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TMI Blog1945 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year, the Rani received at Dehra Dun a sum of ₹ 14,744 from Kalsia State and a sum of ₹ 8,910 from Nabha State. On the facts as they have been found by the Income-tax Tribunal it may be taken that similar payments had been made to the Rani of varying amounts in each of the years she had lived at Dehra Dun and that they represented allocations for her benefit made in the relative State budgets. In the case of the payments out of Kalsia state they were made for the purpose of meeting the Ranis household and living expenses and the education of the children at Dehra Dun; and, in the case of the allowance from Nabha State, it was made as an annual "wardrobe allowance" and as presents on certain specified days of festival in each year. Each payment, as I have said, was specifically budgeted for in the annual budget of each State and the evidence is that they had been made in each year consecutively for a period of almost twenty years. It is also common ground that the Rani has never been asked to give any account of her expenditure of these monies and that any surplus she may have had over at the end of the year has been tacitly assumed to be her personal proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax, Agra, and in the due course came on appeal before a Full Bench of the Income-tax Appellate Tribunal. The Full Bench consisted of four members-two of them judicial members, who have since been elevated to the Benches of the High Courts of Madras and the Punjab respectively. This Bench was divided in opinion, it being held by the President, first, that the Rani, notwithstanding that she was the wife of the Ruler of Kalsia State, was not exempt from assessment to income-tax in British India under the Income-tax Act, 1922, and, secondly, that the payments in question were not income of the assessee under Section 4(1) of the Act; and that, if they had been, they would not have been assessable to tax because they were casual and non-recurring within the meaning of the Section 4(3)(vii) of the Act. On the other hand, the other learned judicial member of the Full Bench of the Tribunal, while agreeing that the Rani was not entitled to exemption from taxation on the ground that her husband was the Ruler of a sovereign State, took the view that the payments made to the assessee both from Kalsia State and from Nabha State in the accounting years did form part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Sub-section (2) of Section 4 of the Act is in this language :- " (2) For the purposes of sub-section (1), where a husband is not resident in British India, remittances received by his wife resident in British India out of any part of his income which is not included in his total income shall be deemed to be income accruing in British India to the wife." In the case before us the Ranis husband, the Raja of Kalsia, was admittedly not resident in British India. The Rani herself was at all material times resident in British India. The ₹ 14,744 received by her in the accounting year must, I think, be taken to have been paid to the Rani out of her husbands income, since it has not been and cannot be suggested that there is any distinction between the personal income of the Raja and the Revenues of his State which are allocated under the annual State budget. There is no suggestion that the payments made to the Rani from Kalsia were paid out of any income of the Raja which satisfies the definition of "total income" contained in the Act, nor, indeed, that the Raja had any income in British India at all. Up to this point, therefore, the conditions of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, for other reasons and on other principles, the ₹ 14,744 in question was in income-tax law the Ranis actual income, since by the statute they are to be "deemed" to be her income. Nor in my view is it necessary for us to go so far as to decide whether the payments out of Kalsia State were casual and non-recurring. If the view taken above of the true construction of section 4(2) of the Act is the right one, then the remittances as such have to be "deemed" to be the income of the Rani irrespective of their actual character either as income or as casual and non-recurring payments. In other words, Section 4(3)(vii) of the Act cannot be regarded as having any reference to a "remittance" by a husband to a wife, which the Act itself has by Section 4(2) expressly declared to be one which is to be "deemed" in any case to be income of the latter. I feel it right, however, to add that; but for Section 4(2) of the Act, I should have felt the force of the conclusion reached by the learned President of the Tribunal expressed in para. 10 of his judgment that the payments in question ex Kalsia State have not in fact been shown every to have become t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in question were the Ranis income or not. But I think the true view is, both because of the circumstance that the Income-tax Officer himself confessed that there was no evidence on which he was able to base his conclusion and because it would be in any case a question as much of law as of fact, that we cannot take it as concluded that the payments in question from Nabha State were payments to which the Rani had an indefeasible and enforceable right. Both the learned judicial members of the Income-tax Appellate Full Bench appear to have taken the same view because the major parts of their respective judgments were devoted to discussing the very question whether the circumstances in which the payments were made justified the conclusion that they were traceable to some sort of enforceable obligation - I should desire to avoid the use of the expression "vested right" - which would clothe them with the character of "income" in the hands of the Rani in British India. That undoubtedly is the substance of the question which we are called on to decide on this reference and there is little doubt that it is a question of law and is not