year. Under the Government of India Act, 1935, the Rampur State like any other State was under the suzerainty of His Majesty the King of Great Britain. The paramountcy of the British Crown was based on Treaties, Engagements, Sanads as supplemented by usage and sufferance and decisions of the Government of India and the Secretary of State embodied in political practice. For external purposes the State territory and the State subjects were, for all practical purposes, in the same position as British territory and British subjects. The States had no international life and the paramount power had the exclusive authority of making peace or war or negotiating or communicating with foreign States. The Paramount Power was responsible for implementing its international commitments and the Rulers were required to give effect to the international obligations entered into by the Paramount Power. The Paramount Power was responsible for the defence of the States.

By Section 7 of the Indian Independence Act of 1947 the suzerainty of His Majesty the King over the States lapsed with effect from 15-8-1947 and all treaties and agreements in force between His Majesty and Rulers of States, all functions exercisable by His Majesty with respect to the States and all poweRs. rights, authority and jurisdiction exercisable by His Majesty in or in relation to the State by treaty, grant, usage, sufferance or otherwise also lapsed. On 24-12-1947 the Extra Provincial Jurisdiction Act was passed. On 12-1-1949 the Government of India Act of 1935 was amended and Sections 290-A and 290-B were added. By the Indian Independence Act an independent dominion known as India was set up and the Government of India Act provided that an Indian State could accede to the Dominion by an Instrument or Accession executed by its ruler. Under an Instrument of Accession of a State in the Dominion of India the Dominion was given the power of exercising in relation to the State such functions as might be vested in it by or under the Government of India Act as in force on 15-8-1947; otherwise the sovereignty of the ruler was to remain in tact. The Nawab executed an Instrument of Accession accordingly. Defence, external affaiRs. communications and ancillary matters were the subjects with respect to which the Dominion Legislature was authorised to make laws for the State.

Rampur State merged in the Dominion by virtue of the merger agreement executed on 15-5-1949 between the Nawab and the Governor-General of India. By Article 1 of the agreement the Nawab ceded to the Dominion full and exclusive authority, jurisdiction and powers for and in relation to the governance of the State and agreed to transfer the administration of the State to the Dominion Government on 1-7-1949 with effect from which date the Dominion Government became competent to exercise the said poweRs. authority and jurisdiction. By Article 2 the Nawab was to

'continue to enjoy the same personal rights, privileges, immunities, dignities and titles which he would have enjoyed had this agreement not been made'.

By Article 3 the Nawab became entitled to receive for his life time from the revenues of the State a certain sum annually for his privy purse 'free of all taxes'. By Article 4 he remained full owner of all private properties belonging to him. By Article 5 all members of his family including his consorts and children became entitled to 'all the personal privileges, dignities and titles enjoyed by them'. Administration over the territory of the Rampur State was taken over by the Government of India on 1-7-1949 in accordance with the agreement. The Taxation Laws (Extension to Merged States and Amendment) Act No. 67 of 1949 received the assent of the Governor-General on 31-12-1949. By Section 3 of it the Indian Income-tax Act was extended to the merged States including the Rampur State with effect from 1-4-1949. By Section 7 the Rampur Income-tax Act ceased to have effect. Under the Indian Income-tax Act the Nawab would be liable to tax on the income received or accrued in India including the territory of the former Rampur State now merged in India.

The Constitution came into force on 16-1-1950. Article 291 of it provides that where under any covenant entered into by the Ruler of any Indian State before the commencement of the Constitution, the payment of any sums, free of tax, has been guaranteed or assured by the Government of the Dominion of India to any Ruler of such State as privy purse, the sums so paid to him shall be exempt from all taxes on income. Under Article 363 due regard must be given to the guarantee or assurance given under any covenant or agreement referred to in Article 291 with respect 'to the personal rights, privileges and dignities of the Ruler of an Indian State' in the exercise of the power of Parliament or of a State Legislature to make laws and in the exercise of the executive power of the Union or of a State. Article 363 is as follows:--

'Notwithstanding anything in this Constitution but subject to the provisions of Article 143, neither the Supreme Court nor any other Court shall have jurisdiction in any dispute arising out of any provision of a treaty, agreement, covenant, engagement, Sanad or other similar instrument which was entered into or executed before the commencement of this Constitution by any Ruler of an Indian State and to which the Government of the Dominion of India. .... .was a party and which has or has been continued in operation after such commencement.

3. The Nawab earned income in the territory of the former Rampur State and in other parts of India during the previous year relevant to the assessment year in dispute in addition to the privy purse (in regard to which there is no dispute at all). He claimed that he was immune from taxation on the income under the Rarapur Income-tax Act and also as the sovereign Ruler of the Rampur State, that the immunity continued after the merger by virtue of Article 2 of the merger agreement and that consequently he was not liable to pay tax on it. This contention was accepted by the Tribunal. The Commissioner of Income-tax applied to the Tribunal for reference of the question regarding the Nawab's immunity to this Court and the Nawab urged that Article 363 bars the High Court's jurisdiction to answer it and that consequently it should not be referred to it. The Nawab had previously filed a petition under Article 226 of the Constitution challenging the assessment of his income for the assessment years 1951-52 and 1952-53 and this Court had refused to decide the claim of immunity on the ground that it arose out of the merger agreement and its jurisdiction to decide it was barred by Article 363 of the Constitution. The Nawab claimed before the Tribunal that on the same reasoning it should not refer the question. The Tribunal overruled his objection and referred it.

4. in this Court a preliminary objection was raised on behalf of the Nawab against our hearing the reference and answering the question on the ground that our jurisdiction to do so is barred by Article 363. There is no substance in the contention and it must be overruled. Sri Jagdish Swamp attempted to draw support for his preliminary objection from the decision of V. Bhargava and B. Upadhya, JJ., rejecting the Nawab's petitions for certiorari against the assessment proceedings for the assessment years 1931-52 and 1952-53. The learned Judges rejected the petitions on the ground that they were barred by the Article from considering, and giving effect to, the merger agreement. It does not follow from the rejection of the petitions that our jurisdiction to answer the question referred to us also is barred by the Article. The jurisdiction that we are exercising is quite distinct from the jurisdiction that the learned Judges were called upon to exercise; we are exercising jurisdiction under Section 66(5) of the Income-tax Act whereas they were exercising Jurisdiction under Article 226 of the Constitution. Our jurisdiction is advisor)' and confined to answering the question of law referred to us whereas their jurisdiction was adjudicatory. As I shall show presently, not the dispute between the Nawab and the Department but a certain question of law arising in the dispute is before us whereas the whole dispute was before them. We have only to state what rights and liabilities arise in a given sot of circumstances whereas they had to decide the rights and liabilities of the Nawab and the Department in respect of the Nawab's income during the financial years 1951-52 and 1952-53. They held that the dispute between the Nuwab and the Department arose out of the merger agreement and that they had to decide it; we are; not deciding any dispute at all between the Nawub and the Department. I respectfully agree with the opinion expressed by them that then1 jurisdiction was barred by the Article, but as the Jurisdiction exercised by them is essentially different from the jurisdiction we are called upon to exercise it does not follow that our jurisdiction also is barred. I may also point out that it was vehemently argued on behalf of the Nawab before them that the dispute did not arise out of the merger agreement; if it did not arise out of the merger agreement the question that we have to answer is all the more one not arising out of the merger agreement.

