1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922, by the Appellate Tribunal the question propounded for our decision is
'Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the allowance of Rs. 12,000/- received by the assessee was not exempt from Income-tax in the hands of the assessee?'
2. The material facts are that the assessee Raj Kumar Bikram Bahadur Singh is the younger brother of Shri Birendra Bahadur Singh, the ex-Ruler of the Khairagarh State which was before its merger in December 1947 with the old Central Provinces and Berar one of the Chhatisgarh States, The assessee is also a member of the Indian Police Service and is at present holding the post of District Superintendent of Police. On 18th November 1943 Shri Birendra Bahadur Singh, who was then the Ruler of the Khairagarh State, made an order with regard to the grant of a monthly allowance to the assessee. The order was as follows:
'Whereas it is expedient to increase the allowance of Rajkumar Bikram Bahadur Singh and to give him certain privileges, according to the customs and tradition in vogue in the State, consequent on his marriage, it is hereby ordered as follows;
(i) With retrospective effect from 9-7-1943 (the date of his wedding) the Rajkumar Sahib's allowance is fixed at Rs. 800/- per month. In case he takes upan appointment outside the State, with a view to enable him to meet the extra expenses at an outside place, his monthly allowance will be raised to Rs. 1,000/-.
(ii) As has already been decided, as soon as the war is over, a sum of Rupees 15,000/- should be spent for the extension of the Devi Bhawan, according to the choice of the Rajkumar Sahib.
(iii) The white-washing and repairs to the Rajkumar's residence in Khairagarh shall be a State charge.
(iv) The Rajkumar Sahib is exempt from payment of electric charges and water-tax at Khairagarh.
(v) The Rajkumar Sahib should be given a guard for the night at his residence at Khairagarh.
(vi) The Rajkumar shall receive a lump sum of Rs. 300/- annually for petrol, mobil oil, insurance, maintenance and upkeep etc. of his car. The above grants are subject to and governed by the usual provision of loyalty of the grantee to the Ruler and the Throne of Khairagarh.' Under this order the assessee began to get a monthly allowance of Rs. 1000/-from the revenues of the Khairagarh State when he took up an appointment in the Police Service of the Central Provinces and Berar. The allowance was continued after the integration of the Khairagarh State with the Province of the Central Provinces and Berar and the amount of allowance used to be paid to the assessee out of the public revenues of the Central Provinces and Berar.
3. In the assessment proceedings forthe assessment year 1957-58 the assessee claimed that the amount of Rs. 12,000/- which he received as allowance in the relevant previous year was received by him as the subordinate chief of the Ruler of the merged State, namely, Khairagarh, and was, therefore, exempt from tax and could not be included in his total income under paragraph 13 (iii) of the Merged States (Taxation Concessions) Order, 1949 (hereinafter referred to as the Order). The assessee's claim for exemption was negatived by the Income-tax Officer as also by the Appellate Assistant Commissioner and the Appellate Tribunal in the appeals that the assessee preferred. The Appellate Assistant Commissioner took the view that the expression 'subordinate chief' as used in paragraph 13 (iii) of the Order meant a person 'who must be next to the Ruler in point of succession in all rights and privileges'; that the assessee could not be a subordinate chief as a son was born to the ex-Ruler of the Khairagarh State before 1st August 1949; and that the assessee had not produced any evidence to show that immediately before 1st August 1949 he was a subordinate chief as contemplated by paragraph 13 (iii) of the Order. The Appellate Tribunal also took the same view observing:
'There is no dispute that the assessee has claimed the exemption under para 13 (iii) of the Merged States (Taxation Concession) Order, 1949 and it was forthe assessee to prove that the assessee was the subordinate chief of the Ruler of Khairagarh State. In this connection, the assessee has produced a certificate from the ex-Ruler of Khairagarh State, but for the reasons mentioned by the Departmental Representative the same is not of much evidentiary value. If the assessee could produce a certificate from the Khairagarh State the assessee could have produced some acceptable evidence from the Ruler of Khairagarh showing conclusively that the assessee was the subordinate chief of the Ruler and that the allowance was made to the assessee in the capacity of a subordinate chief of the Ruler and the same was paid immediately before 1-8-1949. Inasmuch as no evidence worth the name to prove that the assessee was a subordinate chief of the Ruler of Khairagarh State and that the allowance was paid to him in that capacity by the Ruler immediately before 1-8-1949, is forthcoming the claim of the assessee for exemption of the allowance from taxation cannot be allowed and the same is hereby rejected.'