concluded by the finding of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words of the English Income tax Act are not the same as the charging words of the Indian Income-tax Act. The English Income Tax Act of 1918 by Section I charges to tax "all property, profits or gains" described or comprised in the schedules referred to in it. Schedule A is the schedule which charges tax on property. Schedule B is the schedule which charges tax on the occupation of land. Schedule C is the schedule which charges tax on interest, annuities and dividends. Schedule D is the schedule which charges tax on "annual profits or gains" arising from any trade, profession, employment or vocation. And Schedule E is the schedule which charges tax in respect of public offices or employments of profits, annuities, pensions, etc. The Indian Income-tax Act, on the other hand, by Section 4(1), charges generally to tax "all income, profits and gains from whatever source derived." It is clear, therefore, that the Indian Income-tax Act in employing the expression "income" not only lays open to the charge of tax everything that can be properly brought within the description of "income" (irrespective of any technical categories of income suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act. The question, therefore, was whether the pension in question was such a profit or gains arose or accrued to the retired headmaster from an office, employment or pension. It was held that it was not, because something which was merely voluntary could never be a profit or gain derived from an employment. But Viscount Dunedin in the course of his speech said :- "...it has been held again the again that a mere voluntary gift is not such a profit because it is not, in the true sense of the word, income. It is merely a casual payment which depends upon somebody elses goodwill." It is true that the learned Law Lord there describes a mere voluntary gift as not being in the true sense of the word income; but it has to be remembered that he was speaking in reference to the English Income Tax Act and not in reference to the Indian Income-tax Act. In short, the English Income Tax Act by its charging provisions has taxed only those particular types of income which can be brought within the various schedules, whereas the Indian Income-tax Act has charged whatever is "income, profits and gains" on the proper construction of those expressions. It would, in my v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is essentially the produce of something, which is often loosely spoken of as capital....." It is this passage on which the assessee relies in this case for the purpose of saying that a payment the continuation of which can be interrupted by the giver can never be that sort of "periodical monetary return" coming in from a definite source which it contemplated at being taxable by the Indian Income-tax Act. It has to be remembered that, although Sir George Lowndes words are general, the actual case with which he was dealing was one in which it was sought to tax a payment made to the assessee as compensation for the loss of a valuable business agency, and, in that sense, the actual matter before the Board was clearly something which had relation to the business of the assessee. No actual question of the sort we are dealing with was involved. In my opinion, however, Sir George Lowndes never intended to-and, in fact, by the language he used, never did - limit the construction of the word "income" in the Indian Income-tax Act to something which must necessarily have its origin either in a business activity, an investment or an enforceable obligation. Indeed, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utlay on the part of the assessee before it is taxable. Under Indian law, therefore, we come back in my opinion, to the relatively simple test whether in the ordinary parlance of language what the assessee receives is "income" or not. I should not dream of suggesting that every payment made by one person to another is necessarily the recipients income since it may, as Viscount Dunedin has said, be merely a casual payment or, as Sir George Lowndes has suggested, a mere windfall. Such a sweeping proposition would be absurd. Many things have to be considered. In the case of a payment by a parent to a child or by a husband to a wife or by one relation to another obvious questions arise whether in the particular circumstances of each case the payments are made in such a way as to constitute what is paid the money of the recipient at all or whether the payments themselves are not merely a series of casual payments of windfalls. But there seems to me to be another class of cases altogether in which in particular circumstances payments maybe made by one person to another which can only be explained on the ground that the giver intends to give, and the recipient expects to receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have found it impossible to accept so large and general a proposition that nothing can in India be the "income" of a recipient of money which cannot be traced to one of the first four sources set out in Section 6 or to some other source involving either the product of some outlay by, or some binding and irrevocable obligation to pay to, the recipient. It remains then to consider the actual facts of the payments in this case to the Rani from Nabha State for the purpose of seeing on which side of the line they fall and whether they ought to be regarded as her "income" or as something in the nature of mere recurring windfalls. There can be no doubt that the payments have recurred with both actual and expected regularity for the better part of twenty years. Only once have they been varied in amount and they have been paid quarterly. The sanction for their payment has appeared in the annual budget of the State. I think, therefore, that they have become "customary" payments in the limited sense at least that they were "habitual" payments though I am inclined to agree with respect with the learned President of the Tribunal that no fact