5. The jurisdiction that this Court exercises is to hear the case stated by the Tribunal and decide the questions of law raised therein. The Nawab, contended before the Tribunal that (1) on account of certain facts and certain law applicable to them he was immune from taxation on all his income before the merger agreement and that (2) on account of the merger agreement and the law applicable to it the immunity was continued and he could not be taxed on any income received by, or accrued to him during the assessment year in question. Both the contentions were opposed on behalf of the Department before the Tribunal. The advancing of the contentions and the opposition constituted the dispute before the Tribunal. There was no controversy before the Tribunal about the existence of the facts on the basis of which the immunity prior to the merger agreement was claimed but the interpretation of the law applicable to the facts and the effect of applying to them the law that was applicable were matters of contest before the Tribunal. The Department thereby denied that the Nawab possessed the immunity before the merger agreement. Then it further denied that the law applicable to the immunity, even if it existed, was what was asserted on the Nawab's behalf and that its effect was to continue it after the merger agreement and to render him exempt from taxation on any part of his income. The Nawab had to establish both that he possessed the immunity and that if was continued by virtue of the merger agreement so as to prevent his being taxed for the assessment year in question; if he failed to prove either he was to be taxed.

The question referred by the Tribunal is about the Nawab's income being immune from taxation; though only one question is framed it really consists of the two questions, (1) whether he possessed the immunity before the merger agreement, and (2) whether the immunity has been continued by virtue of the merger agreement so as to prevent his being taxed. As both are questions of law they could be, and have been, referred and our jurisdiction, is simply to answer them. In reality they are abstract questions of law, they being (1) whether certain facts could give rise to immunity from taxation prior to the merger agreement, and (2) whether if they did, it was continued by the merger agreement and the Department was bound to refrain from taxing. These questions presupposing the existence of certain facts are abstract questions of law; the answers to be given to them apply whenever those facts exist. The answers are not applicable only in the ease of Nawab; they are applicable whenever the facts are same. In answering them we are not concerned with the Nawab or the amount of income and other facts regarding his income, or any other fact. For every abstract question of law certain premises arise and so have the questions referred to us. As the answers are of universal application they cannot be said to constitute a dispute between the Nawab and the Department. They are no more a dispute between them than between any other assessee and the Department. There was a dispute between them before the Tribunal; the Tribunal had not only to answer the questions but also to give effect to them in the particular case of the Nawab and decide whether he was liable to be taxed or not. That dispute has not been referred by the Tribunal to us; we are only called upon to decide the abstract questions and then it would be for the Tribunal to decide the dispute by giving effect to the answers in the particular case of the Nawab. We are only called upon to state the relevant law. Though the question is worded as if the whole dispute that arose before the Tribunal were referred to us, under the law it could not be and only the questions of law arising out of it could be referred to us and consequently we must treat the question as if it consisted of the abstract questions of the law stated above.

What we have to decide is whether if such and such facts existed there arose the immunity before the merger agreement and whether the merger agreement continues the immunity and bars the assessment to tax. This is different from what the Tribunal had to decide; it had to apply the law to the particular facts and decide what tax was payable. It had also to decide whether the facts on the basis of which the immunity was claimed existed. It was a question of fact which could not be, and has not been, referred to us. The controversy between the Nawab and the Department cannot be decided unless that question also is decided. This confirms that the dispute between the Nawab and the Department has not been referred to us. The dispute still continues before the Tribunal and it has only sought our advice on the two questions of law. One of the questions that we have to answer relates to the merger agreement but what is barred by Article 363 is not answering a question relating to a merger agreement but exercising jurisdiction in a dispute arising out of it. The claim made by the Nawab that by virtue of the merger agreement the immunity possessed by him previously is being continued and he is immune from taxation is a dispute arising out of the merger agreement and the Tribunal is exercising jurisdiction over it; but it is retaining the whole of the jurisdiction and only seeks our advice as to the effect of the operation of the law on certain facts. It has not transferred the dispute to us. It was argued that 'jurisdiction in any dispute' means not 'jurisdiction over any dispute' but 'jurisdiction during the pendency of any dispute'.

What the Article bars is deciding any dispute arising out of a merger agreement and not deciding any question while a dispute arising out of a merger agreement is pending elsewhere. No constitutional provision was required to bar the jurisdiction of a Court over a dispute arising out of a merger agreement pending before a competent authority. What was intended was that no Court should have jurisdiction to decide a dispute arising out of a merger agreement. Consequently the words mean 'jurisdiction over any dispute' and not 'jurisdiction during the pendency of a dispute elsewhere'. By answering the questions referred to us we would not decide the dispute arisen between the Nawab and the Department and consequently there is no bar. The dispute will be decided by the tribunal after it receives our answers. A question of the bar imposed by Article 363 may arise before it then but we are not concerned with it.

6. The jurisdiction conferred upon a High Court by Section 66(5) of hearing the case stated and deciding the questions of law raised therein is absolute and not subject to any condition and the High Court is under a mandatory duty to exercise it. If its jurisdiction to do so is to be taken away it must be taken away by a clear provision and Article 363 is not such a provision. There is no reference in it to Section 66(5) though there is a reference to other provisions of the Constitution. There is nothing in it to suggest that it was intended to deprive a High Court of the jurisdiction conferred upon it by Section 66(5). When the Nawab claimed before the Tribunal that by virtue of the merger agreement he was uot liable to be taxed Article 363 was relied upon by the defendant for depriving the Tribunal of the jurisdiction of deciding the claim but the Tribunal observed that it was not a Court within the meaning of Article 363 and adjudicated upon, and upheld, the claim. A question of law whether the Tribunal is a Court and within the scope of the ban imposed by the Article arose out of its order and could have been required by the Department to be referred to this Court under Section 66(1) but has not been. We are not called upon expressly to decide whether the Tribunal was not debarred from adjudicating upon the claim.

If the Tribunal is not a Court, it was not debarred and had full Jurisdiction to adjudicate upon the claim (as it did). It had also full jurisdiction to refer any question of law arising out of the adjudication to this Court under Section 66(1). It would have been anomalous if it had the jurisdiction all right to adjudicate upon the claim and to refer it to this Court's jurisdiction to answer it were barred by the Article. Under Section 66(5) the Tribunal on receipt of an answer to the question from this Court would be obliged to decide the case conformably to it. The object behind the provisions of Section 66 is that on questions of law arising before the Tribunal it should be governed by the answers given to them by the High Court. This object would be completely defeated, and the provisions rendered useless, if it were held that a question of law arising out of a merger agreement is within the sole jurisdiction of the Tribunal and that the High Court has no jurisdiction to answer it. There was no justification for the Constitution to distinguish between a question of law arising out of a merger agreement and all other questions of law and conferring exclusive jurisdiction to answer the former upon the Tribunal. The Tribunal itself is under a duty to refer to the High Court all questions of law arising out of its order and it cannot refuse to refer a question of law regarding the interpretation, and the applicability, of a merger agreement on any ground, such as that it cannot be answered by the High Court, and it would be useless for it to refer it if the High Court is forbidden to answer it by the Article.

7. Under Article 131 the Supreme Court has jurisdiction in a dispute between the Government of India and a State or between States, provided that it is not a dispute arising out of any treaty, agreement, covenant, engagement, saitad or other similar instrument entered into, or executed, before the commencement of the Constitution and continued in operation after the commencement. Under Article 143 the President may refer to the Supreme Court for its opinion any question of law and any dispute between the Government of India and a State or between States arising out of any treaty, etc., referred to in Article 131. It is because the Supreme Court has been expressly given jurisdiction to decide a dispute arising out of any treaty, agreement, etc., on requisition by the President that the ban imposed by Article 363 has been made subject to the provisions of Article 143. The Supreme Court is authorised not to decide the dispute itself but to report to the President its opinion on it but it is the dispute that is referred to it and not any question of law arising in it. The High Courts deciding a question of law arising out of a dispute before the Tribunal is different from the Supreme Court's expressing an opinion on the dispute; the latter would come within the scope of the ban imposed by Article 363 and, therefore, the Article as been made subject to the provisions of Article 143. Answering a question of law arising in a dispute is not deciding, or expressing an opinion on, the dispute. Even if not only adjudicatory jurisdiction but also advisory jurisdiction is within the scope of the ban, the ban is on doing something in regard to a dispute involving consideration of a treaty, agreement. etc. No Court can take any action in regard to such a dispute but answering an abstract question of law is not taking action in regard to such a dispute even though the question would have to be answered when taking action in regard to the dispute. Because the question must be answered before the dispute is decided answering it does not itself amount to deciding the dispute.