4. The answer to the question placed before us depends on a proper construction of paragraph 13 (iii) of the Order which is as follows:--
'13. Any income falling within the following classes shall be exempt from income-tax and super-tax and shall not be included in the total income or total world income of the person receiving them:
(i) * * *(ii) * * * (iii) Any pension paid out of public revenues which a person receives as thesubordinate chief of the Ruler of amerged State where such pension waspayable to him in that capacity by theRuler immediately before the 1st day ofAugust, 1949.'
It will be seen from the plain language of this provision that in order to claim exemption under it four conditions must be satisfied. They are: first, the amount in regard to which exemption is claimed must be received by the assessee as a pension; secondly, the amount must have been paid to him out of public revenues; thirdly, the assessee should have received the amount as the subordinate chief of the Ruler of a merged State; and lastly, the amount received by him must have been one that was payable to him as the subordinate chief of the Ruler by the Ruler immediately before 1st August 1949. The only condition that has beenfulfilled here is that the amount of Rs. 12,000/- which the assessee receivedwas paid to him out of public revenues. The other three conditions have not at all been satisfied.
5. The exemption granted by paragraph 13 (iii) is in respect of 'any pension paid out of public revenues'. The word 'pension' signifies a periodical allowance or a stipend granted not in respect of any right, privilege, perquisite or status but on account of past services or particular merits. 'Pension is a bounty for past services. Now, it is manifest from the order dated 18th November 1013 of the Ruler of the Khairagarh State that the monthly allowance of Rs. 1000/-which was granted to the assessee by virtue of that order was not any amount of pension. As the order itself stated, the increase in the allowance of the asseecce made by that order was for giving 'him certain privileges, according to the customs and tradition in vogue in the State, consequent on his marriage.' The allowance of Rs. 1000/- per month paid to the assessee was, therefore, nothing but a maintenance allowance granted to the assesses consequent on his marriage and in keeping with the customs and tradition of the Khairagarh State. The Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal all missed the point that the amount of allowance received by the assessee was not a pension amount. They assumed that it was a pension amount.
6. Again, the amount of allowance of Rs. 12,000/- paid to the assessee was not received by him as the subordinate chief of the Ruler of the Khairagarh State. The Appellate Assistant Commissioner and the Tribunal seemed to think that the assessee was not a subordinate chief of the Ruler as he was not 'next to the Ruler in point of succession and a son was born to the Ruler some time before 1st August 1949'. This construction put on the words 'subordinate chief' by the Appellate Assistant Commissioner and the Appellate Tribunal is altogether erroneous. As is evident from paragraph 13 of the Order, it is concerned with the grant of exemption from tax on the privy purse of the Ruler, sums received by the widow or mother of the Ruler as maintenance allowance and any pension paid to a subordinate chief of the Ruler. In construing paragraph 13 the historical circumstances in which the amounts spoken of in para 13 came to be paid to the persons concerned cannot be ignored. If those circumstances are borne in mind, it will be apparent that the words 'subordinate chief of the Ruler' as used in paragraph 13 (iii) have no reference whatsoever to the blood relationship of the person claiming the status of a subordinate chief with the Ruler. A personmay not be related in any manner with the Ruler of a merged State, yet he may be a subordinate chief of the Ruler. The expression 'subordinate chief of the Ruler' has its origin in the existence of a feudal system known by different names in different large Indian States as, for example, Gwalior, many States of Rajasthan and Hyderabad. Under this system the land revenue of a territory or ilaka was assigned to a Chief differently known in different States to support troop, police and for specified service. These Chiefs exercised considerable revenue, police and judicial powers and their estates were virtually States within the State: Many of these Chiefs received from the paramount State yearly amounts in perpetuity. Thus, in Gwalior State there were as many as 48 feudatory estates. Many of them received annual payments not only from the Scindia but also from the Rulers of Bhopal, Indore and Dewas. A historical account of the chiefs of the Mediatised Estates is to be found in Aitchison's 'Treaties, Engagements and Sanads', volumes IV and V, as also in Sir John Malcolm's 'Malwa'.
