1968 (11) TMI 32 - HC - Income Tax

Assessee claimed that the amount of Rs. 12, 000 which he received as allowance in the relevant previous year was received by him as the subordinate chief of the Ruler of the merged State namely Khairagarh and was therefore exempt from tax - held that amount received by the assessee was not exempt from income-tax in the hands of the assessee

Issues Involved:
1. Whether the allowance of Rs. 12,000 received by the assessee was exempt from income-tax.
2. Interpretation of "subordinate chief" under paragraph 13(iii) of the Merged States (Taxation Concessions) Order, 1949.
3. Whether the allowance qualifies as a "pension" under the said Order.

Issue-wise Detailed Analysis:

1. Exemption of Allowance from Income-Tax:
The primary issue was whether the Rs. 12,000 allowance received by the assessee was exempt from income-tax under paragraph 13(iii) of the Merged States (Taxation Concessions) Order, 1949. The court noted that for the exemption to apply, four conditions must be satisfied: (i) the amount must be received as a pension, (ii) it must be paid out of public revenues, (iii) it must be received as the subordinate chief of the Ruler of a merged State, and (iv) it must have been payable in that capacity by the Ruler immediately before 1st August, 1949. The court found that only the second condition was met, as the amount was paid out of public revenues. The other three conditions were not satisfied, leading to the conclusion that the allowance was not exempt from income-tax.

2. Interpretation of "Subordinate Chief":
The court examined the meaning of "subordinate chief" under paragraph 13(iii). The Appellate Assistant Commissioner and the Tribunal had previously interpreted "subordinate chief" to mean someone next to the Ruler in point of succession. The court disagreed with this interpretation, stating that the term "subordinate chief" has no reference to blood relationship with the Ruler. The term originates from a feudal system where chiefs were assigned territories to support troops, police, and services, and many received annual payments from the paramount State. The court found no evidence that the assessee was ever a chief of any feudatory State or estate under the Khairagarh State's suzerainty, nor did the assessee attempt to prove this.

3. Qualification of Allowance as "Pension":
The court clarified that the term "pension" refers to a periodical allowance or stipend granted for past services or particular merits, not related to any right, privilege, or status. The court determined that the Rs. 1,000 monthly allowance granted to the assessee was not a pension but a maintenance allowance given according to the customs and traditions of the Khairagarh State, consequent on his marriage. This was evident from the Ruler's order dated 18th November, 1943, which specified the allowance as a privilege due to the assessee's marriage. The court noted that the Income-tax authorities had mistakenly assumed the allowance to be a pension.

The court also reviewed an undated certificate from the ex-Ruler, which stated that the assessee was a "tazeemi sardar" and subordinate chief. However, the court found this certificate insufficient to establish the assessee's status as a subordinate chief, as it lacked supporting evidence such as a sanad or document. The certificate itself indicated that the allowance was for maintaining the family status, not as a pension for a subordinate chief.

Conclusion:
The court concluded that the assessee's claim for exemption of the Rs. 12,000 allowance from income-tax was untenable. The question referred to the court was answered in the affirmative, meaning the Tribunal was correct in holding that the allowance was not exempt from income-tax. The assessee was ordered to pay the costs of the reference, with counsel's fee fixed at Rs. 200.

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