9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
1965 (10) TMI 23 - SC - Income TaxWhether under international law the assessee is immune from taxation in respect of the assessment year 1950-51? Whether, having regard to the said covenant dated January 25, 1950, he, was not liable to tax under the Indian Income-tax Act, 1922? Whether the interest received by the assessee in respect of 3 per cent. Nizam Government income-tax free loan 1360-70 Fasli of the face value of ₹ 1,45,200, the 2 1/2 per cent. Nizam Government Income-tax free development loan 1364-69 Fasli of the face value of ₹ 1.05 crores, the 2 1/2 per cent. Nizam Government loan 1363-73 Fasli of the face value of ₹ 200, and the 2-3/4 per cent. Hyderabad Government loan 1384 Fasli of the face value of ₹ 8 crores was exempt from tax? Whether, on the facts of the case, the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the assessee under the trust created by him known as the family trust was exempt from payment of tax in his bands ? Whether the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the assessee under the trust created by him known as the miscellaneous trust , was exempt from payment of tax in his hands ? Whether, on the facts of the case, the interest at ₹ 1,97,180 on the Government of India securities should be regarded as having accrued in the Hyderabad State and therefore chargeable at the rate obtaining under the Hyderabad Income-tax Act? Held 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 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. If the assessee was not liable to pay tax under the State law, his non-liability related only to the domain of exemption. It would be incongruous to say that a person exempted from taxation was paying a nil rate. This would be an obvious attempt to subvert the scheme of the Order to reach a desired result. We, therefore, hold, agreeing with the High Court, that the assessee was not entitled to any exemptions under the said Order. The said securities were held by the assessee as his private property and, therefore, he was clearly entitled to this exemption. We, therefore, hold, agreeing with the High Court, that the assessee was entitled to the exemption under the said item in respect of the said securities. The income from the said two trusts did not earn the exemption under item 8 of the said notification, thus in regard to the interest receivable by the assessee from the said securities and loans, he was not liable to pay income-tax, but he was not exempt from payment of super-tax under item 8 of the said notification. The said interest accrued only in British India. Though the assessee raised the question of the correctness of the view expressed by the High Court in the special leave petition, at the time of arguments, the learned counsel for the assessee did not press this point. Therefore, the opinion expressed by the High Court in this regard stands.
Issues Involved:
1. International Law and Tax Immunity: Whether the assessee was liable to tax under the Indian Income-tax Act, 1922, considering international law and a covenant dated January 25, 1950. 2. Taxation Concessions Order: Whether the assessee's income during the year of account was totally exempt from tax under the Part B States (Taxation Concessions) Order, 1950. 3. Exemption on Interest from Securities: Whether the interest received by the assessee from certain government securities was exempt from tax. 4. Interest from Trusts: Whether the interest from securities under trusts created by the assessee was exempt from tax. 5. Accrual of Income: Whether the interest on Government of India securities should be regarded as having accrued in Hyderabad and therefore chargeable at the rate under the Hyderabad Income-tax Act. Detailed Analysis: 1. International Law and Tax Immunity: The court examined whether the assessee was immune from taxation under international law for the assessment year 1950-51 and whether the covenant dated January 25, 1950, exempted him from tax. The High Court had held that the assessee, being a sovereign until January 25, 1950, was immune from taxation under international law. However, the Supreme Court found that Hyderabad State did not acquire international personality, thus the assessee could not claim immunity from taxation. Furthermore, the covenant did not guarantee tax immunity as a privilege. The court concluded that the assessee was liable to tax post January 26, 1950. 2. Taxation Concessions Order: The assessee claimed total exemption from tax under the Part B States (Taxation Concessions) Order, 1950. The court held that the Order was intended to provide relief by scaling down tax rates in relation to State rates, not to grant exemptions. The court rejected the argument that the assessee's immunity from tax under the State law implied a nil rate under the Order, affirming that the assessee was not entitled to any exemptions under the said Order. 3. Exemption on Interest from Securities: The court addressed whether the interest from certain Hyderabad State securities was exempt from tax under section 8 of the Act and a notification dated March 21, 1922. It was held that the expression "securities of a State Government" included securities issued by the Hyderabad State. Therefore, the income-tax payable on the interest receivable on these securities was to be borne by the State Government, not the assessee. Additionally, the court found that the assessee was entitled to exemption under the 1922 notification as the securities were his private property. 4. Interest from Trusts: The court examined whether the interest from securities under the "family trust" and "miscellaneous trust" was exempt from tax. The High Court had held that the character of the income changed when it reached the assessee. However, the Supreme Court found that under section 41 of the Act, the income retains its character whether assessed to the trustee or the beneficiary. Thus, the assessee was exempt from income-tax but not super-tax under the 1922 notification, as the securities were no longer his private property after the trust deeds. 5. Accrual of Income: The court considered whether the interest on Government of India securities should be regarded as having accrued in Hyderabad. The High Court had held that the interest accrued in British India. Although the assessee raised this issue, it was not pressed during arguments, and the Supreme Court did not express a view on this point, leaving the High Court's decision standing. Conclusion: - Question 1: Affirmative. - Question 2: Negative. - Question 3: Negative. - Question 4(i): Affirmative. - Question 4(ii): Exempt from income-tax, not super-tax. - Question 4(iii): Exempt from income-tax, not super-tax. - Question 4(iv): Negative. The Supreme Court modified the High Court's order accordingly, with each party bearing its own costs.
|
