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H.H. Maharaja Rana Hemant Singhji Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Income-tax Reference No. 7 of 1966 and Wealth-tax Reference No. 8 of 1966
Judge
Reported in[1971]79ITR83(Raj); 1969()WLN589
ActsIncome Tax Act, 1922 - Sections 3, 4(3), 9 and 12; Wealth Tax Act, 1957 - Sections 2
AppellantH.H. Maharaja Rana Hemant Singhji;commissioner of Wealth-tax
RespondentCommissioner of Income-tax;h.H. Maharaja Rana Hemant Singhji
Appellant Advocate A.K. Sen and; Devasingh Randhawa, Advs.
Respondent Advocate Sumerchand Bhandari, Adv.
Cases ReferredPrincess Ruby Rajiber Kaur v. Commissioner of Income
Excerpt:
.....they were casual and non-recurring in nature in as much as they depended on the good wishes of the government of india.;the various amounts received by the assessee in the arious assessment years were exempt from payment of tax as they did not form part of taxable income being receipts of casual and non-recurring nature.;(b) wealth tax act. 1957 - section 2(a)--whether a promise by government to make periodical ex gratia payment to maharaja is asset.;the assessee had not right, title or interest in the payments. he had no right to receive any periodical payments. whatever he was to receive depended on the good, wishes of the government of india. thus he cannot be considered to possess any property or any right to property by virtue of the arrangement arrived at by the government of india..........called ' the tribunal '). income-tax reference no. 7 of 1966 is under section 66(1) of the indian income-tax act, 1922 (hereinafter called 'the income-tax act'). wealth-tax reference no.8 of 1966 is under section 27(1) of the wealth-tax act, 1957 (hereinafter called ' the wealth-tax act '). the facts and points of law in both the references are similar and, therefore, they are disposed of by this judgment.2. we first take the income-tax reference. there is a palatial building known as 'dholpur house' at new delhi. it belonged to maharaja udai bhan singhji, ruler of the erstwhile dholpur state. on the merger of the dholpur state the question arose whether the ' dholpur house' should be treated as private property of the ruler or the property of the state of rajasthan. by letter.....
Judgment:

D.M. Bhandari, C.J.

1. These two references have been made by the Income-tax Appellate Tribunal, Delhi Bench ' A ' (hereinafter called ' the Tribunal '). Income-tax Reference No. 7 of 1966 is under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter called 'the Income-tax Act'). Wealth-tax Reference No.8 of 1966 is under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter called ' the Wealth-tax Act '). The facts and points of law in both the references are similar and, therefore, they are disposed of by this judgment.

2. We first take the income-tax reference. There is a palatial building known as 'Dholpur House' at New Delhi. It belonged to Maharaja Udai Bhan Singhji, Ruler of the erstwhile Dholpur State. On the merger of the Dholpur State the question arose whether the ' Dholpur House' should be treated as private property of the ruler or the property of the State of Rajasthan. By letter dated 20th October, 1951, the Government of India informed the said Maharaja that the said house would be considered to be the property of the Rajasthan State but 1/3rd of the rental value would be paid to His Highness as a purely ex gratia arrangement, and in the event of the sale of the house, His Highness would be entitled to 1/3rd of the sale price minus the share of the Government of India in the form of 75% of the incremental value. Paragraph 2 of this letter, which is relevant, is quoted below :

' As Your Highness is aware, we had to decide the question of the Delhi house on certain general principles and it will not be possible for us to make an exception in the case of your house alone ; I am afraid therefore that the decision that the house should be State property cannot be changed. In view, however, of the various circumstances connected with the Delhi house, the Government of India have decided that without prejudice to the decision that the house will be State property and as a purely ex gratia arrangement, one-third of the rental value of the house should be paid to Your Highness. If the house is to be sold the permission of the Government of India will be necessary under the terms of the lease. The Government of' India have decided that such permission would be accorded only on condition that 75% of the incremental value is paid to them. In the event of sale, therefore, Your Highness would be entitled to one-third of the sale price minus this share of the Government of India. We hope Your Highness will realise that this is a fair enough proposition.'

