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Commissioner of Income-tax Vs. Col. H.H. Raja Sir Harinder Singh - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 40 of 1964
Judge
Reported in[1969]73ITR433(P& H)
ActsIncome Tax Act, 1922 - Sections 12B
AppellantCommissioner of Income-tax
RespondentCol. H.H. Raja Sir Harinder Singh
Appellant Advocate D.N. Awasthy, Adv.
Respondent Advocate K.C. Puri and; S.K. Goyal, Advs.
Cases ReferredEngelke v. Musmann
Excerpt:
..... - thereafter, the charge as well as the manner of computation of income did not depend upon the pre-existing law, but only upon the provisions of the act. 14. as already observed, in view of the clear pronouncement of the supreme court in the case of nizam of hyderabad, whose position as an indian prince was topmost, it cannot be said that the status of the assessee was, in any way, better......rani amrit kunwar v. commissioner of income-tax, [1946] 14 i.t.r. 561, accountant-general, baroda state v. commissioner of income-tax, [1948] 16 i.t.r. 78, maharaja bikram kiskore of tripura v. province of assam, [1949] 17 i.t.r. 220 and a.h. wadia, as agent of the gwalior durbar v. commissioner of income-tax, [1949] 17 i.t.r. 63. we are unable to agree with this contention for two reasons :(1) that in commissioner of income-tax v. h. e. h. mir osman ali bahadur, their lordships of the supreme court were dealing with an assessment of income accruing during the period prior to the coming into force of the constitution. this would be clear if we refer to the following contention of mr. palkbivala : ' that he (the assessee) was not liable to income-tax for the assessment year 1950-51 on.....
Judgment:

1. The Income-tax Appellate Tribunal (Delhi Branch ' A ') has stated the following question of law for our opinion :

' Whether, on the facts and circumstances of the case, the assessee was not liable to tax under the Indian Income-tax Act, 1922, in respect of his personal income accruing or arising to him in British India in the two assessment years 1946-47 and 1947-48 '

2. The assessee was the ruler of the erstwhile Faridkot State. He owned Government of India securities which he disposed of through the Lloyds Bank Limited, Simla, and the Grindlays Bank Limited, Lahore, during 1946-47, and realised a profit of Rs. 3,30,505. Notices under Section 34 were issued by the Income-tax Officer with the previous approval of the Commissioner of Income-tax for the assessment years 1946-47 and 1947-48. In pursuance of the same, the assessee filed returns for the relevant years under protest. The Income-tax Officer proceeded to assess the said profit under Section 1213 of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) A number of objections were raised by the assessee to the notice under Section 34 before the Income-tax Officer. We are only concerned with the objection which forms the basis of the question referred for our opinion. That objection was that the assessee being a ruler of the Faridkot State was immune from all taxation on all sorts of income and by virtue of his being a sovereign ruler could not be treated as an assessee for any purpose under the Indian Income-tax Act.

3. The Income-tax Officer repelled the above objection of the assessee. He found as a fact that the income sought to be assessed was the personal income of the assessee as divorced from the income of the Faridkot State, or the income of the sovereign as such. In this view of the matter the Income-tax Officer made the assessments and held the assessee liable to pay tax on the profits earned by him by the sale of Government securities in British India.

4. The assessee appealed against this order to the Appellate Assistant Commissioner of Income-tax, but with no result- He then took up the matter to the Income-tax Appellate Tribunal. In the Tribunal, there was a difference of opinion between the Judicial Member and the Accountant Member. The Judicial Member differed from the conclusion of the Appellate Assistant Commissioner of Income-tax and held that no assessment could be made on the appellant under the Indian Income-tax Act, as he was the ruler of a sovereign State during the assessment years under consideration. The Accountant Member took the contrary view on this matter and agreed with the Appellate Assistant Commissioner of Income-tax. As there was a difference of opinion between the two Members, the matter was placed before the President of the Tribunal. The President agreed with the decision of the Judicial Member mainly on the basis of the decision of the Andhra Pradesh High Court in H. E. H. Mir Osman Ali Khan Bahadur v. Commissioner of Income-tax (Case No. 35 of 1959).

5. The department being dissatisfied with this decision approached the Tribunal under Section 66(1) of the Indian Income-tax Act; and the Tribunal allowed that application and has stated the question of law already set out for our opinion.

6. In our opinion, the matter stands settled by the decision of the Supreme Court in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, [1966] 59 I.T.R. 666 (S.C.). The precise question, which we are called upon to determine, was answered by their Lordships of the Supreme Court; and in view of the Supreme Court decision, the answer to the question referred must be in favour of the department.

7. Mr. K.C. Puri, who appears for the assessee-respondent, has argued with great vehemence that the decision of the Supreme Court does not conclude the matter, so far as the present case is concerned. His first contention is that the department conceded that the income of the State as such or the income of the ruler as a ruler would be exempt from taxation and it only tried to catch the personal income of the ruler. His contention is that no distinction can be made between income of the ruler as representing the State and the personal income of the ruler. In the present case we are not called upon to determine whether the income of the ruler or the income of the State as such earned in British India is liable to tax or not. The only question that we are called upon to determine is whether the private income of the ruler in British India is liable to tax ; and on that matter, a clear answer has been returned in the Supreme Court decision in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, and we are bound by that decision.

