NARASIMHAM C.J. - These six references made by the Appellate Income-tax Tribunal are heard together, and will be disposed of in one judgment.
The question referred to this court for opinion in all these references is as follow :
'Whether in the facts and circumstances of this case the Tribunal was right in holding that the amount of Rs. 24,000, received by the assessee during each of the assessment years 1950-51, 1951-52, 1952-53, 1953-54, 1954-55 and 1955-56 as maintenance allowance and/or political pension, was not exempt from income-ta ?'
The applicant is the younger brother (Chotray) of the Ruler of Keonjhar, which was one of the former Orissa States which merged with the Province of Orissa with effect from January 1, 1948, in pursuance of the well known merger agreement. As the younger brother of the Ruler he was entitled to maintenance and this was fixed at Rs. 2,000 per month by the Keonjhar Durbar some years prior to the date of merger. This amount was exempted from payment of income-tax by virtue of section 4 of the Keonjhar Income-tax Regulation, 1938 (annexure'A'), which was as follow :
'Agricultural income, income derived from property held for religious or charitable purposes, members of the Raj family not removed from the Ruler by more than two generations, and salaries of employees are exempted from the operation of the Regulation.'
The Government of Orissa as the delegated authority of the Central Government made the Administration of Orissa State Order, 1948, in exercise of the powers conferred by section 4 of Foreign Jurisdiction Act, 1947. Sub-paragraph (a) of paragraph 4 of that order applied certain laws in force in the former Province of Orissa to the territories merged with that province. Sub-paragraph (b) of paragraph 4 of that order says that in respect of matters not covered by enactments applied to Orissa States under sub-paragraph (a) all laws in force in any of the Orissa States prior to the commencement of the order whether substantive or procedural and whether based on custom or usage or statute, continue to remain in force until altered or amended by an order under the Foreign Jurisdiction Act, 1947 (XLVII of 1947). The Keonjhar Income-tax Regulation, 1938, was clearly a 'law in force' in Keonjhar State prior to the Merger and it continued to remain operative even after the date of merger by virtue of the said sub-paragraph. Subsequently, the Central Legislature passed the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (67 of 1949), which was published in the Gazette on January 4, 1950. By virtue of that Act the Indian Income-tax Act, 1922, and the various Finance Acts and other taxation laws were extended to merged areas with retrospective effect from April 1, 1949. Sub-section (1) of section 7 of that Act was as follows (omitting the proviso :
'(1) If, immediately before the 26th day of August, 1949, there was in any of the Merged States any law relating to income-tax, super-tax or business profits tax, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year of the purposes of assessment under the Indian Income-tax Act, 1922, as extended to that State by section 3, or, as the case may be, the levy, assessment and collection of business profits tax for any chargeable accounting period, ending on or before the 31st day of March, 1948, and for any purposes connected with such levy, assessment or collection...'
The effect of this sub-section, therefore, was that the Keonjhar Income-tax Regulation, 1938, ceased to have effect and the Indian Income-tax Act became the law relating to income-tax in Keonjhar State also with effect from April 1, 1949. Section 60A of the Income-tax Act conferred power on the Central Government to grant exemptions in appropriate cases and in pursuance of this power the Central Government made the Merged States (Taxation Concessions) Order, 1949, by which exemptions from payment of income-tax were granted to some the relatives of the Ruler but it is conceded that the applicant (younger brother of the Ruler of Keonjhar) was not one of the persons so exempted under the provisions of the said order.
The legal position thus seems to be quite clear. The applicant cannot claim any exemption under the provisions of the Indian Income-tax Act which was brought into force with effect from April 1, 1949, in the newly merged area of Keonjhar and his reliance on Keonjhar Income-tax Regulation, 1938, is quite futile. Though it is not expressly stated in Act 67 of 1949 that the Income-tax Regulation of Keonjhar was repealed, this follows by necessary implication from the provisions of section 7(1) of that Act (already quoted).
Mr. Ghosh urged however that in the absence of express repeal the Keonjhar Regulation must be deemed to have continued in force even after the merger and that after the coming into force of the Constitution it still continued to remain in force by virtue of article 372 of the Constitution. But in my opinion section 7(1) of Act 67 of 1949 must be construed as an express repeal of the Keonjhar Income-tax Regulation, even prior to the commencement of the Constitution and hence, there can be no question of that Regulation continuing to remain in force by virtue of article 372 of the Constitution.
A similar question arose in Gwalior Rayon Manufacturing Companys case and in J. B. Mangharams case, where the main point for consideration was whether exemption from payment of income-tax granted by a Ruler during the pre-merger period would continue to be operative after the application of the Indian Income-tax Act to the merged area. Their Lordships answered this question in the negative. It is true that there is a distinction between those two cases and the present case inasmuch as there the exemption was granted by a mere executive order in pursuance of a contract entered into between the Ruler and the assessee whereas here the exemption was granted by a Regulation passed by the Ruler of Keonjhar in exercise of his legislative powers. But this distinction does not very much help the assessee. In those two cases the Indian Income-tax Act was applied to Gwalior (which was a part B State) with effect from 1950, after the Constitution came into force; and hence, their Lordships had to construe articles 295(1)(b) and 372 of the Constitution. Here, however, as already pointed out, prior to the coming into force of the Constitution the Keonjhar Income-tax Regulation had already been repealed by Act 67 of 1949, and hence article 372 has no application.
But the observations of their Lordships of the Supreme Court at page 473 in Gwalior Rayon Silk Manufacturing (Wvg.) Companys case regarding the effect of section 13 of the Finance Act, 1950, which was extended to Madhya Bharat (which was formerly under Part B States) from April 1, 1950, will be of some help here. Section 13 of the Finance Act, 1950, is almost identical in language with section 7(1) of the Act 67 of 1949 and their Lordships observations (at page 473) that 'the effect of this provision was to repeal all laws relating to income-tax in its broadest sense prevailing in those parts of India to which the Indian Income-tax Act extended from 1st April, 1950', will apply with full force here.
It was then contended relying on section 14(1) of the Indian Income-tax Act that the applicant was a member of a joint family of which the ruler was the karta and that the maintenance allowance given to him would be exempted from payment of income-tax by virtue of that section. But the necessary facts for considering the application of section 14(1) of the Indian Income-tax Act have not been found in favour of the applicant by the Appellate Tribunal. The Tribunal stated that even if it be assumed that prior to the merger the maintenance allowance was granted to the applicant by virtue of his status as a member of a Hindu undivided family out of the income of that family, the conditions changed considerably after merger. I may quote the following finding of the Tribuna :
'In our opinion, after the merger of Keonjhar State the payment of political pension to the assessee could not be described as a payment or allowance out of the Hindu undivided family of Keonjhar Raj.'
It is admitted that the pension is paid out of the revenues of the State of Orissa. Section 14(1) cannot therefore apply unless it is found as a fact that the maintenance is paid out of the income of the Hindu undivided family, or, in the case of an impartible estate, where such sum has been paid out of the income of the holder of the estate. In the absence of the necessary finding and in view of the admitted position that the pension of the petitioner is not paid out of the income of the ruler of Keonjhar I must hold that section 14(1) of Income-tax Act has no application.
For these reason I would answer the question in the affirmative and hold that the maintenance allowance was not exempted from payment of income-tax.
There will be no order for costs of these references.
R. K. Das J. - I agree.
Question answered in the affirmative.