has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that there is anything more certain than the mere whim of the Ruler to support them. For these reasons, in my opinion, the first two questions put to us should [subject to any answer we may give to question (3)] be answered thus : (1) The allowances received by the assessee from the Kalsia State during the accounting year should be deemed to be her income accruing in British India. No question arises in this case whether they are of a casual and non-recurring nature; (2) The moneys received by the assessee from the Nabha State during the accounting year do not constitute her personal income assessable under the Indian Income-tax Act. There then remains the third of the questions put to us :- "Whether by reason of her being the wife of the Ruling Chief of Kalsia, the assessee, who is a resident in British India, is exempt under the canons of international law from taxation under the Indian Income-tax Act in respect of her personal income accruing, arising or received in British India ?" On this question all the members of the Income-tax Tribunal were agreed upon an answer in the negative. In this conclusion I concur. The learned President of the Tribunal was of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereignty that there should be complete independence. He said :- "...It is quite consistent with sovereignty that the sovereign may in certain respects be dependent upon another Power; the control, for instance, for foreign affairs may be completely in the hands of a protecting Power, and there may be agreements or treaties which limit the powers of the sovereign even in international affairs without entailing a loss of the position of a sovereign Power. In the present case it is obvious that the Sultan of Kelantan is to a great extent in the hands of His Majestys Government......" It is also clear from the Duff Development Company case in the House of Lords that British Courts have always adopted the practice of relying on a statement made by His Majestys Government as to the Crowns relations in respect of sovereignty with a foreign Ruler and that in the face of any such statement British Courts will not in their judicial capacity inquire into and decide whether any restrictions submitted to by any such foreign Ruler are or are not such that the Ruler has ceased to be sovereign. We could have wished that the same course had been followed in the present case before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Gaekwar of Baroda and was consistent with the status of a sovereign prince, who was not capable of being sued in Courts of the suzerain power. There are other authorities in India to the same effect which have been referred to in the judgment of the learned President of the Tribunal. In the result, therefore, in my opinion the better view is that, on the facts, before us, it must be held that nothing has been shown which deprives the Ruler of Kalsia State of his position as a sovereign Ruler and, therefore, of his personal immunity from proceedings in British Indian Courts. And from this it seems to me to follow that he must necessarily be immune from taxation in British India under an Act, which no Court in British India has the power to enforce against him. But I am at the same time respectfully inclined to agree with the learned member of the Tribunal who observed that sovereignty in this sense may well be something less than the retention-if, indeed, he ever had it-of an international personality in public international law in the fullest sense. No case, with one possible exception, has been brought to our notice in which there has ever been put forward successfully a cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income accruing, arising or received in British India. MALIK, J. - This is a reference under Section 66(1) of the Indian Income-tax Act by the Income-tax Appellate Tribunal. The assessee, Rani Amrit Kunwar, is the wife of the Raja of Kalsia State. She has been living in Dehra Dun for some years and owns house property in Dehra Dun, Mussoorie and Lahore. The Income-tax Department assessed her to income-tax for the assessment years 1939-40 and 1940-41 on the basis of her income in the years 1938-39 and 1939-40. During the accounting year 1938-39 the assessee received a sum of ₹ 14,744 from the Kalsia State and a sum of ₹ 8,910 from the Nabha State. In the next year, 1939-40, the assessee received from the Kalsia State ₹ 8,000 and from the Nabha State ₹ 8,910. The Income-tax Department included these sums in the total income of the assessee and assessed her accordingly. The assessee raised certain objections, but it appears that the objections that she ultimately raised before the Appellate Tribunal. No useful purpose would be served by making any reference to the objections raised by her earlier in the proceedings till we come to the proceedings before the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It may, however, be said, bearing in mind that it is a bare generalisation and is subject to various exceptions, that income, profits and gains are divided for the purposes of ascertaining the liability of an assessee, who is "resident in British India," who is "ordinarily resident in British India" or who is "not resident in British India," into three heads according to the place where it has accrued or arisen, namely, (1) income, profits and gains which have accrued or arisen or are deemed to have accrued or arisen in British India, (2) income, profits and gains which have accrued or arisen outside British India but have been received in British India or are deemed to have been received in British India, and (3) income, profits and gains which have accrued or arisen outside British India. Whether an assessee is "resident in British India" or is "not resident in British India" or is "not ordinarily resident in British India." he is liable to have his income under the first two heads mentioned above included in his total income for the purpose of assessment, unless such income or any portion thereof is specially