1. A certain H.R. Goosey died on February 2, 1963. He was a domicile of the United Kingdom. He owned 750 ordinary shares in Best and Company (Private) Ltd., Madras, of the face value of Rs. 100 each and 400 ordinary shares in Best & Company (Private) Ltd., Pondicherry, of the face value of Rs. 50 each. The respondent in his capacity as the sole executor under the will of the deceased and as accountable person filed a statement of account under the Estate Duty Act. During the assessment proceedings the accountable person claimed exemption from assessment in respect of the 400 shares of Best & Company (Private) Ltd., Pondicherry, on the ground that the deceased having died prior to April 1, 1963, on which date the Estate Duty Act was extended to Pondicherry, no estate duty was leviable on the shares held by him in Pondicherry prior to such extension. The Assistant Controller of Estate Duty rejected this claim holding that Pondicherry became part of the Indian territory with its de jure transfer on and from August 18, 1962, and that, therefore, any movable or immovable property owned by the deceased in Pondicherry will be movable or immovable property in India from August 16, 1962. Since the market value of the movable or immovable property situated in India can be included in the estate of the deceased, though he was domiciled in the United Kingdom, the shares in Best & Company, Pondicherry, are liable to be included in the principal value of the estate. The extension of the Estate Duty Act to Pondicherry only from April 1, 1963, in his view, was of no significance and it will be relevant only in determining the liability of a resident of Pondicherry. In the case of persons not domiciled in Pondicherry the only relevant consideration is the location of the property within the territory of India. The exemption under Section 21(1) of the Act was available only in respect of properties situated outside India at the time of death of the deceased and that the exemption was not available in respect of properties which were situated in India though the Estate Duty Act had not been extended to Pondicherry during the relevant period. This view of the Assistant Controller was confirmed by the Appellate Controller. On further appeal the Tribunal took the view that the question for consideration is not whether the property is situate in India or outside but whether Section 5 of the Act which is the charging section applied to the movable property of the deceased in Pondicherry. The Tribunal answered this question in the negative holding that the Indian laws did not become applicable to Pondicherry automatically from the date it became part of India but that the Indian laws became applicable only from the date on which they were extended to Pondicherry either under Section 8 of the Pondicherry Administration Act, 1962 (Act 49 of 1962), or under article 240 of the Constitution of India. Since the Estate Duty Act was extended to Pondicherry by the Taxation Laws (Extension to Union Territories) Regulation No, 3 of 1963, with effect from April 1, 1963, the charging Section 5 of the Estate Duty Act, was not applicable to the movable properties prior to that date. In that view, the Tribunal held that the value of the shares held by the deceased in Best. & Company, Pondicherry, was not includible in the estate of the deceased. At the instance of the Controller of Estate Duty, the following question of law has been referred :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the value of the shares held by the deceased, Mr. H.R. Goosey, in M/s. Best & Company (Pondicherry) (Private) Ltd., Pondicherry, is not includible in the estate of the deceased for purposes of levy of estate duty ?'
2. A brief political history of Pondicherry has to be noticed in order to understand the full implications of the question referred to us, Pondicherry was a French settlement. Under an agreement dated October 21, 1954, the Government of France transferred and the Government of India took over the administration of the territory of the French establishments in India including Pondicherry with effect, from November 1, 1954, This is referred to as a de facto transfer and was intended to be followed up by de jure transfer. A Treaty of Cession providing for the de jure transfer was signed by the Government of France and the Government of India on May 28, 1956. This Treaty of Cession envisaged a ratification of the same by the respective Governments in order that the de jure transfer may take effect. Following the de facto transfer the Government of India was administering the territory under the Foreign Jurisdiction Act, 1947, and in accordance with the French Establishments (Administration) Order, 1954, and other orders made under Sections 3 and 4 of that Act, In exercise of these powers and with a view to bring the administration of Pondicherry so as to conform to the pattern of administration obtaining in India, a large body of Acts in force in India were extended to Pondicherry by the Government. The de jure transfer was effected on August 16, 1962.