7. There is no material whatsoever to show that the assessee was ever the chief of any feudatory State or estato under the suzerainty of the Rulers of the Khairagarh State. The assessee made no attempt to prove this. He relied solely on the order dated 18th November 1943 under which the Ruler of the Khairagarh State made to him the grant of a monthly allowance of Rs. 1000/-. That order on the face of it is not one indicating that the assessee was recognised as the subordinate chief of the Ruler and that the monthly allowance of Rs. 1000/- was by way of pension to him as the subordinate chief of the Ruler. The order itself shows that the monthly allowance was paid to the assessee by the Ruler merely because he happened to be the brother of the Ruler. That the amount was so paid to the assessee was admitted by the assessee himself in his letter dated 28th February 1955 to the Income-tax Officer, Nagpur (Annexure 'H' to the Statement the Case). In that letter the assessee said:
'There is no separate order passed by the State Government after the merger regarding the payment of Rs. 1,000/- per month as Political Pension (for a subordinate chief). However, I have been drawing this pension before the merger of the State out of State Revenue, and the same amount is still being paid out of the State Revenue, as allowance in the nature of Khorposh or a Political Pension, and I come within the definition of subordinate chief, being only blood-brother of the Ruler of Khairagarh, who was an heir-presumptive of the Khairagarh State till the birth of the heir apparent.'
This letter plainly shows that the stand of the assessee was that the allowance of Rs. 1000/- per month was paid to him because he was the blood-brother of the Ruler and further that as he was the heir-presumptive till the birth of a son to the Ruler, he was a 'subordinate chief'. The assessee was obviously under a mistaken impression in thinking that his blood relationship with the Ruler gave him the status of a subordinate chief. In our judgment, there is no material whatsoever to show that the amount of Rs. 12,000/- which the assessee received was paid to him as the subordinate chief of the Ruler of the Khairagarh State.
8. There is also nothing to show that the amount of Rs. 12,000/- per year was payable to the assessee in the capacity of a 'subordinate chief' by the Ruler immediately before 1st August 1949. Before the Appellate Assistant Commissioner the assessee produced an undated 'certificate' (Annexure 'E' to the Statement of the Case) given by Shri Birendra Bahadur Singh, the ex-Ruler, saying that he, that is the Ruler, had granted an allowance of Rs. 1000/- per month by an order dated I8th November 1943 to his younger brother, the assessee, and adding that the assessee was Tazeemi Sardar of the former Khairagarh State and was his subordinate chief. The certificate proceeded to say that the assessee was exempt from the provisions of the Arms Act and enjoyed other privileges 'according to the Sanad granted from time to time'. It was also stated in the certificate:
'The allowance was granted to him for the maintenance of his family in the proper status of his position and it was to be paid during my will and pleasure as the then Ruler of the Khairagarh State. The Income-tax Law of British India was applied to Khairagarh State during my regime mutatis mutandis but no income-tax was chargeable on his allowance.'
9. Leaving aside the question whether the undated certificate was procured by the assessee from his brother just for the purpose of claiming exemption, that certificate does not advance his case in any way. The statements made therein have no bearing on the question whether the assessee had the status of a subordinate chief of the Ruler. The bare statement of the Ruler in the certificate that the assessee was his subordinate chief without any more cannot give to the assessee the status of a subordinate chief when there is no Sanad or document to support that status. It is worthy of note that the certificate itself shows that the monthly allowance which was granted to the assessee was not granted to him as a subordinate chief of the Ruler but for 'maintenance of his family in the proper status of his position'.
10. For all these reasons, our conclusion is that the assessee's claim that theallowance of Rs. 12,000/- received byhim was exempt from tax is altogetheruntenable. The question referred to us is,therefore, answered in the affirmative.The assessee shall pay costs of this reference. Counsel's fee is fixed at Rs. 200/-.Question answered