1966 (4) TMI 8 - HC - Income Tax

Interest On Securities - held that personal and private income of the assessee which has been brought to tax under the Patiala IT Act, 2001 was exempt because he was the Ruler of the former Faridkot State - assessee was not liable to pay income-tax on the amount of interest on Govt. securities

Issues Involved:
1. Exemption of personal and private income of the assessee under the Patiala Income-tax Act due to his status as the Ruler of the former Faridkot State.
2. Liability of the assessee to pay income-tax on the amount of interest on Government securities amounting to Rs. 26,304.
3. Tax liability on income accrued to the assessee outside Faridkot State from 13th April, 1948, to 19th August, 1948.
4. Application under section 66(3) for direction to refer an additional question regarding taxation under the Part B States (Taxation Concessions) Order, 1950.

Detailed Analysis:

1. Exemption of Personal and Private Income:
The court examined whether the personal and private income of the assessee, who was the Ruler of the former Faridkot State, was exempt from tax under the Patiala Income-tax Act. The assessee argued that as a sovereign, he was not liable to tax. However, the court referenced the Supreme Court's decision in Lachhman Dass v. State of Punjab, which stated that the Rulers of the states merged into PEPSU ceased to exist as independent sovereigns after the formation of the Patiala and East Punjab States Union on 20th August, 1948. Therefore, the contention that the assessee retained his sovereignty post-formation of PEPSU was rejected. The court concluded that the assessee's personal and private income was not exempt from tax.

2. Liability to Pay Income-tax on Interest from Government Securities:
The court considered whether the assessee was liable to pay income-tax on the interest amounting to Rs. 26,304 from Government securities. The assessee claimed exemption based on a notification under the Indian Income-tax Act. However, no such notification was issued under the Patiala Income-tax Act, which governed the assessee's assessment. Thus, the court found that the assessee could not claim exemption from payment of tax on the interest from Government securities.

3. Tax Liability on Income Accrued Outside Faridkot State:
The court addressed whether the income accrued to the assessee outside Faridkot State from 13th April, 1948, to 19th August, 1948, was liable to tax. The court referenced the case of Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, which held that the lapse of paramountcy did not grant the Ruler international personality or immunity from taxation. The court concluded that the income accrued outside Faridkot State during the specified period was liable to tax under the Patiala Income-tax Act.

4. Application under Section 66(3):
The assessee filed an application under section 66(3) to direct the Commissioner to refer an additional question regarding taxation under the Part B States (Taxation Concessions) Order, 1950. The court, referencing the Supreme Court's decision in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., noted that the Tribunal must have had an occasion to consider the question for it to be referred. Since the question was neither raised before nor considered by the income-tax authorities, it could not be deemed to arise out of their orders. The court dismissed the application, finding it without merit.

Conclusion:
The court answered:
- Question (i) in the negative, indicating that the personal and private income of the assessee was not exempt from tax.
- Questions (ii) and (iii) in the affirmative, confirming the assessee's liability to pay income-tax on the interest from Government securities and the income accrued outside Faridkot State during the specified period.
The parties were left to bear their own costs.

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