1968 (8) TMI 45 - HC - Income Tax

Assessee, an erstwhile ruler of a state realised profit on sale of Government securities - Is the assessee, by virtue of being a erstwhile ruler of a state immune from taxation on all sorts of income - Held, no

Summary

Issues: Tax liability of a ruler of a sovereign state for personal income earned in British India under the Indian Income-tax Act, 1922.

Analysis:
The case involved the tax liability of an assessee, who was the ruler of the erstwhile Faridkot State, for the profit earned from the sale of Government of India securities in British India during the assessment years 1946-47 and 1947-48. The Income-tax Officer assessed the profit under section 12B of the Indian Income-tax Act, 1922, rejecting the assessee's objection that as a sovereign ruler, he was immune from taxation. The Appellate Assistant Commissioner and the Judicial Member of the Tribunal held differing views on the matter, leading to the President of the Tribunal siding with the Judicial Member based on a decision of the Andhra Pradesh High Court. The department appealed to the High Court under section 66(1) of the Indian Income-tax Act, seeking a decision on the question of law posed by the Tribunal.

The High Court referred to the Supreme Court decision in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, where it was held that the private income of a ruler earned in British India was not exempt from taxation under the Indian Income-tax Act, even if the ruler was a sovereign. The Court emphasized that the distinction between income of the ruler as representing the State and personal income of the ruler was crucial. The argument that the assessments predated the Constitution of India was dismissed, as the Supreme Court had clarified that the Act's provisions applied retroactively. The Court noted that prior decisions had distinguished between income from State-owned properties and personal properties of a ruler, with no exemption for personal income earned in British India.

The Court rejected the contention that the sovereign status of the assessee could only be determined by the Ministry of Home Affairs, citing the Supreme Court's definitive ruling in the Mir Osman Ali Bahadur case. Given the precedent set by the Supreme Court and the lack of exemption for personal income earned in British India, the High Court answered the question in the negative, ruling in favor of the department. The Court acknowledged a previous decision in favor of the assessee by the Andhra Pradesh High Court but made no order as to costs.

In conclusion, the High Court upheld the tax liability of the ruler for personal income earned in British India under the Indian Income-tax Act, based on the Supreme Court's precedent and the distinction between State-owned and personal properties of the ruler.