3. After the death of Maharaja Udai Bhan Singhji, further correspondence ensued between the Government of India and Her Highness Malvinder Kaur, widow of His Late Highness. By letter dated the 11th May, 1956, the Government of India further clarified the position with regard to this house. The relevant part of this letter is quoted below :

'The Dholpur House is the exclusive property of the Rajasthan Government and not the joint property of the Ruler and the State Government. This position was made clear to His Late Highness in Shri V. Sankar's demi-official letter of the 20th October, 1951, to which Your Highness has made a reference. The arrangement by which one-third share of the rental value of the house was being paid to His Late Highness was purely ex gratia. The successor to His Late Highness will be entitled to this one-third share of the rent of the house. '

4. By letter dated 15th May, 1963, the Government of India further confirmed this position. The relevant part of this letter is quoted below :

' The decision communicated to His Late Highness of Dholpur was that 1/3rd share of the rent or of the sale price, if the house were to be sold, of Dholpur House, New Delhi, would be paid to His Highness as an ex gratia payment. Naturally, the Government of India consider themselves held by that promise and will make similar ex gratia payment of 1/3rd of the rent or 1/3rd of the sale price of the house to the minor Ruler, Dholpur. The undertaking of the Government of India is clearly to make this payment ex gratia and the Ruler has no enforceable legal right to such payments from the Government.'

5. One-third of the rent continued to be paid to His Highness Maharaja Udai Bhan Singhji till his death on 22nd October, 1954, and, thereafter, to Her Highness Malvinder Kaur and then to His Highness Maharaja Hemant Singhji who was recognised as the Ruler of the Dholpur State. These payments ceased when the said property was sold out. The amounts of payments made are detailed below :

Rs.

Assessment

year

1953-54

21,257

'

'

1954-55

21,257

'

'

1955-56

11,998

'

'

1955-56

9,259

'

'

1956-57

21,257

'

'

1957-58

21,257

'

'

1958-59

21,257

'

'

1959-60

21,257

'

'

1960-61

21,574

'

'

1961-62

21,574

'

'

1962-63

21,574

6. For the assessment years 1953-54, 1954-55, 1955-56, 1956-57, 1958-59, 1960-61, 1961-62 and 1962-63 income from this property has been taxed under Section 9 of the Indian Income-tax Act, 1922, and for the assessment years 1957-58 and 1959-60 the income from this property has been taxed under Section 12 of the Income-tax Act by the Income-tax Officer, Bharatpur. In the appeals by the assesses, the Appellate Assistant Commissioner, B-Range, Jaipur, took the view that the payments received by the assessee were casual receipts and were exempt from taxation under Section 4(3)(vii) of the Income-tax Act. The matter was taken up by the department before the Tribunal. The Tribunal reversed the order of the Appellate Assistant Commissioner, On applications by the assessee, the following question of law has been referred for the opinion of this court by the Tribunal under Section 66(1) of the Income-tax Act :

' Whether, on the facts and in the circumstances of the case, the payments received by the assessee from the Government of India constituted his income taxable under Section 12 of the Income-tax Act, 1922.'

7. The Tribunal has held that the various amounts received by the assessee were taxable under Section 12 of the Income-tax Act. The reasons given by the Tribunal are summarised in the statement of the case in the following passage:

' It was contended on behalf of the assessee before the Tribunal that the payments, received by the assessee were capital payment or gratuitous payment and further that there being no source in respect of this receipt, was not an income taxable under the Income-tax Act. The Tribunal held that the Government of India have agreed to pay periodically a certain sum of money to the appellant over a series of years as long as this property continued to be with the Rajasthan Government. The Tribunal observed that notwithstanding the fact that it was a voluntary offer by the Government to pay this amount but since it was a promise which was not likely to be flouted at any time, the nature of this receipt in the assessee's hands was that of a periodical monetary return coming in with expected regularity. The Tribunal further held that the promise by the Government to pay the amount could be described as the source of income. The Tribunal finally observed that the payments, since they were being factually made to the assessee, could not be said to depend upon the whim of the payer. Although the undertaking by the Government to pay the amount may not be enforceable at law, nevertheless it was sufficient to constitute a source of income and the payments made to the assessee an income taxable under the Income-tax Act. The Tribunal, however, did not agree that such income fell to be assessed under Section 9 of the Income-tax Act, 1922. It was assessable only under Section 12 of the said Act.'

