1960 (9) TMI 9 - SC - Income Tax

Whether by the guarantee of full ownership, use and enjoyment of the private properties under the merger agreement the properties of the appellant were not rendered immune from liability to pay tax imposed by the Act and that, in the absence of an express provision, his income from lands was liable to pay agricultural income-tax? Held that - The amendment in the definition of person in section 2, clause (i), of the Act was made not with the object of excluding the Rulers of former Indian States from liability to pay tax ; it was only made to delete a clause which, in view of political changes, had no practical significance. Liability to pay tax is imposed by the Act and there is in the Act no express exemption in favour of the appellant. The claim of the appellant to exemption on the ground that he is not a person cannot, therefore, be sustained. On the grounds, therefore, that liability to pay agricultural income-tax in respect of his private property is imposed upon the appellant by section 3 of the Act, and the immunity claimed by the appellant is not one of the personal rights or privileges within the meaning of the merger agreement and that the claim made by the appellant is not justiciable, the objection raised by the appellant to liability to pay agricultural income-tax assessed under the Act cannot be sustained. Appeal dismissed.

Summary

Issues Involved:
1. Liability of the appellant to pay agricultural income-tax under the Orissa Agricultural Income-tax Act, 1947.
2. Immunity claimed by the appellant based on the merger agreement and international law.
3. Interpretation of "person" under the Act and its applicability to the appellant.
4. Relevance of Articles 362 and 363 of the Constitution concerning the appellant's claims.
5. Subsidiary contentions regarding the transfer of villages and inventory of properties.

Detailed Analysis:

1. Liability of the appellant to pay agricultural income-tax under the Orissa Agricultural Income-tax Act, 1947:
The Orissa Agricultural Income-tax Act, 1947, was enacted to levy income-tax on agricultural income derived from lands in Orissa. The appellant, a former Ruler of the State of Sonepur, was assessed to pay tax for the years 1949-50 to 1953-54. The High Court held that the appellant's properties were not immune from taxation under the Act and dismissed the petitions challenging the assessments for the years 1950-51, 1951-52, and 1952-53, while canceling the assessment for 1949-50 and the penalties for 1949-50 and 1950-51.

2. Immunity claimed by the appellant based on the merger agreement and international law:
The appellant contended that as a former Ruler, he was immune from taxation on his private property within his territory and outside, based on international law and the merger agreement. The merger agreement guaranteed full ownership, use, and enjoyment of private properties but did not extend immunity from taxation. The court held that the privileges guaranteed by the merger agreement were personal privileges and did not exempt the appellant's property from taxation.

3. Interpretation of "person" under the Act and its applicability to the appellant:
The Act defined "person" to include a Ruler of an Indian State, but this reference was deleted by the Adaptation of Laws Order, 1950. The court held that the deletion did not indicate an intention to exclude former Rulers from liability to pay tax. The appellant ceased to be a Ruler after the merger, and the Act did not expressly exempt him from taxation. Thus, the appellant was liable to pay agricultural income-tax as a "person" under the Act.

4. Relevance of Articles 362 and 363 of the Constitution concerning the appellant's claims:
Article 362 recommends that due regard be given to guarantees under covenants or agreements with Rulers, but it does not create enforceable legal obligations. Article 363 bars courts from questioning the validity of legislation inconsistent with such guarantees. The appellant's claim that the tax violated the merger agreement was not justiciable, and the court held that the legislative authority to impose tax could not be questioned based on the merger agreement.

5. Subsidiary contentions regarding the transfer of villages and inventory of properties:
The appellant argued that two villages were transferred to the Yuvrani in 1945, and their income should not be taxed in his hands. This contention was rejected by the Agricultural Income-tax Officer and was not raised in the High Court. The appellant also contended that only eighteen villages were listed in the inventory accepted by the Government, but this issue was not raised in the High Court. The court dismissed these subsidiary contentions as they were not properly brought before the High Court.

Conclusion:
The appeals were dismissed, and the appellant was held liable to pay agricultural income-tax. The court concluded that the appellant's claims of immunity based on the merger agreement and international law were unfounded, and the legislative authority to impose tax was upheld. The subsidiary contentions were also rejected due to procedural grounds.