exempted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast head. Section 12 of the Act deals with this last head of "income from other sources." The case for the Department is that the allowances given by the Raja of Kalsia to his wife fall under this last head, that is, "income from other sources." Section 4(1) read with Section 12 of the Act makes it clear that the words "from whatever source derived" in Section 4(1) and the words "if not included under any of the preceding heads" in Section 12 were intended to extend the net as widely as possible so as to catch all possible sources of income. It must, however, be borne in mind that Section 6 of the Act does not say "any other income" but it is "income from other sources" and there must, therefore, be a "source" from which the income is derived before it can fall under the fifth head enumerated in Section 6. In the case of a voluntary allowance paid by the husband to the wife it will be difficult to class the husband as the source of the income. Their Lordships of the Judicial Committee have quoted with approval from Ingram on Income-tax that "source means not a legal concept but something which a practical m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, profits and gains" are more a matter of words than of substance and really mean the same thing. That may be so, but then in ordinary English it is more appropriate to call certain kinds of receipts as profits or gains and certain other kinds as income, for example, the fees paid to a Barrister could hardly appropriately be called profits or gains, the more appropriate term for the purpose would be "income." In Gopal Saran Narain Singh v. Commissioner of Income-tax, it was argued that the word "income" should be construed as including only such income as constitutes or provides a profit or gain to the recipient, i.e., that the word "income" is in some way limited by its association with the words "profits" and "gains." Their Lordships, however, held that they agreed with the opinion expressed by the learned Chief Justice of the Patna High Court that word "income" was not limited by the words "profits" and "gains" and anything which could properly be described as income was taxable under the Act unless expressly exempted. Section 4(2) of the Indian Income-tax Act engrafts an exception to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay tax for moneys which he has received in British India. To my mind, Section 4(2) is an extension of that principle and what is attempted is, to tax such income when it is not received by the husband in British India but is received by his wife in the shape of remittances received in British India. The provision that such remittances should not be out of any part of his income which is included in his total income is obviously for the purpose of avoiding double taxation. I can find no reason why the remittances received by the wife should be taxable only when the remittances are made from other income, but the husband has some income which can be included in his total income and not when he has no income which can be included in his total income. All that the section requires is that the remittances should be from income not included in his total income and obviously in the latter case the remittances must be from income which is not included in his total income. There can be no doubt that no part of the money out of which these remittances have been made was included or could be included in the total income of the Raja for the purposes of the Indian Income-tax Act and it is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international law on the basis of his being sovereign. I have already held that Section 4, sub-section (2), is an extension of this principle and for the purposes of that section the amount is taxable, even though it is not the husband but the wife who has received it. I am, therefore, of the opinion that the amounts received by the assessee from the Raja of Kalsia are taxable as income which must be deemed to have accrued to the assessee in British India under Section 4(2) of the Indian Income-tax Act and that no question as to whether they are casual and non-recurring arises. Next arises the question of the allowance made by the Nabha State. The findings of fact recorded by the Tribunal are that there is a practice of making allowances by the Ruling Prince to his sister and to his other dependents, but this depends entirely on his will and pleasure, that is, if the Maharaja of Nabha at any time chose to stop the allowance, the assessee would have no right to claim it from him either in the British Courts or in his own Courts. Learned counsel has argued that the allowances made to the assessee were not income at all, and he has relied on Halsburys Laws of England, Hailsham Editio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruing the Indian Act. But on some fundamental concepts reference may be to some extent usefully made to English decisions, in particular as to the meaning of the word income". In view of this observation it may have been necessary to consider what was the meaning of the word "income" under the English Statute. Their Lordships have, however, themselves attempted to define the word "income", it did not so because there could be no definition which would be entirely satisfactory. What is taxable income of an assessee would differ in each case according to the facts and circumstances of that case. This may be illustrated by the following example which is given in one of the decisions of their Lordships of the Judicial Committee. A person who owns certain shares wants to sell them with the object of either obtaining cash or with the object of investing the money in fresh securities. He sells those shares and gates money for them. The shares are sold at a premium. The difference between the purchase price and the sale price would not ordinarily be taxable as it is an augmentation of the capital. If, on the other hand, aperson, who is a regular share dealer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases, it must be