8. Two points arise in this reference. The first is whether the various amounts received by the assessee should be held to be income of the assessee as defined in Section 2 of the Income-tax Act. The second is whether such income is exempt from taxation on the ground that it is not taxable income as it falls under Section 4(3)(vii) of the Income-tax Act.

9. It has been argued before us that the concept of income is that it must be referable to a source capable of yielding some periodical return and that, in the instant case, there was no such source inasmuch as what was being paid to the assessee was merely by virtue of a gratuitous arrangement which could not be enforced in a court of law. There is no doubt that Dholpur House having been held to be the property of the Rajasthan State, the assessee was not receiving anything by way of return from that house and that whatever amount he was receiving was by virtue of an ex gratia arrangement. Ex gratia, according to law, is a terra meaning as ' a favour as distinguished from that which may be demanded ex debito as a matter of right' (See Black's Law Dictionary). Still, these payments were being made by virtue of an arrangement which, as mentioned in the letter dated 15th May, 1963, was of such a nature that the Government of India considered themselves bound to honour and which the assessee expected the Government of India to honour. No doubt, every time the payment that was made was gratuitous payment in the eye of law, but it was expected that such payment was to be made annually. Therefore, it cannot be said that there was no source of that income. The Income-tax Act has adopted a comprehensive basis for taxation inasmuch as all income coming from whatever source is liable to taxation unless such income fell within the exemptions enumerated in the said Act. Economists have defined the term ' income ' as consumption plus (or minus) the net increase (or decrease) in value of an individual's assets during the taxable period. (Pechman, quoted in Harvard Law Review, volume 80, page 925 at page 929). In this connection it is worthy of note that Section 4 of the Income-tax Act which deals with application of the term ' income ' expressly says that:

' The total income of any previous year of any person includes all income, profits and gains from whatever source derived. '

10. Sub-section (3) of Section 4 exempts any income, profits or gains realised falling within the classes mentioned therein and one class is that of receipts which are of a casual and non-recurring nature unless of course such receipts arose from business or the exercise of a profession, vocation or occupation. The scheme of the Act therefore shows that the concept of income under the Income-tax Act is of a comprehensive and all-pervading nature, and may include any receipt by a person. Viewed in this light, the various amounts received by the assessee were no doubt income under the Income-tax Act.

11. Now, we come to the second point. It is clear that there is an express exemption of a receipt which is of a casual and non-recurring nature from being included in the total income unless such receipt arose from business or the exercise of a profession, vocation or occupation. In the instant case, it is contended before us that the various amounts received by the assessee were of a casual and non-recurring nature. The payments depended on the sweet will of the Government of India and were not compulsory and were not made on account of any obligation incurred by the Government of India, but were ex gratia, i.e., gratuitous. We have to examine whether, under these circumstances, it would be not proper for us to treat the payments made by the Government of India to the assessee as payments which are of a casual and non-recurring nature.

12. Lord Dunedin in Stedeford v. Beloe, [1932] A.C. 388 ; 16 T.C. 505 (H.L.) described an annual pension out of the school fund to the headmaster on his retirement by the governing body of a school as merely a casual payment which depended upon someone-else's goodwill as the headmaster was not qualified for a pension and the governing body had the right at any time to rescind the minute under which the pension was granted and to cease making payments to him. It is of course true that the provisions of the Income-tax Act are not in pari materia with those of the English statutes so that the decision on the English Acts are in general of no assistance in construing the Indian Income-tax Act. But, in the matter of voluntary payments, the Indian law is in no way different from the English law.

13. It has been argued that there has been a succession of payments in this case and as such they cannot be treated as of a casual nature. But it need not be forgotten that each payment was voluntary. None would have continued if the Government of India so desired. Merely because the Government of India continued to make payments for several years, they do not cease to be casual. In Stedeford's case, payment continued for a number of years. Lord Warrington observed in that connection that:

' The case is only an instance of a succession of voluntary payments, each of which is voluntary and none of which need necessarily be continued. '

14. Stedeford's case has been referred by the Supreme Court in P. Krishna Menon v. Commissioner of Income-tax, [1959] 35 I.T.R. 48, 53 ; [1959] Supp. S.C.R. 133 (S.C.). It has pointed out that Stedeford's case decided that:

' The pension could be taxed only ' if it had arisen out of the office and the only point decided was that it had not so arisen as the headmaster held no office, having retired earlier, at the date the pension had been granted.'