8. A Court is an authority created under a statute as a Court whereas a tribunal is not created as a Court though it is created for deciding certain matters. All Courts are tribunals but all tribunals are not Courts. Article 227 of the Constitution laying down that 'every High Court shall have superintendence over all Courts and tribunals' suggests that 'Court' is not synonimous with 'tribunal'. There are provisions in the Constitution, such as Articles 228 and 235, which are expressly applicable to Courts and do not seem to be applicable to tribunals. J. F. Garner in his 'Administrative Law' pp. 155, etc., writes that a Court is normally a body which has historically and formally been so regarded whereas a tribunal has some special statutory origin, a Court is presided over by the ordinary Judges whereas a President of a tribunal is not necessarily a lawyer and often is not a Judge and that the accepted rules of evidence govern proceedings before a Court but not proceedings before a tribunal. There is much truth in his statement that whether a body is a Court or tribunal is primarily a matter of statute law, there being few, if any, clear distinguishing marks dividing the two. In Jagannath Prasad v. State of U. P., : [1963]2SCR850 , it was held that a Sales Tax Officer is not a Court within the meaning of Section 195 of the Code of Criminal Procedure. In Brijmohanlal v. Election Tribunal, : AIR1965All450 , an Election Tribunal was held to be not a Court. It was laid down in Associated Cement Companies Ltd. v. P. N. Sharma : (1965)ILLJ433SC , that a State Government hearing an appeal under the Services Rules is a tribunal, that judicial functions' and powers are an attribute of a sovereign State and that while the State transfers them mainly to the Courts established by its constitution it has power to transfer a part of them to tribunals by entrusting to them the task of adjudicating upon special matters and disputes between parties.

It is clear that there is a distinction between a Court and a tribunal. The ban imposed by Article 363 is expressed to operate on Courts and there is no good reason for saying that it operates also on tribunals. The words used in it are 'neither the Supreme Court nor any other Court' and the words 'other Court' must be interpreted ejusdem generis with the words 'the Supreme Court' and ought not to be held to include tribunals. In Article 141 also the words used are 'on all Courts'. It may be asked what is the use of binding Courts only by the law declared by the Supreme Court if tribunals are left free it is not necessary to say that 'Courts' include tribunals to avoid this question, because it can be said with force that if all Courts are bound by the law declared by the Supreme Court all tribunals are automatically bound even though not expressly referred to in the Article. As regards matters primarily entrusted to tribunals but likely to come before Courts it would be useless for tribunals to decide a case against the law declared by the Supreme Court because when it goes before a Court, it being bound by it will reverse it. As regards matters entrusted to tribunals and not likely to come before Courts no anomaly results from holding that they are not bound by the law declared by the Supreme Court. In this very case the Tribunal held that it was not a Court and was, therefore, not debarred by the Article from deciding the claim of the Nawab based on the merger agreement. That decision of the Tribunal, right or wrong, is binding upon the Department because it failed to get Hie question regarding its being debarred from deciding the Nawab's claim referred to this Court. If the Department's case was that it is a Court, whether it was debarred from deciding the Nawab's claim or not should have been the first question to be got referred. The Department by not getting it referred submitted to the decision of the Tribunal and is now estopped from contending that it was wrong.

9. The Tribunal, not being a Court, could decide the claim by considering, and giving effect to, the merger agreement. It would be meaningless for this Court, to say that it cannot consider and give effect to the merger agreement when answering it. If the Tribunal could consider and give effect to it but not this Court when answering the question, the Tribunal would be bound to maintain its order on receiving the Court's answer given without considering, and giving effect to it. The Tribunal has to decide the dispute after adjudicating upon the Nawab's claim based upon the merger agreement and whatever answer this Court, if it is precluded from considering the merger agreement, gives would be of no use to the Tribunal. The decision of the dispute by the Tribunal after considering the merger agreement can never be said to be unconformable to whatever answer this Court gives after ignoring it. This Court would have no jurisdiction to decide whether the Tribunal had jurisdiction or not to adjudicate upon the claim based upon the merger agreement; it would only say that it itself has no jurisdiction to do so. When its answer goes back to the Tribunal it would say :--

'The High Court has not decided that we have no jurisdiction to adjudicate upon the claim, the High Court's answer is after ignoring the merger agreement but we are not required to ignore it and the decision given by us previously after considering the merger agreement is not unconformable to the answer given by the High Court.'

The result would be that if this Court has no jurisdiction to consider and give effect to, the merger agreement the Tribunal's referring the question to it will not serve any useful purpose. The Constitution-makers could not have intended that the provisions of Section 66 of the Income-tax Act be rendered useless in this manner and we should hold that answering a question of law referred under Section 66 is not deciding a dispute within the meaning of Article 363.

10. Sri Gulati has suggested that we should, before deciding whether our jurisdiction to answer the question is barred by Article 363 or not, decide whether the Nawab had the immunity at the time of his signing the merger agreement. The argument was that if he did not possess the immunity there was no immunity to be continued by the merger agreement aud it was useless to discuss whether we have jurisdiction or not to consider, and give effect to, the merger agreement. The merger agreement was relied upon by the Nawab only for claiming that the immunity possessed by him previously was continued by it; if he did not possess any immunity previously he did not have to rely upon the merger agreement and no question will arise of our being debarred by the Article. I consider that it would be illogical tor us to decide first whether the immunity existed previously or not. Whether the immunity existed previously or not is a question involved in the question referred to us; if we have no jurisdiction to answer the question we have no jurisdiction to decide whether the immunity existed or not. It is illogical to proceed to decide a matter involved in the question referred to us in order to decide whether we have jurisdiction over the question or not, One cannot proceed to exercise jurisdiction without deciding that one has the jurisdiction or for the purpose of deciding whether one has it or not. One cannot lose jurisdiction on the basis of a rinding reached on a certain matter in the exercise of the same jurisdiction; jurisdiction cannot be lost simply by being exercised.

Further, if we have no jurisdiction to answer the question any finding given by us that the Nawab did not possess the immunity before the merger agreement would itself be a finding without jurisdiction and of no validity. We ourselves would be debarred from giving effect to it by giving a further finding that we have no jurisdiction to answer the question referred to us. The existence of the immunity prior to the merger agreement is not a condition precedent to our exercising the jurisdiction over the question; it is not that we have jurisdiction over the question if the immunity did not exist. Our jurisdiction not being dependent upon the existence of the immunity we are not required to decide about its existence before assuming the jurisdiction. The existence of the immunity is a finding to be given by us in the exercise of our jurisdiction but before we can proceed to give the finding we must first find that we have jurisdiction over the question.

11. if the question referred to us is split up into two questions; one relating to the existence of the immunity and the other relating to the effect of the merger agreement on the immunity it would be the second question that might come within the scope of the words 'dispute arising out of any provision of a treaty, agreement' and not the former. If the former is answered in the negative the latter question wiji not arise at all and there will arise no occasion for our considering the ban imposed by the Article. It is true, as urged by Sri Gulati, that we have the jurisdiction to decide whether the question before us is a dispute arising out of the merger agreement but we have to decide it on the basis of what is claimed and not on the basis of the truth of the claim. The Nawab's claim is that the immunity (assuming that it existed prior to the merger agreement) is continued by the terms of the merger agreement and this is a dispute arising out of the merger agreement. We must take the Nawab's claim as it stands and hold that it arises out of the merger agreement. The Nawab has not merely set up or referred to the merger agreement; he has claimed the immunity on the basis of its provisions and the investigation of this claim would be beyond our jurisdiction if the Article applied in the reference. Without finding that we have jurisdiction over the question we cannot consider whether the immunity can be claimed on the basis of the merger agreement. All these considerations do not apply if the immunity did not exist at all prior to the merger agreement. Consequently after splitting up the question we could first go into the question whether the immunity existed prior to the merger agreement and if we found that it existed, we could say that the effect of the merger agreement upon it is beyond our jurisdiction and if we found that it did not exist. no further question, whether of the bar imposed by the Article or of the merits of the whole question referred to us, will arise. Tf the immunity did not exist the question referred to us must be answered in the negative.