remembered, were cases where the question was whether the money received by the assessee, was in the nature of a capital receipt or was taxable income. The latest case is the case in Kamakshya Narain Singh v. Commissioner of Income-tax Bihar and Orissa, where the question was whether the royalties realised from lessees of coal mines under certain leases were in the nature of capital payments or were taxable income. Their Lordships held, relying on the terms of the lease, that the sources of the "the royalties may properly be deemed to be the lessees covenants to pay them, and hence royalties fall under other sources."Their Lordships, while dealing with the meaning of the word "income", observed :- "Income, it is true, is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation. Its definition has, however, been approached in recent decisions of this Board. The first to which their Lordships think it is desirable to refer is Commissioner of Income-tax, Bengal v. Shaw Wallace & Co." Their Lordships then quoted the definition given in Commissioner of Income-tax, Benga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and applicable solely to religious or charitable purposes is not taxable which implies that if it is not applied solely to religious or charitable purposes it would probably be taxed. Further, any annuity or even a gratuity paid to a servant is taxable under the head "salaries". It is true that in construing the Income-tax Act is not always safe to deduce from an exemption that the contrary must be taxable income. There are certain classes of income made expressly taxable and certain exemptions separately mentioned to override or overrule the decisions of the courts which did not find favour with the legislature, or it may be that they are expressly mentioned due to the over-anxiety of the draftsman to make the point clear beyond all possibility of doubt. Referring to the argument that Section 4(3)(v) suggests that the word "income" in the Act may have a wider significance than would ordinarily be attributed to it, their Lordships of the Judicial Committee have expressed the view, in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co., that they do not think that any of the sums mentioned in that clause, apart from their exemption, could be regarded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Nabha to the assessee, depending as they did on the pleasure of the donor, were "casual" payments. It is, however, argued on behalf of the Department that the fact that the payment has been regularly made during the last six years before the year of assessment showed that it was not of a non-recurring nature and Section 4(3)(vii) requires that for the purpose of exemption not only the payment should be "casual" but that it should be of a "non-recurring nature". In none of the cases cited before us have the words "non-recurring nature" been considered by the Judicial Committee or by any Court in India. As I understand those words, they mean not that the payment has, as a matter of fact, recurred but that it was bound to recur. If the Maharaja of Nabha had in any one year made a present of a sum of money to his sister, it is conceded that it would not be taxable income as it would be of a casual and non-recurring nature. If it is made a second time, it is said that that too may be casual and non-recurring, but if the payment is repeated a third or a fourth or fifth time, from the fact of the repetition itself it is said the Courts maybe abl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the Raja of Kalsia and the Income-tax Department is to be regulated by considerations of international law. The point was argued before us at great length, though in the view that I have taken it is not necessary to express any definite opinion on the point. I am of the opinion that even if the Raja of Kalsia was an independent sovereign and exempt from payment of income-tax in British India, his wife was not so exempt. The Central Government has been given authority by Section 60 of the Indian Income-tax Act to make exemption, reduction in rate or other modification, in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any class of persons. Such power is to be exercised by a notification in the Official Gazette. It is admitted that no such notification in favour of the Ruling Chiefs has been made by the Government of India. It is, however, argued that on the well recognised principle of international law, par in parem non habet imperium, a foreign sovereign is not entitled to be taxed by the Government of another country, and in support of that principle learned counsel has cited before us Oppenheims International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oppenheim has drawn a distinction between a vassal State and a protected State and is of opinion that the Indian States are all vassal States. The question of the liability to pay income-tax on the income of property situate in British India and owned by an Indian State arose in Bishwanath Singh v. Commissioner of Income-tax, Central and United Provinces. Mr. Pathak on behalf of the assessee has attempted to distinguish that case on the ground that the status of the Raja of Kalsia was different from the status of the Maharaja of Benares. According to him the sovereign rights of the Maharaja of Benares flowed from an Instrument of Transfer, dated 1st April, 1911 (see Aitchisons Treaties, Engagements and Sanads, volume 2, page 89), and with respect to territories which were not included in the Benares State it was provided that "within the other estates now in possession of His Highness Sir Prabhu Narayan Singh, G. C. I.E., which are outside the State of Benares, he shall continue to have the status and responsibilities of a land-holder under the ordinary law and within the pargana of Kaswar Raja he shall assume that status and those responsibilities." It is argued that wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Cis-Sutlej States and guaranteed that the Chiefs who accepted the British protection shall remain in the exercise of the same