15. In that case it was held that even if a payment is made voluntarily, but from the standpoint of the person who received it it came by virtue of his office, it was to be taxed. It is noteworthy that the Supreme Court did not say that Stedeford's case did not lay down the correct law. In the instant case, there is no question of the amount of receipts received by the assessee as having arisen from business or the exercise of a profession, vocation or occupation. They were casual and non-recurring in nature inasmuch as they depended on the good wishes of the Government of India.

16. The view that we have taken is amply supported by the law laid down in Rani Amrit Kunwar v. Commissioner of Income-tax, (1946] 14 I.T.R. 561 (All.) [F.B.], Rev. Father Prior, Sacred Heart's Monastery v. Income-tax Officer, [1956] 30 I.T.R. 451 (T.C.) and H.H. Maharani Shri Vijaykuverba Saheb of Morvi v. Commissioner of Income-tax, [1963] 49 I.T.R. 594 (Bom.). In Rani Amrit Kunwar's case the Allahabad High Court was considering case in which Rani Amrit Kunwar, who was the sister of His Highness Maharaja of Nabha State and was married to the Ruler of the Kalsia State, was receiving allowances which was budgeted in the budget of the Nabha State. Such allowances were being paid consecutively for a period of 20 years. Braund J. took the view that the allowances were not to be construed to be the income of the Rani, but it was something in the nature of mere recurring windfalls though the payments were made regularly for the better part of 20 years. After analysing the concept of income, he observed that in construing the word 'income' in the Indian Income-tax Act, one has to ask oneself whether having regard to all the circumstances surrounding the particular payments and receipts in question, what is received is of the character of income according to the ordinary meaning of that word in the English language, or whether it is merely a casual receipt or a mere windfall. The learned judge then proceeded to observe :

'But, on the facts provided, I am persuaded that the income-tax authorities have not discharged the burden of showing (apart from the mere circumstance of repetition) that there is any origin to account for these payments which could amount in its nature to a definite source so as to render each payment 'income' and not merely ' casual or a mere annual (though expected) windfall'. I do not reach this conclusion, as I have explained, on the ground simply that they are voluntary in the sense that they might be discontinued 'without the Rani having any enforceable remedy; but on the ground that it has not been proved in this particular case that there is anything more certain than the mere whim of the Ruler to support them,'

17. Malik J. also came to the same conclusion, but in his view a voluntary payment must be deemed to be of a casual and non-recurring nature unless there is a liability on the donor to pay, which liability may arise out of a contract, a custom or some order which is binding on him. In his view, the remittances made by the Maharaja of Nabha to the Rani may be income, but they were expressly exempt under Section 4(3)(vii) of the Income-tax Act.

18. The Travancore-Cochin High Court in Rev. Father Prior, Sacred Heart's Monastery's case has also taken the view that a voluntary gift depending entirely upon the goodwill of the donor does not cease to be of a ' casual and non-recurring nature ' by reason merely of the fact that the gift is repeated because in order that a receipt may be a ' recurring receipt' there must be a claim or a right to expect its recurrence.

19.The Bombay High Court in H. H. Maharani Shri Vijaykuverba Sahebof Morvi's case has also taken the view that where a voluntary paymentis made entirely without consideration and is not traceable to any source which a practical man may regard as a real source of his income, but depends entirely on the whim of the donor, cannot fall in the category of income. The court did not decide the question whether the case fell within Section 4(3)(vii) but showed its inclination to agree with Mr. Palkhivala, counsel for the assessee, that such income would be exempt under Section 4(3)(vii).