Sri Gulati referred us to State of Bihar v. Sir Kameshwar Singh : [1952]1SCR1020 and Jagannath Behera v. Harihar Singh : AIR1958SC239 . The Article did not come in for discussion in the former case. In the latter case an ex-Ruler of a native State was the defendant, who himself set up the merge)- agreement executed between him and the Dominion of India and pleaded the bar of the Article. The suit was brought against him for possession by tenants whom he had dispossessed from the land which he claimed to be his personal property. The dispossession was against the law in force in the State but he claimed that by virtue of the agreement he had the right to eject the plaintiffs. The Supreme Court held that he could not rely upon the Article to prevent the jurisdiction of the civil court over the suit brought by the plaintiffs against him. The plaintiffs' suit did not raise any dispute arising out of the agreement; it was based on the illegality of their dispossession by the defendants. It was the defence that was based upon the agreement and could be beyond the jurisdiction of the civil court. So the suit could go on and the civil court would be debarred from considering the defence if it was based on the agreement. The Supreme Court went into the question whether the defence was based on the agreement and could be said to give rise to a dispute arising out of it. Though the defendant referred to the agreement he could not logically connect it with the immunity from being sued for dispossession of the plaintiffs against the law; so the defence was found not to arise out of the agreement, and its consideration by the Court was not barred. Thus neither the claim nor the defence involved a dispute arising out of the agreement and the Article was found to be inapplicable. This decision of the Supreme Court does not support the view that a court can without deciding that it has jurisdiction over a dispute decide a question arising out of the dispute and on the basis of the answer say that the remaining question does not arise and that consequently its jurisdiction is not barred.

12. Even if after splitting up the question as suggested above we could decide whether the immunity existed or not and on finding that it did not hold that it was not necessary to decide the preliminary objection, F think that as this large Bench has been const fluted for considering the scope of the Article, we have heard full arguments on the scope through the preliminary objection and the question of the scope has been raised, and raised relevantly, before its we must decide it and not evade deciding it.

13. in the cases of Jagannath Behera : AIR1958SC239 (supra), Sri Sudhansu Shekhar Singh Deo v. State of Orissa : [1961]41ITR743(SC) and Commr. of Income-tax, Andhra Pradesh v. H. E. H. Mir Osman Ali Khan, Civil Appeal No. 46 of 1964, decided by the Supreme Court on 25-10-1965 (reported in : [1966]59ITR666(SC) ) the ex-Rulers themselves had started proceedings in the High Court under Article 226 of the Constitution challenging a decree for possession in the first case and assessment orders in the other two cases on the ground that they were immune from being sued for possession or from being assessed on their income by virtue of the relevant merger agreements. They all failed and were bound to fail. if the Article applied it applied against them; they themselves raised dispute arising out of the agreements and if the court's jurisdiction in them was barred they could not succeed in their claims. in the case of Sri Sudhansu Shekhar Singh Deo : [1961]41ITR743(SC) the Supreme Court observed at p. 786 (of SCR): (at p. 199 of AIR) that 'if, despite the recommendation that due regard shall be had to the guarantee .....given under the. . . .agreement, the Parliament or the Legislature of a State makes laws inconsistent with the personal rights, privileges and dignities of the Ruler. .... .the exercise of the legislative authority cannot, relying upon the agreement. ... .be questioned in any court, and that is so expressly provided by Article 363'. it rejected the contention of the ex-Ruler that he was not seeking to enforce the terms of the agreement by stating that 'in truth, the appellant sought by his petitions under Article 226. . . .to enforce the terms of. . . .the merger agreement' (see at p. 786) (of SCR): (at p. 199 of AIR).

14. So far I have dealt with the first part of Article 363. The second part of the Article is to the effect that no court shall have jurisdiction in any dispute in respect of any obligation arising out of any provision of the Constitution relating to any treaty, agreement etc. referred to in the first pArticle The first part of the article itself might be said to be a provision relating to such a treaty, agreement etc. and it might be said that the ban on a court's having jurisdiction in a dispute arising out of such a treaty, agreement etc. Is an obligation arising out of the article. So it might be argued that by the latter part of the Article this Court is deprived of the jurisdiction over the dispute regarding the jurisdiction over the question but it seems that 'obligation' refers to a positive obligation and not a ban; the first part does not create an obligation but imposes a ban. Moreover, the jurisdiction of an authority must be decided by the authority itself. Consequently this Court cannot be prevented from deciding whether its jurisdiction over the question is barred by (the first part of) Article 363 or not.

15. in the result, I find that Article 363 does not bar our answering the question actually referred to us. If our jurisdiction is barred by the article, it is in respect of the dispute arising out of the Nawab's defence in the assessment proceedings that the merger agreement has continued the immunity from taxation so that this income is exempt from being taxed. It is this defence that can be said to be a dispute arising out of the agreement; the claim of the Department to tax his income is not based on the agreement and in order to adjudicate upon it this Court is not required to give any finding in respect of the agreement. The Nawab is admittedly a person within the meaning of the Income-tax Act and is liable to be taxed on his income. It is not disputed that what is said to be his income is his income liable to be taxed under the Indian Income-tax Act. It is his defence that the liability imposed by the Indian Income-tax Act is superseded by the agreement and it is the defence that constitutes a dispute arising out of the agreement within the meaning of the Article and can be beyond the jurisdiction of this Court. If the defence is not within the Court's jurisdiction it must ignore it and cannot refuse jurisdiction over the whole proceeding on that ground; it must adjudicate upon the claim considering the defence. The preliminary objection really recoils upon the Nawab and instead of our being debarred from answering the question we are debarred from considering whether the immunity has been continued by the Parliament.

16. Coming to the merits, I take up first the question whether the Nawab had the immunity from taxation prior to the merger agreement. This question arises because of Article 2 of the merger agreement continuing to him the personal rights, privileges, immunities etc. It was contended by Sri Jagdish Swarup that the adjective 'personal' governs the noun 'rights' immediately following it and not the nouns 'privileges', 'immunities', 'dignities' and 'titles' which follow subsequently, Sri Gulati contended on the other hand that the adjective governs all the nouns. Dignities and titles are more of a personal nature than rights, privileges and immunities. I do not know why the parties chose to confine the guarantee to personal rights and not the personal privileges, personal immunities, personal dignities and personal titles. There was no point in not having the guarantee in respect of rights other than personal when they were having it in respect of privileges, immunities, dignities and titles other than personal privileges, immunites etc. According to the rules of grammar the word 'personal' can be read with 'rights' alone and also with 'rights', 'privileges', 'immunities', 'dignities' and 'titles'. If the legislature intended that it should be read only with the word 'rights' it would have made its meaning clear and free from all ambiguity by using the words 'same privileges, immunities, dignities, titles and personal rights' instead of the words 'same personal rights, privileges, immunities, dignities and titles'. If it intended that the words should be read with all the nouns, barring the cumbrous words 'same personal rights, same privileges, same immunities, same dignities and same titles', the words actually used were the words to be used.

The merger agreement in the case of Sudhansu Shekhar Singh Deo : [1961]41ITR743(SC) (supra) used the words 'the personal rights, privileges, dignities and titles' and it was held by the Supreme Court that the privileges guaranteed by it were 'personal privileges (p. 784) (of SCR): (at p. 198 of AIR). I am, therefore, of the opinion that the word 'personal' governs all the nouns including 'privileges' and 'immunities'.