rights and authority within their own possession which they enjoyed before they were taken under British protection. After some hesitation Jodh Singh decided to follow the example of the others and was also assured of protection, and treaties guaranteeing protection against Ranjit Singh were entered into with nine States including Nabha, Patiala, Kalsia, Alwar, etc. : see Lee Warners Native states of India, 1910 edition, page 55. The treaty is set out in Aitchisons Treaties, volume 8, at pages 186 and 294. The Chief of the Kalsia received an adoption Sanad in 1862 and the State was transferred to the political charges of the Commissioner of Ambala Division in the year 1912. Before that it was under the political superintendence of the Commissioner of the Delhi Division. In 1916 the hereditary title of Raja was conferred, though the Raja is not any salute of guns or to the title of His Highness. To my mind, the difference which is attempted to drawn by learned counsel for the assessee between an Indian State, the connections between which and the Bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vereignty, does not cease to rank among the sovereigns who acknowledge no other law than the law of nations." It will be noticed that no distinction is drawn between a State which was conquered and a State which acknowledged its weakness and entered in to a treaty and parted with certain of its sovereignty rights. It was held in that case that the Maharaja of Baroda was a sovereign Prince and could not be sued in a British Court. The matter arose before the House of Lords in Duff Development Co., Ltd. v. Government of Kelantan. The position of the State of Kelantan was analogous to the position of the Indian States, yet their Lordships held that :- "A government recognised as sovereign by His Majestys Government is not the less exempt from the jurisdiction of our Courts because it has agreed to restrictions on the exercise of its sovereign rights." The same point again arose in Jwala Prasad v. Rana of Dholpur; Sirdar Gurdyal Singh v. Raja of Faridkot; Movstak Rae v. Lady Randheer Singh of Kapurthala State; Lachmi Narain v. Raja Partab Singh of Rampur; Ladkuverbai v. Ghoel Shri Sarangji Pratabsangji; the case relating to the Thakur of Palitana, Phumanlal v. Raja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical purposes of a Ruling Chief is not liable to pay income-tax on any remuneration received by him in such capacity. That sub-section, to my mind, recognises in part the rule of public international law that an ambassador of a foreign State is not liable to pay tax in the country where he may be posted by his Government. Further under Section 49A of the Act, which was added by the Indian Income-tax (Amendment) Act (VII of 1939), the Central Government may, by notification in the official Gazette, make provision for the granting of relief in respect of income on which has been paid both income-tax (including super-tax) under this Act and Dominion income-tax, and "Dominion income-tax" has been defined to include any income-tax or super-tax charged under any law in force in any Indian State. These provisions in the Indian Income-tax Act incline me to the view that the legislature recognised that the territory of the Indian States was outside British India and the ruling Chief of an Indian State was a sovereign Prince who had the same immunity from taxation as any other foreign sovereign. Learned counsel has drawn our attention to Section 47 of the Government of India Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt) Act (XXIII of 1941) a new clause (c) was added to section 14(2) which reads as follows :- "The tax shall not be payable by an assessee - in respect of any income, profits or gains accruing or arising to him within an Indian State, unless such income, profits or gains are received or deemed to be received in or are brought into British India in the previous year by or on behalf of the assessee, or are assessable under Section 42." This exemption did not come into force before 1st April, 1944, and before this amendment therefore the Ruling Chief resident in British India could easily have been taxed on the total income of his State unless it could be said that he was exempted by reason of the fact that he was a sovereign Prince. Learned counsel for the department has relied on Section 155 of the Government of India Act, 1935, and has urged that it presupposes the liability of the Indian States to taxation, but that section only relates to Federal taxes and it refers to only those States which had decided to come within the Federation under Section 5 of the Act. The portion of the Act dealing with Federation has not yet come into effect. The argument that the wife of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as unnecessary to have the Government Trading Taxation Act of 1926 on the statute. Dr. Asthana on behalf of the department has argued that the government Trading Taxation Act was intended to include not only the Indian States but any part of His Majestys dominions exclusive of British India. That may be so, but there can be no doubt that the Government Trading Taxation Act of 1926 was intended to include not only His Majestys dominions but also the Government of the Indian States trading in British India and that, to my mind, is some indication that the Ruling Chiefs of Indian States, as such, are not liable to taxation under the Indian Income-tax Act. However, in the view that I have taken that the wife of an Indian Chief is not entitled to the same exemption, it is not necessary for me to go into the question of the liability of the Ruling Chiefs any further. My answer to the question, therefore, is in the negative. IQBAL AHMAD, C.J. - I have had the advantage of reading the judgment of my brothers Braund and Malik and I agree with the conclusions arrived at by them. The answer to the questions referred should, in my opinion, be as formulated by my brother Braund. BY THE COURT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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