3. In N. Masthan Sahib v. Chief Commissioner, Pondicherry, : AIR1962SC797 , the Supreme Court considered the question as to whether the Pondicherry settlement was part of the territory of India prior to the de jure transfer. After noting the constitutional changes made in Articles 1 and 2 and the First Schedule to the Constitution of India by the Constitution (Seventh Amendment) Act, the Supreme Court held that the term ' territory of India' has been used in the several articles of the Constitution as meaning the territory of India for the time being as falls within Article 1(3) and that the phrase cannot mean different territories in different articles and that prior to the de jure merger Pondicherry has to be treated as not part of the territory of India. After the de jure transfer, the First Schedule to the Constitution was amended by the Constitution (Fourteenth Amendment) Act, 1962, including Pondicherry as part of the territory of India with effect from August 16, 1962.
4. The Estate Duty Act (hereinafter called the Act) (Act No. 34 of 1953) came into force with effect from October 15, 1953. Under Section 5 estate duty is levied on all property which passes on the death of every person after the commencement of the Act. Section 21 which is in the nature of an exemption from levy deals with foreign property. Section 21(1) as it was originally enacted read as follows :
'21. Foreign property.--(1) There shall not be included in the property passing on the death of the deceased-
(a) immovable property situated outside the territories to which this Act extends;
(b) movable property situated outside the territories to which this Act extends at the time of the death unless-
(i) in the case of any property, whether settled or not, the deceased was domiciled in the said territories at the time of his death; or
(ii) in the case of settled property of which the deceased was a life tenant, the settlor was domiciled in the said territories at the date the settlement took effect.'
5. By the Estate Duty (Amendment) Act (Act No. 33 of 1958), for the words 'outside the territories to which this Act extends ' and ' the said territories' in this section, the words 'outside India' and 'India' were respectively substituted. The reason for this amendment given in the Notes on Clauses to the Estate Duty (Amendment) Bill, 1958, is ' as the Act now extends to the whole of India '.
6. The learned counsel for the revenue submitted that by the de jure transfer and the Constitution Fourteenth Amendment, Pondicherry became part of the territory of India, with effect from August 16, 1962. Under Section 5 of the Act estate duty was payable upon the principal value of all the property, movable and immovable, situate in India whether the deceased was domiciled in India or outside India. Section 21(1) exempted only movable properties situated outside India if the deceased was not domiciled in India at the time of his death. He submitted further that Section 5 includes all property whether movable or immovable wherever they are situated inside or outside India and only by virtue of Section 21 in the case of a deceased who was not domiciled in India at the time of hisdeath the movable properties situated outside India were exempted. He pointed out that in this case the death was after the commencement of the Act, namely, October 15, 1953, and the shares in Best & Company, Pondi-cherry, which are movable property, were not situated outside India at the time of death in order to attract the exemption under Section 21 as Pondicherry had become part of the territory of India on August 16, 1962.
7. In order to understand the argument of the learned counsel for the accountable person, it is necessary to notice at this stage the provisions of Central Act 49 of 1962 and Central Regulation 3 of 1963. The Pondicherry Administration Act, 1962 (Act 49 of 1962), came into force on August 16, 1962. Section 4(1) of this Act provided that all laws in force immediately before August 16, 1962, in the former French establishments or any part thereof shall continue to be in force in Pondicherry until amended or repealed by a competent legislature or other competent authority. Section 7 provided for the continuance of the existing taxes in Pondicherry until other provision is made by a competent legislature or other competent authority; Section 8 authorised the Central Government to extend by notification, with such restrictions and modifications as it thinks fit, any enactment which is in force in a State to Pondicherry. The Constitution Fourteenth Amendment amended Article 240 of the Constitution enabling the President to make regulations for the peace, progress and good Government of the Union territory of Pondicherry until a legislature is created and begins to function in respect of that territory. In exercise of this power under article 240, the President promulgated the Taxation Laws (Extension to Union Territories) Regulation, 1963. This Regulation came into force on April 1, 1963. It extended, among other Acts, the Estate Duty Act, 1953, with the modifications therein mentioned with effect from the first day of April, 1963.
8. The learned counsel for the accountable person, respondent, submitted that though Pondicherry became part of India on and from August 16, 1962, the Estate Duty Act was not applicable to Pondicherry until it was extended by Regulation 3 of 1963, on April 1, 1963. He also submitted that at the time when the Estate Duty Act was enacted, Pondicherry was not part of India and, therefore, Parliament would not have intended to apply the provisions of the Act to Pondicherry and having regard to this circumstance Section 21 of the Act will have to be understood and interpreted as not to include Pondicherry as part of India.
