1. By this reference under Section 256(2) of the Income-tax Act, 1961, at the instance of the Revenue, the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law for the opinion of this court, on the basis of an order passed by this court in Misc. Civil Case No. 45 of 1982 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the A.L.V. of the Manik Bagh Palace was exempt from income-tax under the Part B States (Taxation Concessions) Order, 1950 ?'
2. Facts giving rise to this reference, as per the statement of case received, may be stated, in brief, thus : It relates to the assessment of the Princess Usha Trust, Indore, which is the assessee herein. The assessment year is 197.4-75 for the previous year ended March 31, 1974. In its return of income for this year, the assessee had claimed exemption in respect of income from Manik Bagh Palace, Indore. The Income-tax Officer, however, referred to the fact that his predecessor, in the earlier years, had discussed this issue at length and had held that the income from the above palace was taxable. He, therefore, included the annual letting value of Manik Bagh Palace amounting to Rs. 74,8-82 as income taxable in the hands of the assessee-trust.
3. The assessee preferred an appeal objecting, inter alia, to the rejection of its claim for exemption in respect of the annual letting value of Manik Bagh Palace. The Appellate Assistant Commissioner accepted the assessee's claim and directed the Income-tax Officer to exclude the annual letting value of this property from the assessee's total income.
4. The Revenue preferred an appeal to the Tribunal objecting, inter alia, to the directions given by the Appellate Assistant Commissioner to the Income-tax Officer to exclude the A.L.V. of Manik Bagh Palace from the assessee's total income. The Tribunal examined this issue and after setting out the relevant facts and relevant portion of the order of the Appellate Assistant Commissioner rejected the Revenue's appeal, which contended that the owner of the said palace is not the Ruler and, therefore, exemption could not be granted, on the ground that the same cannot be accepted as the said A.L.V. has never been subjected to tax in earlier years and in the light of the Part B States (Taxation Concessions) Order, 1950, and the Tribunal's order and confirmed the finding of the Appellate Assistant Commissioner in this regard.
5. The learned counsel for the Revenue submitted that according to Section 10(19A) of the Income-tax Act which is reproduced below, the assessee-trust was not entitled to the exemption as no such exemption was granted to the trust as such. He, therefore, submitted that the trust not being the Ruler, the Tribunal has committed an error in holding on this point against the Department and In favour of the assessee :
'10. Incomes not included in total income.--...
(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or the Part B States (Taxation Concessions)
Order 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958 : Provided that for the assessment year commencing on the 1st day of April, 1972, the annual value of every such palace in the occupation of such Ruler during the relevant previous year shall be exempt from income-tax.'
6. This clause was inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. December 28, 1971. Section 7 of the said Act provided that Clause (19A) of Section 10 of the Income-tax Act, 1961, shall be deemed to have been inserted with effect from December 28, 1971, although Clause (19A) was in force on April 1, 1972. Yet, by that clause, the exemption granted to the erstwhile Rulers in respect of the annual value of the palaces was withdrawn and the annual value of only one of the palaces in the occupation of the Ruler was exempted from income-tax with effect from December 28, 1971. By the insertion of Clause (19A) of Section 10, the exemption which was in force prior to December 28, 1971, was not taken away in any manner.
7. Under Section 60A of the Indian Income-tax Act, 1922, Part B States (Taxation Concessions) Order, 1950, was issued on December 22, 1950, and according to the Notification S.R.O. 1619 dated September 14, 1954, issued in pursuance of the provision of item (iii) of paragraph 15 of the Part B States (Taxation Concessions) Order, 1950, the Central Government declared for the purposes of paragraph 15 of the said order, the palaces specified in column 2 of the Table annexed thereto as the official residences of the Rulers of the former Indian States (now included in Part B States) specified in the corresponding entry of column 3 of the said table. Accordingly, three palaces including (1) Manik Bagh Palace at Indore, (2) Old Palace, Indore, and (3) Yashwant Niwas Palace, Indore, were exempted, being the official residences of the Ruler of Indore.
8. However, the learned counsel for the Revenue submitted that as the assessee, namely, the Princess Usha. Trust, has claimed the exemption even under sections 160 and 161 of the Income-tax Act as a representative assessee, the trustees are liable to pay the tax and in support of this submission he placed reliance on the decisions in : 88ITR47(SC) (Trustees of Gordhandas Govindram Family Chanty Trust v. CIT) and  140 ITR 948 (Mohd Ali Khan v. CWT). However, we are of the opinion that these authorities being distinguishable on facts cannot be applied to the facts of the present case. There is nothing on record to indicate that Manik Bagh Palace has ceased to be the official residence of the Ruler of Indore, namely, Princess Usha Raje, who succeeded the late Maharaja Yeshwant Rao Holkar or that she is deriving any income therefrom assuch. In fact, the Part B States (Taxation Concessions) Order, 1950, which has granted exemption under Clause 15 has used the words 'any income' and 'of the person receiving them'. Therefore, we are unable to agree with the submission made by the learned counsel for the Revenue.
9. On the other hand, the learned counsel for the assessee-trust submitted that in fact the trust is created for the beneficiary, one of whom under the present trust being Princess Usha Raje, who has been recognised by the Government of India as the Ruler of Indore. He further submitted that prior to the assessment years 1972-73, 1973-74 and 1974-75, exemption in respect of the Manik Bagh Palace was granted to the trust and the exemption order nowhere provides that the Ruler must stay in the official residence for all the time though there is nothing on record on the basis of which it could be inferred, in the present case, that Princess Usha Raje has ceased to occupy the said palace as her official residence. He, therefore, submitted that the Revenue cannot challenge the validity of the exemption order in these proceedings because if they wanted to challenge the same, they ought to have come up in a writ petition. But that remedy having not been resorted to, the Revenue is not entitled to challenge the same in this manner;
10. The learned counsel further submitted that the exemption order relates to the palaces of the Ruler which are belonging to and in possession of the Ruler. He further submitted that the words 'of' and 'belonging to' have been interpreted in Controller of Estate Duty v. Estate of Late Sanka Simhachalam : 99ITR370(AP) and Commissioner of Wealth-tax v. Trustees of H.E.H. Nizam's Family (Remainder Wealth] Trust : 108ITR555(SC) . He, therefore, submitted that the view taken by the Tribunal being proper and in accordance with law docs not deserve to be disturbed.
11. After hearing the learned counsel, we are of the opinion that the questions referred to above have to be answered in favour of the assessee and against the Department. The exemption order mentions official residence and one of the palaces, namely, Manik Bagh Palace, Indore, has also been recognised and treated as an official residence. There is nothing on record to indicate that Princess Usha Raje, Maharani of Indore, has ceased to occupy the palace as official residence. Even the exemption order does not make it obligatory upon her to live in the same palace for all the time because in her case, three palaces have been declared as official residences. That apart it is not in dispute that Maharani Usha Raje is the beneficiary under the assessee-trust. Therefore, we are unable to agree with the submission made by the learned counsel for the Revenue and the authorities cited by him do not apply to the facts of the present case as admittedly the assessee-trust has also been granted the exemption in the past.
12. In the result, our answer to the question referred is as follows :
'On the facts and in the circumstances of the case, the Tribunal wasright in law in holding that the A.I.V. of the Manik Bagh Palace wasexempt from income-tax under the Part B States (Taxation Concessions)Order, 1950.'
13. The reference is thus answered in favour of the assesses and against the Department with no order as to costs.