17. Immunity is ''freedom from risk of having a duty created'. It is a 'legal situation in which a particular person or special groups or classes of persons are relieved by law from duties or liabilities appointed by law for their fellowmen'. 'Immunity' is the opposite of 'liability' and correlative of 'disability'. See Pound's Jurisprudence, Volume IV, pp. 111 and 127. A person is immune when he is not liable and when one person is immune there is another person disabled to that extent. The essential feature in a privilege is not restraint of the person acting whereas in an immunity it is restraint of the person. Examples of immunity given by Pound are immunity from taxation and restrictions on the power of creditors of injured parties to exact satisfaction. The Nawab's claim is that he was not liable to be taxed and that the Department was disabled from taxing him. So it is a claim of immunity. Immunity from tax also amounts to a privileges. In Tennessee v. White Worth, (1896) 29 Law Ed., 833 Waite, C. J. observed at p. 835 that 'the word 'privilege', in its ordinary meaning, when used in this connection, includes an exemption from taxation' and that 'words in a Constitution, as well as words in a statute, are always to be given the meaning they have in common use, unless there are very strong reasons to the contrary'. Peckham, J. said in Phoenix Fire and Marine Insurance Co. v. State of Tennessee, (1896) 40 Law Ed 660 as follows:

'The words 'rights, privileges and immunities' when used in a statute of the kind under consideration are certainly full and ample for the purpose of granting an exemption from taxation contained in the first or original statute, and when in granting to still another company certain rights the word 'immunities' is dropped, its absence would seem and ought to have some special significance...... The word 'immunity' expresses more clearly and definitely an intention to include therein an exemption from taxation than does either of the other words. Exemption from taxation is more accurately described as an 'immunity' than as a privilege, although it is not to be denied that the latter words may some times and under some circumstances include such exemption' (p. 661). So the exemption from taxation by the Nawab was his privileges or immunity. However, Sri Jagdish Swarup expressly gave up the contention that it amounts to a privilege and rested his submissions on its amounting to immunity.

18. So long as the Rampur Income-tax Act was in force in the territory of the former Rampur State the Nawab was exempt from payment of Income-tax to the Rampur State on any income whether received or accrued in the territory or outside the territory by Section 3-A. This means that he possessed immunity from taxation during that period. As regards income 'accrued to him in British India it was governed also by the Indian Income-tax Act and he was liable to pay income-tax on it to British India. When me paramountcy lapsed on the passing of the Indian Independence Act Rampur State became free except in respect of certain matters mentioned in the Instrument of Accession executed by him. Taxation was not one of the subjects acceded by him to the Dominion of India. As regards the income which could be taxed under the Rampur Income-tax Act it continued to be immune. As regards the income which could be taxed under the Indian Income-tax Act on account of its having accrued to him in the Dominion of India he claimed that on the lapse of paramountcy he became a Sovereign Ruler and thus got the status of an international person not liable to be taxed by any State. This claim must be rejected in view of the decision of the Supreme Court in the case of H. E. H. Mir Osman All Khan, Civil Appeals Nos. 46 to 49 of 1964, d/- 25-10-1965: : [1966]59ITR666(SC) Subba Rao, J. held that His Exalted Highness the Nizam did not attain international personality on the lapse of paramountcy and observed:

'The lapse of suzerainty or the breaking of ties with the British Crown did not ipso facto raise their status to that of international personality. it created a void and the position of the States was in a fluid state. No de facto or de jure recognition was given to the Hyderabad State or to any other State by the family of nations. ..... Hyderabad was under the suzerainty of the British Crown till the Indian Independence Act of 1947 was passed and that thereafter, after negotiations with the Indian Dominion, it finally acceded to it. it was never recognized as an international personality by the family of nations. it was all through a vassal of the British Crown.......It is, therefore, clear that Hyderabad State did not acquire international personality under the international law and so its ruler could not rely upon international law for claiming immunity from taxation of his personal properties'. The facts regarding the Nawab's claim of international personality are similar and he also must be held not to have attained international personality on the lapse of paramountcy. He, therefore, did not become immune from taxation under the Indian Income-tax Act on the income accrued to him in the Indian Dominion. In Philadelphia and Wilmington R. R. Co. v. The State of Maryland, (1850) 13 Law Ed 461, Taney, C. J. stated that 'the taxing power of a Stale is never presumed to be relinquished, unless the intention to relinquish is declared in clear and unambiguous terms'. This was confirmed in the cases of White Worth, (1886) 29 Law Ed 833 and Phoenix Fire and Marine Insurance Co., (1896) 40 Law Ed 660. In the latter case it was stated that the claim for exemption must be made out wholly beyond doubt because 'it is the settled doctrine of this Court that an immunity from taxation by a State will not be lecognised unless granted in terms too plain to be mistaken' (p. 661). Thus before the merger the Nawab had the immunity in respect of the State income but not in respect of the income accrued to him outside the State. With effect from 1-4-1949 the Rampur Income-tax Act which exempted him from taxation on the Rampur State income ceased to be in force and he became liable to tax on the Rampur State income also under the Indian Income-tax Act. The merger agreement came into existence later on 15-5-1949; on that date he had no immunity in respect of any income. He had no immunity in respect of the Rampur income because of the repeal of the Rampur Income-tax Act and he had no immunity in respect of the rest of the income because he was a 'person' within the meaning of the Indian Income-tax Act and was not an international person exempt under the international law from taxation by any State. Consequently there was no immunity to be continued under the merger agreement. The agreement applied only to whatever immunity he had on the date of its execution; then only could it be said to be continued. If it had ceased even a day before there cannot arise any question of continuing it. Then the immunity from taxation could not be described as a personal immunity, personal immunities only were continued under the agreement. Freedom from arrest, freedom from being required tc attend a court etc. are examples of personal immunities; freedom from taxation on income is not. Consequently no immunity from taxation is continued by the agreement.

19. Sri Gulati contended that the agreement is not a law and cannot be enforced in a court of law or by the tribunal. So even if there were immunity from taxation before the agreement and it were continued by it, it is not tor the Tribunal or the court to give effect to it and to hold that the Nawab is exempt from taxation. His contention is that the Tribunal and the court are bound by the Income-tax Act and since it does not require us to give effect to the agreement we cannot give effect to it. In reply it was said that the agreement is an act of State which prevails unless abrogated by Parliament and that it is for the courts to give effect to an act of State. In Dalmia Dadri Cement Co. Ltd. v. Commr. of Income-tax : [1958]34ITR514(SC) the Supreme Court stated as follows as regards an act of State. A merger agreement is a treaty entered into by a Ruler of an Independent State by which he gave up his sovereignty over his territory and vested it in the Ruler of a new State. It includes acquisition of a territory by a sovereign State for the first lime, whether by conquest or by cession. As between a sovereign and his subjects there is no such thing as an act of State and an officer must show that his action which is challenged is within the authority conferred on him by law. An altogether different consideration arises when the act of a sovereign has reference not to the rights of his subjects but to the acquisition of territories belonging to another sovereign; that is a matter between independent sovereigns and any dispute arising therefrom must be settled not in a municipal court of either State but by resort to diplomatic action or force.