9. Charge to estate duty under Section 5 arises ' in the case of every person dying after the commencement of this Act'. The word ' commencement' has been defined in Section 3(13) of the General Clauses Act as meaning the day on which the Act comes into force. In this case theEstate Duty Act had been notified to come into force on and from October 15, 1953. The deceased in this case died on February 2, 1963, after the commencement of the Act, He had movable properties in Madras by way of shares in Best and Company, Madras, Therefore, whether the shares in Pondicherry are includible or not, the estate of the deceased came within the charging provision under Section 5. The two important ingredients for charging estate duty is the death of the person after the commencement of the Act and passing of property on the death of such person. Section 5 imposes a duty upon the principal value of all properties which pass on death irrespective of the nature of the situs of the property. We have noticed in our judgment in Ramaswamy Chettiar v. Assistant Controller of Estate Duty that a taxation statute cannot be challenged on the ground that it is extra territorial in operation if there is a connection between the person who is subjected to tax and the country imposing a tax and where by a proper construction of an Act of Parliament extra-territorial operation was intended, the courts in India must give effect to such an Act without questioning the competence of Parliament with reference to any rule of International law. We have also held that if a person is domiciled in India the Estate Duty Act has sufficient nexus to operate on his assets wherever situate. Equally, Parliament's power to legislate is beyond question where the properties are situated inside India, whether the person is domiciled in India or outside India. Section 5, therefore, proprio vigore attracted the levy of estate duty in respect of the shares of the deceased in Best & Company, Pondicherry. It is Section 21 which is in the nature of an exception to this generality of the provision in Section 5, that excludes certain properties situate outside India. The provisions of the Pondicherry Administration Act, 1962, provided for the continuance of the laws in force in Pondicherry until amended or repealed by a competent legislature. Sections 3(1) and 3(3) of Regulation 3 of 1963 read as follows:
''3. (1) The Acts specified in Part I of the Schedule shall extend to, and come into force in, each of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry on the 1st day of April, 1963, subject to the modifications, if any, specified in that Part.
3. (3) Any reference in the provisions of any Act referred to in Sub-section (1) or Sub-section (2) to the commencement thereof shall, in relation to a Union territory, be construed as a reference to the 1st day of April, 1963.'
10. Strong reliance was placed by the learned counsel for the respondent on these provisions especially Sub-section (3). The learned counsel contended that the reference to commencement of the Act in Section 5 of the Estate Duty Act, 1953, so far as the Union territory of Pondicherry is concerned, will have to be read with reference to these provisions and so read the charge to levy of estate duty so far as this Union territory was concerned would be attracted, only to cases of a person dying after April 1, 1963.
11. We are of opinion that the provisions of Section 3 of the Regulation is intended to apply only to the estate of a person domiciled in Pondicherry and with reference to his properties situated in Pondicherry and not with reference to a person residing in the other parts of the territory of India or outside India, Extension of the Estate Duty Act to Pondicherry was necessary only for charging to duty movable and immovable properties situated in Pondicherry and belonging to a person domiciled in Pondicherry. In respect of those domiciled in India but outside Pondicherry territory and those domiciled outside India, relevant criteria for the purpose of attracting duty under Section 5 is the death after October 15, 1953. Any other construction, in our opinion, will lead to certain anomalous results. For instance, a person domiciled in Madras though he owned movable property in Pondicheiry which is part of India will escape from estate duty while a person owning such movable property in any other State in India or outside India would be liable to duty. Further, in respect of the same person for properties situated in India but outside Pondicherry, the relevant date is October 15, 1953, but for his property situated in Pondicherry the relevant date will be April 1, 1963. There cannot be two deaths for a single person as graphically put by the learned counsel for the revenue. It may be that on this construction even in respect of a person domiciled in Pondicherry if he' has immovable properties in India outside Pondicherry, in addition to his properties in Pondicherry he would be subject to levy on the date of coming into force of the Act, namely, October 15, 1953, in respect of all his properties while in the case of a person domiciled in Pondicherry owning properties only in Pondicherry the commencement of the Act would be only April 1, 1963. But this is due to historical reasons and could not be avoided. We are concerned with a case of a person domiciled outside India dying after the coming into force of the Act leaving properties in India, Therefore, the only question is whether the properties are exempt under Section 21 as the charge under Section 5 had already been attracted. The change of the phraseology from the original words 'property situated outside the territories to which this Act extends' to 'property situated outside India ' is also very relevant. The exemption is now not with reference to the extension of the Act-to the-particular territory but the situation of the property outside India. On the de jure transfer, Pondicherry became part of India. Allthe movable and immovable properties situate in India are liable to be included in the estate of the deceased. Therefore, on a proper construction of the provisions of Sections 5 and 21, the shares in Best & Company, Pondicherry, would be liable to be included in the estate of the deceased for the purpose of levy of estate duty.