20. Learned counsel for the department has, however, relied on the decision of the Punjab High Court in Princess Ruby Rajiber Kaur v. Commissioner of Income-tax, [1967] 64 I.T.R. 624 (Punj.). In that case, according to the long-standing custom prevailing in the Jind State, Princess Ruby Rajiber Kaur Grewal, daughter of the Maharaja of Jind, was given an annual allowance of Rs. 12,000 by that State in lieu of dowry. After the merger of the Jind State in the Pepsu region, the payment was stopped by the Pepsu Government some time in 1949. But on representation to the Government of India, the payments were made. Payment was again stopped by the Government of Pepsu in 1950 but they were again made to the Princess on the direction of the Government of India conveyed by the letter dated 25th November, 1953, which is quoted below:

' I am directed to refer to the correspondence resting with Shri P. S. Rai's D.O. letter No. 215/A DV 53/4166 dated the 21st October, 1953, and to say that, after further careful examination of the case, the Government of India are satisfied that, (a) there was a custom in the Jind State of granting annual allowances to the married daughters and sisters of the Ruler in lieu of dowry, and that (b) the allowances of Rs. 10,000 per annum granted to Maharaj Kumari Ruby Rajiber Kaur and Maharaj Kumari Diamond Balbir Rajinder Kaur were allowances of this nature. They are, therefore, of the view that these allowances should be restored with effect from the date on which they were stopped in 1950. I am to request that the formal orders of the State Government authorising the restoration of these allowances and the payment of the arrears may be passed as soon as possible as the two Maharaj Kumari Kaurs have already been put to great hardship due to the stoppage of these allowances.'

21. It was held by the High Court that Princess Ruby Rajiber Kaur had a recurring income in the form of allowances and the source of chat income was the direction to the State Government by the Government of India to pay that allowance because the Government was of the view that there was a custom to pay such allowances and that created a commitment by the old rulers which should be honoured. The direction of the Government of India was thus based upon the custom and the commitment of the ruler flowing from it. It is, therefore, clear that in that case the Government of India had directed the Pepsu Government to pay the allowances as such payments were to be made on the basis of the custom and it cannot, therefore, be said that these payments were merely voluntary payments. This case is distinguishable from the facts of the case before us.

22. We are, therefore, of the view that the various amounts received by the assessee in the various assessment years were exempt from payment of tax as they did not form part of the taxable income being receipts of a casual and non-recurring nature. Our answer to the question in Reference No. 7 of 1966 is in the negative.

23. Now we take up the Wealth-tax Reference No. 8/66. The Wealth-tax Officer, while assessing the assessee for the assessment years 1957-58, 1958-59, 1959-60 and 1960-61 for wealth-tax, held that since the assessee was in regular receipt of the yearly rent and his perpetual interest in the property was also accepted by the Government, such interest was includible in the net wealth of the assessee. The annual rent of Rs. 21,257 was capitalised at 20 times thereof and a sum of Rs. 4,25,140 was added to the assessee's net wealth. Appeals were preferred to the Appellate Assistant Commissioner who accepted the assessee's contention that the amount was not includible in the net wealth of the assessee. The department then preferred appeals to the Tribunal which confirmed the decision of the Appellate Assistant Commissioner. The Tribunal observed that the term 'asset', however widely construed, must connote a property of some kind and ' property ' connoted some sort of right vested in an individual. On applications filed by the Commissioner of Wealth-tax, the Tribunal has referred the following question :

'Whether a promise by the Government of India to make the periodical ex gratia payment to the assessee constituted an asset to him within the meaning of Section 2(e) of the Wealth-tax Act, 1957, for inclusion in his net wealth '

24. Under Section 3 of the Wealth-tax Act, tax is chargeable on the net wealth. Net wealth has been defined in Section 2(m) as the amount by which the aggregate value computed in accordance with the provisions of the Wealth-tax Act of all the assets, belonging to the assessee on the valuation date, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than those mentioned in Clause (m). Thus the question to be considered is whether, on the facts and in the circumstances of this case, the so-called promise by the Government of India to make the periodical payments to the assessee constitutes an asset for inclusion in his net wealth. We have already pointed out that the assessee had no right, title or interest to the payments. He had no right to receive any periodical payments. Whatever he was to receive depended on the good wishes of the Government of India. Thus, he cannot be considered to possess any property or any right to property by virtue of the arrangement arrived at by the Government of India because everything was ex gratia. Thus, the so called promise of the Government of India did not constitute an asset of the assessee. In this view of the matter, the answer to the question in this case is clearly in the negative.

25. This reference is answered accordingly. In both the references, we make no order as to costs.


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