Clause in a treaty entered into by an independent Ruler providing for the recognition of the rights of his subjects are incapable of enforcement in the law of a new sovereign. Transactions of independent States between each other are governed by laws other than those which municipal courts administer. When a treaty is entered into by sovereigns of independent States were no sovereignty in a territory passes from one to the other, clauses in it providing for the recognition by the new sovereign of the existing rights of the residents of the territory must be regarded as invested with the character of an act of State and no claim based thereon can be enforced in a court of law. In Reference by the President of India under Article 143(1) of the Constitution of India on the implementation of the Indo-Paldstan Agreement relating to Berubari Union and Exchange of Enclaves : [1960]3SCR250 it was pointed out that a sovereign can acquire a foreign territory or cede a part of his own territory in favour of a foreign State, in the exercise of his treaty-making power and the question how treaties can be made by a sovereign in regard to a cession of national territory and how they can be implemented is governed by the provisions in the Constitution of the country. There is no provision in our Constitution with regard to merger agreements except those contained in Articles 291, 362 and 363. Article 291 only exempts the privy purse from taxation if it is guaranteed free of tax under the merger agreement. Article 362 requires Parliament or a State Legislature to have due regard to the guarantee or assurance given in a merger agreement with respect to personal rights, privileges and dignities of the Ruler of an Indian State. Here also the word 'personal' must govern the word privileges and freedom from taxation is not a personal privilege as already pointed out. The Article, therefore, does not bar the law taxing the income of an Indian Ruler. Only the privy purse has been guaranteed to be free from tax; no other income of the Ruler. Article 363 takes away completely (he jurisdiction of a court in respect of a dispute arising out of an agreement. Thus the provisions in the Constitution are against the view that municipal courts and tribunals can enforce the provisions of a merger agreement. The United States' Constitution lays down that a treaty has the force of the law but our Constitution does not contain such a provision. It is, therefore, clear that the implementation of a merger agreement is a matter between the Dominion of India and the ex-Ruler to be settled in the Political Department of the Government' of India. The Nawab should pay the tax and then take up the matter with the Political Department of the Government of India and ask for refund. He cannot ask the Tribunal to exempt him from the tax when there is no provision in the Income-tax Act exempting him and there is no law requiring the Tribunal to give effect to the merger agreement.

20. My answer to the question is in the negative.

Dwivedi, J.

21. The facts of the case are already stated in the judgment of the learned Chief Justice, and I would not repeat them here.

22. At the threshold we are confronted with the preliminary objection of the assessee that Article 363 of the Constitution bars us from answering--at all events, effectively--the referred question. Sri Jagdish Swamp, counsel for the assessee, has put forth the objection in this way: the Income-tax Appellate Tribunal (hereinafter called the Tribunal) has examined and interpreted the Merger Agreement, dated 15-5-1949, between the assessee, as the former Ruler of the erstwhile State of Rampur, and the Dominion of India and has held that Article 2 of the said agreement granted the assessee immunity from taxation under the Indian Income-fax Act (hereinafter called the Act). We cannot examine and interpret the Agreement, and should not, therefore, answer the referred question.

23. Clause (1) of Article 363, in so far as it is material, reads :

'Notwithstanding anything in this Constitution but subject to the provisions of Article 143,neither the Supreme Court nor any other courtshall have jurisdiction in any dispute arising outof any provision of a treaty, agreement, covenant, engagement, sanad or other similar instrument which was entered into or executed beforethe commencement of this Constitution by anyRuler of an Indian State and to which the Government of the Dominion of India wasa party.....'

24. The fate of the preliminary objection depends on the meaning of the words 'dispute arising out of in this Article and the nature of the dispute in the reference.

25. First, we may compare these words with the material words of Section 2 of Article III of the Constitution of the U. S. A. and with Sections 75 and 76 of the Commonwealth of Australia Constitution Act. Section 2 of Article III of the Constitution of the U. S. A. provides:

'The judicial power shall extend to all cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, ......; to all cases affecting AmbassadoRs. other public Ministers and Consuls; ...... to controversies to which the United States shall he a party; to controversies between two or more States. .....

In all cases affecting AmbassadoRs. other public Ministers and Consuls, and those in which a State shall be a party, the Supreme Court shall have original jurisdiction.

In all other cases before mentioned, the Supreme Court shall have appellate jurisdiction ... . . '

Section 75 of the Australian Constitution Act reads :

'In all matters

(i) Arising under any Treaty;

(ii) Affecting Consuls or other representatives of other countries;

(iii) in which the Commonwealth. .....

is a party;

(iv) Between Stales.. .....'

Section 76 of the said Act reads:

'The Parliament may make laws conferring original jurisdiction on the High Court in any matter-

(i) Arising under this Constitution, or involving its interpretation;

(ii) Arising render any laws made by the Parliament;......

26. in Section 2 of Article III of the U. S. A. Constitution the words 'cases arising under this Constitution' are used. Again while in the first part the word 'controversies' is used with reference to the United States and States, the second part shows that the two words 'cases' and controversies' are interchangeable. In Sections 75 and 76 of the Australian Constitution Act these words are substituted by the word 'matters'. Both these sections have, however, adopted the words 'arising under'. In Article 363(1) the words 'cases', 'controversies' and 'matters' are substituted by the word 'dispute'; and for the words 'arising under' we have here the words 'arising out of. Further, while Articles 132, 133, 134, 135 and 136, which deal with the litigation ordinarily arising between two or more persons or between a person and the Government, use the words 'case' and 'matter', Article 131, which deals with litigation between States or between the Union Government and States, and Article 363 use the word 'dispute'.

27. Are those changes purposeful? if so, what is their purpose? According to Professor Corwin ''Controversies' are Civil actions or suits; 'cases' may be either civil or criminal' (1). One of the elements of a 'case' or 'controversy' is 'the presence of adverse litigants presenting antagonistic assertion of rights'(2). Another element is that 'the party initiating it must be asking the Court for a remedy, or 'execution'.'(3)

28. The word 'matter' also connotes the same attributes, and precludes the rendering of an advisory opinion. '. .... .we do not thinkthat the word 'matter' in Section 75 means a legal proceeding, but rather the subject-matter for determination in a legal proceeding. In our opinion there can be no matter within the meaning of the section unless there is some immediate right, duty or liability to be established by the determination of a case. If the matter exists, the I legislature may no doubt prescribe the means by which the determination of the Court is to he obtained, and for that purpose may, we think, adopt any existing method of legal procedure or invent a new one, But it cannot authorise this Court to make a declaration of the law divorced from any attempt to administer that law. The word 'matter' is used several times in Chap. III of the Constitution (Sections 73, 74, 75, 76 and 77) and always, we think, with the same meaning.' in re Judiciary and Navigation Acts 29 Com.-W. LR 257 at pp. 265-266.

29. All this discussion would show that our Constitution-makers purposely discarded the words 'case', 'controversy' and 'matter' and instead, preferred to use the word 'dispute' in Article 363. The object was to make the ban on courts comprehensive, for some of the treaties would relate to acts of State, Dispute is a word of wide meaning and would embrace not only civil and criminal jurisdictions, but also other jurisdiction, e.g., revenue (relating to taxation) and. advisory of the nature contemplated by Section 66 of the Act. The inclusion of the advisory jurisdiction also follows from the exception--'subject to the provisions of Article 143'--carved out in Article 363. Accordingly courts have no jurisdiction (civil, criminal, revenue or advisory) in a dispute arising out of a treaty, agreement etc.

30. The expression 'arising under has received (wo different interpretations by the U. S. A. Supreme Court and the Australian High Court. According to one view, a case arises under the Constitution or a Federal law or a treaty only when it involves the construction of any of them; Cohens v. Virginia, (1821) 5 Law Ed. 257 (285) according to the other view, where a right or duty owes its existence to the Constitution or a Federal law or a treaty or depends on the Constitution or a Federal law or a treaty for its enforcement, whether or not the determination involves the interpretation of any of them, a case arises under the Constitution or a Federal law or a treat v. People of Puerto Rico v. Russell and Co., (1933) 77 Law Ed 903 (909); The King v. Commonwealth Court of Conciliation and Arbitration, 70 Com W. LR 141 (152-154).

31. There is, however, unanimity on one point: a case does not arise under the Constitution or a Federal law or a treaty, if it can be decided on any other basis and without reference to the Constitution or the Federal law or the treaty. McCain v. City of Des Moines, (1899) 43 Law Ed 936 (939), Miller v. Hawies, 5 Com-W. LR 89. Here, the Supreme Court has held that a dispute arises out of a treaty, agreement, etc., if it is founded on such treaty, agreement, etc. State of Seraikella v. Union of India, : [1951]2SCR474 , or if it questions the existence of such treaty, agreement, etc. Ibid at page 496 per Patanjali Sastri, J. It lias also been held that if the claim of a party may be decided without reference to the treaty, agreement, etc., then the dispute does not arise out of such treaty, agreement, etc. : AIR1958SC239 .