12. The learned counsel for the respondent contended that there should be a conscious application of the law by Parliament. Pondicherry was not part of India in 1953, when Parliament enacted the Estate Duty Act, Parliament, therefore, could not have intended to apply that Act to that area. It is by Section 3 of Regulation 3 of 1963 the Estate Duty Act was extended to Pondicherry. He also contended that if the argument of the revenue is to be accepted there was no need for extending the Estate Duty Act to Pondicherry by this Regulation. This argument, in our opinion, is not acceptable. We have held in Ramaswamy Chettiar v. Assistant Controller of Estate Duty, : 92ITR195(Mad) , that the Act is extra-territorial in operation and that the courts in India are bound to enforce the same leaving it to the Government to justify its action if any of the rules of International law is affected or offended. Thus even before the Act was extended to Pondicherry it applied to the territories in Pondicherry. It is because of Section 21, movable and immovable properties situated in Pondicherry of a person domiciled in Pondicherry or outside India were exempted from inclusion in the estate of the deceased person. On the de jure transfer Pondicherry became part of the Indian territory and, therefore, Section 21 was not applicable. Sections 4(1) and 7 of the Act, 49 of 1962, specifically stated that in the former French establishments or any parts thereof the laws in force immediately before August 16, 1962, shall continue in force until amended or repealed by a competent' legislature. Though there was no Estate Duty Act in Pondicherry, a person domiciled in Pondicherry became entitled to be not subjected to estate duty by virtue of these provisions. These provisions are also consistent with the International Law. Pondicherry became the territory of India under Article 1(3)(c) of the Constitution of India as an acquired territory. With respect to the application of Indian laws in respect of acquired territories, we find the following passage in Craies on Statute Law, seventh edition, page 486 :
'Conquered or ceded colonies : Prima facie those colonies which were acquired by conquest or cession from a civilised Power remain under the laws of the Power to which they originally belonged, subject to the modifications introduced since the conquest or cession ;...,'
13. In Halsbury's Laws of England, third edition, volume 5, at page 693, the law is stated thus :
' Continuance of ancient law, until abrogation : In conquered or ceded countries which, at the time of their acquisition, had already laws of their own, the Crown has power to alter and change those laws, but until that is actually done the ancient laws of the country remain in force . . . . '
14. But this is the law applicable to persons domiciled in Pondicherry as the existing laws could govern only those subjects. As there was no Estate Duty Act in force in Pondicherry prior to the de jure transfer, persons domiciled in Pondicherry owning movable or immovable property in Pondicherry were not liable to any estate duty. That position had to continue till a law is made by a competent authority in respect of those properties. The Estate Duty Act, 1953, also was not applicable either in respect of movable property or immovable property situated in Pondicherry in respect of a deceased domiciled at the time of his death in Pondicherry. That position had to continue under the Public International Law. Extension of the Estate Duty Act, 1953, to Pondicherry was necessary in order to bring these estates of deceased persons domiciled in Pondicherry at the time of their death within the ambit of the Act. Regulation 3 of 1963 extended the Act and provided that with reference to these persons the date of commencement of the Act was April 1, 1963. As Section 5 will have to be understood with reference to Sections 3(1) and 3(3) of Regulation 3 of 1963, the provisions of the Act would be attracted in respect of movable and immovable properties in Pondicherry of a person domiciled in Pondicherry only if the death of that person was on or after April 1, 1963. But this construction does not help the accountable person as the deceased was not a domicile of Pondicherry at the time of his death.
15. For the foregoing reasons, we are of opinion that the question referred will have to be answered in the negative and in favour of the revenue. Revenue will be entitled to its costs. Counsel's fee Rs. 250.