8. Mr. Puri then proceeded to argue that there is no reference on thequestion, whether the assessee is a sovereign or not a sovereign and, therefore, we cannot, on the basis of the Supreme Court decision, hold that theassessee is not a sovereign vis-a-vis his personal income. In our opinion,that matter is implicit in the question referred. Moreover, questions Nos.(!) and (3) that wore referred to the Supreme Court in Commissioner ofIncome-lax v. H. E. H. Mir Osman Ali Bahadur are, more or less, in thesame terms as the question referred to us. Their Lordships of the SupremeCourt discussed the matter as to the status of the ruler in that case andultimately came to the conclusion that the status of an Indian ruler couldnot be equated with that of a sovereign; and it was further held thatthe private income of such a ruler was not exempt from taxation under theIndian Income-tax Act, when that income had been earned in BritishIndia.

9. The third contention of Mr. Puri was that in the Supreme Court case, the dispute related to the period when the assessments were made after the coming into force of the Constitution of India, whereas in the present case, the assessments related to a period prior to the coming into force of the Constitution; and, therefore, the case would be covered by the decisions in Rani Amrit Kunwar v. Commissioner of Income-tax, [1946] 14 I.T.R. 561, Accountant-General, Baroda State v. Commissioner of Income-tax, [1948] 16 I.T.R. 78, Maharaja Bikram Kiskore of Tripura v. Province of Assam, [1949] 17 I.T.R. 220 and A.H. Wadia, as agent of the Gwalior Durbar v. Commissioner of Income-tax, [1949] 17 I.T.R. 63. We are unable to agree with this contention for two reasons :

(1) That in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, their Lordships of the Supreme Court were dealing with an assessment of income accruing during the period prior to the coming into force of the Constitution. This would be clear if we refer to the following contention of Mr. Palkbivala : ' That he (the assessee) was not liable to income-tax for the assessment year 1950-51 on the ground that, under the Indian Income-tax Act, income-tax was charged on the assessee's income received during the accounting year and that as during the accounting year the assessee was a ruling chief, he was exempt from taxation under the international law. '

10. This contention was repelled by their Lordships in the following terms:

' The legal position as we apprehend may be stated thus : Under the Act an individual is assessed to income-tax on the income of the previous year at the rate or rates fixed for the year by the annual Finance Act. The total income of the assessee during the previous year is computed in accordance with the provisions of the Income-tax Act after giving the relevant allowances and deductions therefrom. If during the assessment year an individual is assessable to tax, the fact that during the previous year he was not liable to tax at ail because there was no Income-tax Act in the area to which the Act was extended or because that under an Income-tax Act in force therein during that year his income was exempted from tax or because of any other law, including international law, he was so exempt from tax, would not be of any relevance. After the extension of the Act to the Hyderabad State the charge was under the Act and not under the provisions of the previous law. Thereafter, the charge as well as the manner of computation of income did not depend upon the pre-existing law, but only upon the provisions of the Act. Applying the said principles to the instant case, it is manifest that after January 26, 1950, the assessee ceased to be a ruling chief and he was, therefore, liable to assessment under the Act. If he was assessable to tax, the statutory charge on his income during the previous year was only traceable to the Act, which was retroactive in operation to that extent. His right to exemption, if any, under international law during the accounting year was irrelevant to the question of taxation under the Act, as the said law ceased to apply to him during the assessment year.

We, therefore, hold that the High Court went wrong in holding that the income received by the assessee up to January 26, 1950, was not liable to tax under the Act.'

11. It may, however, be mentioned that their Lordships had previously, at page 675, observed 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.'

12. The second ground, on which this argument can be met, is that in all the cases cited by Mr. Puri, a clear distinction was made between 'income from State-owned properties ' and ' income from personal properties of ruler '. Mr. Puri has been unable to cite a single decision where the income from the personal property of a ruler earned in British India was held to be exempt from the provisions of the Indian Income-tax Act.

13. The last contention of Mr. Puri is that the sovereign status of the assessee could only be decided by the Ministry of Home Affairs, Government of India, and could not be decided by the courts of the country. For this contention, Mr. Puri has placed his reliance on the decisions in Engelke v. Musmann, [1928] A.C. 433 and In re Arantzazu Mondi, [1939] 1 All E.R. 719. If the matter was res integra, one might be inclined to the view propounded by Mr. Puri. But, in view of the clear pronouncement of the Supreme Court in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, the argument is not open.

14. As already observed, in view of the clear pronouncement of the Supreme Court in the case of Nizam of Hyderabad, whose position as an Indian prince was topmost, it cannot be said that the status of the assessee was, in any way, better. Therefore, the question, so far as the assessee is concerned, must be answered against him and in favour of the department in view of the clear pronouncement of the Supreme Court. We accordingly answer the question in the negative. In view of the fact that there was a decision of the Andhra Pradesh High Court in favour of the assessee, we make no order as to costs.


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