32. it is unnecessary to attempt a definition of the expression 'arising out of. As the question referred to us can be answered without reference to the Merger Agreement, I am of opinion that Article 363 does not stand in our way. It cannot be disputed that the personal income of the assessec is liable to assessment under Section 4 of the Act. The Act does not give immunity or exemption to his personal income. By' virtue of Article 372(1) of the Constitution the Act, being a law in force before the commencement of the Constitution, would continue to operate with full force and efficacy. The Constitution docs not say that the Act shall yield to the Agreement. The Agreement is not a law, and could not cut down the scope of the charging section of the Act. See Umeg Singb v. State of Bombay : [1955]2SCR164 . My answer to the question referred to us is. therefore, in the negative.

33. It is not necessary to deal with the other arguments

Pathak, J.

34. The assessec was the Ruler of the erstwhile State of Rampur. For the assessment year 1952-53 the Income Tax Officer assessed him to income-tax under the Indian Income Tax Act. 1922. An appeal against the assessment was preferred before the Appellate Assistant Commissioner, and thereafter a second appeal before the Income Tax Appellate Tribunal. The appeal was allowed by the Appellate Tribunal, which held that the assessee's personal income was exempt from tax. At the instance of the Commissions of Income Tax, the Appellate Tribunal has referred the following question to this Court under Section 66(1):

'Whether the personal income of the as-sessee is immune or exempt from taxation under the Indian Income-tax Act?'

The question being one of some importance, the Bench hearing the reference directed if to be laid before a Larger Bench.

35. The State of Rampur entered history as a Jagir comprising Rampur Katra allotted under a family arrangement to Faizulla Khan, one of the six sons of the Rohilla Chief, Ali Muhammad Khan. With the vicissitudes of war and of shifting political alliances in the closing decades of the eighteenth century, Faizullah Khan found himself obliged to enter into an agreement, known now as the Treaty of Lal Dhang, with the Nawab of Oudh in 1774 under the British guarantee by which he was secured in the State of Rampur. The State, with some loss of territory subsequently, continued with the descendants of Faizulla Khan as Sovereign Rulers (1). As each Nawab ascended the Gaddi of Rampur he executed an agreement assuring the British Government of his intention to administer the affairs of the Jagir with Justice and equity. The State of Rampur, like other Indian States, was recognised as a suzerain of the British Crown, which was acknolwedged by it as the Paramount Power. The relations between the British Crown and the State of Rarnpur were governed by Treaties, Engagements, Sanads as supplemented by usage and sufferance and the decision of the Government of India and the Secretary of State embodied in political practice. The Paramount Power was responsible for the defence of the State against external aggression and enjoyed the exclusive authority of making peace or declaring war or negotiating or communicating with foreign Slates. As regards relations with foreign State, the State of Rampur did not enjoy any authority, and was considered in its external relations as part of the Indian Empire, The State had no international personality of its own. In his Law and Custom ol' the Constitution (2), Anson observed:

'The King is Emperor of India, the Rulers of the Native States owe political allegiance to him, and though their territories are not British territory, they are for international purposes included in the Indian Empire. . . To the same effect is the comment of Oppenheim in his work on International Law (3).

36. The State of Rampur continued under the suzerainty of the Paramount Power until the enactment of the Indian Independence Act of 1947, which brought about far-reaching and fundamental changes in India. British India was carved out into two independent Dominions, India and Pakistan, as from August 15, 1947. As from that date also, the suzerainty of His Majesty over the Indian States lapsed, and with it, all treaties and agreements in force between His Majesty and the Rulers of Indian States, all functions exercisable by His Majesty with respect to Indian States, all obligations of His Majesty existing at that date towards Indian States or the Rulers thereof, and all poweRs. rights, authority of jurisdiction exercisable by His Majesty in or in relation to Indian States by treaty, grant, usage, sufferance or otherwise. The Extra Provincial Jurisdiction Act, 1947 was enacted to provide for the exercise of certain jurisdiction of the Central Government over areas outside the Provinces of India. The Government of India Act, 1935, which had been modified in its application to the Dominion of India for the purpose of bringing it into accord with the political changes occasioned by the Indian Independence Act, 1947, contained Provisions enabling an Indian State to accede to the Dominion by an Instrument of Accession executed by its Ruler.

The assessee executed an Instrument of Accession whereby the State of Rampur acceded to the Dominion of India, and defence, external affairs and communications and ancillary matters were subjects with respect to which the Dominion Legislature acquired authority to make laws for the State. In other respects, the internal sovereignty of the assessee remained intact. Then, on May 15, 1949, an agreement (hereinafter referred to as the Merger Agreement) was executed between the assessee and the Governor-General of India by which the State of Rampur was merged into the Dominion of India with effect from July I, 1949. Under Article 1 of the Agreement the assessee ceded to the Dominion full and exclusive authority, jurisdiction and powers tor and in relation to the governance of the State and agreed to transfer the administration of the State to the Dominion Government with effect from July I, 1949. With effect from that date the Dominion Government became competent to exercise those poweRs. authority and jurisdiction. Article 2, which is of particular relevance, provided:

'The Nawab shall continue to enjoy the same personal rights, privileges, immunities, dignities and titles which he would have enjoyed had this agreement not been made.' The Merger Agreement then declared the assessee entitled to receive for his lifetime a Privy Purse free of all taxes and recognised him as full owner of his private properties. Article 5 continued in the members of his family 'all the personal privileges, dignities and titles enjoyed by them.'

37. The State of Rampur, before its merger with the Dominion of India, was governed by the Rampur State Income-tax Act, 1944. Its provisions corresponded closely with those of the Indian Income-tax Act, 1922, Section 3-A, however, declared that the Act did not apply to the Ruler. The assessee was, (here-fore, exempt from tax under that Act. By the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, which received the assent of the Governor-General on December 31, 1949, the Indian Income-tax Act, 1922, among other Indian statutes, was extended to all the merged States, and Section 3(2) specifically declared that the Indian Income-tax Act, 1922 would operate as if it had been extended to, and brought into force in, all the merged States on April 1, 1949. Section 7(1) repealed the laws relating to income-tax which had held away in the merged States. Appropriate amendments were made in the Indian Income-tax Act, 1922 to enable it to operate over the merged States.

38. The Constitution of India was brought into force on January 26, 1950. Article 291(1) of the Constitution provided:

'(1) Where under any covenant or agreement entered into by the Ruler of any Indian State before the commencement of this Constitution, the payment of any sums, free of tax, has been guaranteed or assured by the Government of the Dominion of India to any Ruler of such State as privy purse-

(a) such sums shall be charged on, and paid out of, the Consolidated Fund of India; and

(b) the sums so paid to any Ruler shall be exempt from all the taxes on income.' Article 362 required that in the exercise of the power of Parliament or of the Legislature of a State to make laws or in the exercise of the executive power of the Union or of a State due regard must be had to the guarantee or assurance given under any such covenant or agreement as was referred to in Article 291(1) with respect to the personal rights, privileges and dignities of the Ruler of an Indian State. Then followed Article 363, Clause (1) of which is reproduced below: '(1) Notwithstanding anything in this Constitution but subject to the provisions of Article 143, neither the Supreme Court nor any other court shall have jurisdiction in any dispute arising out of any provision of a treaty, agreement, covenant, engagement, sauad or other similar instrument which was entered into or executed before the commencement of this Constitution by any Ruler of an Indian State and to which the Government of the Dominion of India. ..... was a party and which has or has been continued in operation after such commencement . . . .

39. The assessee was assessed to income-tax under the Indian Income-tax Act, 1922, for the assessment year under reference, on his personal income. It is not clear from the statement of the case whether the income pertained to the territories originally comprised in the State of Rampur or in the territories originally described as British India, or both. Then; is no dispute that the Indian Income-tax Act would, on its provisions, apply to the assessee. The contention of the assessee before the Appellate Tribunal was that as sovereign Ruler of the State of Rampur he was immune from income-tax under international law before the merger of the State into the Dominion of India, and that by virtue of Article 2 of the Merger Agreement that immunity was continued. The Income-tax Department disputed that contention.

40. Mr. Jagdish Swamp, appearing for the assessee, has raised a preliminary objection. He urges that the reference cannot be entertained by us because it is barred by Article 363 of the Constitution and that we should decline to answer the reference. 1 am of opinion that the preliminary objection must be overruled.

41. The question referred by the Appellate Tribunal is couched in wide terms. In order to determine its scope, it is necessary to ascertain what were the questions raised before the Appellate Tribunal. The assessee did not contend that if the provisions of the Indian Income-tax Act alone be considered the Act did not apply. No dispute was raised as to its applicability it regard was confined merely to its provisions. What the assessee contended was that he was immune from tax under the Indian Income-tax Act before the State merged into the Dominion of India because he was a Sovereign Ruler and entitled to such immunity under international law. The assessee contended that that immunity was continued by virtue of Article 2 of the Merger Agreement. This was disputed by the Income-tax Department. It is, therefore, clear that two questions were in dispute before the Appellate Tribunal. One was whether the assessee was a Sovereign Ruler entitled to immunity, under international law, from the operation of the Indian Income-tax Act before the merger of the State, and the other question was whether that immunity was continued by Article 2 of the Merger Agreement. If the answer to the first question is in favour of the assessee, it is then, and then only, that the further question will arise whether an appeal to Article 2 of the Merger Agreement can be permitted in support of the claim that the immunity continued. These are the two questions involved in the question which has been referred. Accordingly, before considering whether the bar of Article 363 of the Constitution can be invoked, it will be necessary to determine whether the assessee was a Sovereign Ruler entitled under international law to immunity from the application of the Indian Income-tax Act. If the Court must enter into, and decide, that question before referring to Article 363, it is plain that the objection, considered as u preliminary objection, cannot be sustained.

42. Mr. Jagdish Swamp points out that in two petitions filed by the assessee under Article 226 of the Constitution this Court upheld a preliminary objection against their maintainability relying on the bar of Article 363. By those petitions, the assessee challenged the validity of the assessment proceedings for the years 1951-52 avid 1052-53, and founded his claim similarly on the plea that he was immune from taxation before merger under international law and that immunity was continued by Article 2 of the Merger Agreement. Now, what must be noted is that it was the assessee who initiated the proceedings in this Court. In order to s i icceed I ic was boi md to establish (a) that he enjoyed the immunity before merger and (b) that the immunity was continued by the Merger Agreement. To succeed in his claim, it was essential that he invokes the provisions of the Merger Agreement. This he could not do because the plea was denied him by Article 363. In the instant case, on the contrary, the reference has been made at the instance of the Commissioner. The Commissioner can succeed if he is able to show to the Court that the assessee never enjoyed the pre-merger immunity claimed by him. It he succeeds in that, the entire defence of the assessee against the assessment of his personal income under the Indian Income-tax Act must fail. In my opinion, the earlier decision of this Court dismissing the assessee's petitions cannot sustain his preliminary objection.

43. The first question, therefore, which must be considered is:

Was the assessee a Sovereign Ruler of the State of Rainpur before it merged into the Dominion of India and, therefore, entitled to immunity from tax under the Indian Income-tax Act?'

Here, again, the question is divisible into two parts: was the assessee a Sovereign Ruler, and, if he was, was he entitled to immunity from tax under the Indian Income-tax Act? The Appellate Tribunal answered the two parts of the question in favour of the assessee, it held that the assessee was the Sovereign Ruler of the State before its merger into the Dominion of India and, therefore, he enjoyed immunity from tax under the Indian Income-tax Act.

44. Now, there can be no dispute that so long as the Indian Estates were under the suzerainty of the British Crown their relations with foreign States lay wholly within the province of the Paramount Power. They had no international personality of their own. Shortly after the lapse of paramountcy on August 15, 1947, the assessee, as Ruler of the State or Rampur, executed an Instrument of Accession. At no time after the lapse of paramountcy was the State recognised by any foreign State as possessing an independent personality. Finally, the political identity of the State was extinguished altogether upon its merger on July 1, 1949 into the Dominion of India, it seems difficult to accept the contention that the State of Rampur or its Ruler ever enjoyed international personality. In Civil Appeals Nos. 46 to 49 of 1964, dated 25-104965: : [1966]59ITR666(SC) the Supreme Court was required to decide whether the Nizam of Hyderabad had acquired international personality and was, therefore, immune from taxation under the Indian Income-tax Act before that State merged into the Indian Dominion. The Supreme Court held that he did not. It observed that the Indian States had no international status and for external purposes they were practically in the same position as British India. It pointed out that the lapse of suzerainty of the British Crown did not raise the status of the Indian States to that of international personality, that a void had been created upon the lapse of paramountcy and the position of the States was unsettled and no de facto or de jure recognition had been given to them by the family of nations. It held that the State of Hyderabad did not acquire international personality under international law and, therefore, its Ruler could not rely upon international law for claiming immunity from taxation of his personal properties.

It seems to me that all that has been observed by the Supreme Court in respect of the Nizam and the State of Hyderabad applies with equal force to the assessee and the State of Rampur. No distinction has been pointed out before us, and, indeed, it seems to me that upon the material before us no such distinction is possible. that being so, I must hold that the assessee did not, on the eve of the merger of the State of Rampur into the Dominion of India, enjoy immunity from taxation under the Indian Income-tax Act, That is the position as regards personal income which accrued to him outside the State of Rampur in the taxable territories contemplated by thff Indian Income-tax Act.

45. A contention was raised on behalf of the assessee that the personal income earned by him within the territories comprising the State of Rampur before its merger into the Indian Dominion was exempt from the operation of the Rampur State Income-tax Act and consequently as regards that income the assessee enjoyed immunity from taxation. Now, that contention, I think, cannot be raised before us. The immunity claimed by the assessee before the Appellate Tribunal was immunity from taxation under the Indian Income Tax Act and it was an immunity said to rest in international law. It was never the assessee's case before the Appellate Tribunal that he was ininune from taxation because of the operation of the Rampuv State Income-tax Act. It is well settled that a question which has not been raised before the Appellate Tribunal in appeal, or, even if not raised, has not been decided by it, cannot be said to arise out of its appellate order. In my opinion the assessee is nol entitled to claim before us any immunity from taxation by reference to the Rampur State Income-tax Act. It is, therefore, not necessary to consider the effect of the Taxation Laws (Extension to Merged Stales and Amendment) Act, 1949 upon such income.

46. in my judgment, the assessee did not enjoy immunity from taxation under the Indian Income-tax Act on the dale preceding the date of merger of the Stale of Rampur into the Dominion of India.

47. Since the assessee did not enjoy that immunity, it is not necessary to consider whether the immunity was continued by Article 2 of the Merger Agreement. T need not, therefore, enter upon the question whether the provisions of Article 363 of the Constitution prohibit the Court from considering the provisions of the Merger Agreement.

48. As, in my judgment, the assessee tails in his claim that as Ruler of the State of Rampur he enjoyed international personality before the State merged into the Dominion of India and was immune under international law from taxation under the Indian Income-tax Act, T answer the question referred in the negative.

49. By The Court: For the reasons contained in our respective judgments, we answer the question referred in the negative.

50. A copy of the judgments with thisorder under the seal of the Court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, The Commissioner ofincome-tax is entitled to his costs which weassess at Rs. 300. Counsel's fee is assessed atRs. 300.


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