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1965 (10) TMI 23 - SC - Income TaxWhether under international law the assessee is immune from taxation in respect of the assessment year 1950-51? Whether, having regard to the said covenant dated January 25, 1950, he, was not liable to tax under the Indian Income-tax Act, 1922? Whether the interest received by the assessee in respect of 3 per cent. Nizam Government income-tax free loan 1360-70 Fasli of the face value of ₹ 1,45,200, the 2 1/2 per cent. Nizam Government Income-tax free development loan 1364-69 Fasli of the face value of ₹ 1.05 crores, the 2 1/2 per cent. Nizam Government loan 1363-73 Fasli of the face value of ₹ 200, and the 2-3/4 per cent. Hyderabad Government loan 1384 Fasli of the face value of ₹ 8 crores was exempt from tax? Whether, on the facts of the case, the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the assessee under the trust created by him known as ' the family trust ' was exempt from payment of tax in his bands ? Whether the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the assessee under the trust created by him known as ' the miscellaneous trust ', was exempt from payment of tax in his hands ? " Whether, on the facts of the case, the interest at ₹ 1,97,180 on the Government of India securities should be regarded as having accrued in the Hyderabad State and therefore chargeable at the rate obtaining under the Hyderabad Income-tax Act? Held that:- Hyderabad State did not acquire international personality under the international law and so its Ruler could not rely upon international law for claiming immunity from taxation of his personal properties The High Court went wrong in holding that the income received by the assessee up to January 26, 1950, was not liable to tax under the Act. If the assessee was not liable to pay tax under the State law, his non-liability related only to the domain of exemption. It would be incongruous to say that a person exempted from taxation was paying a nil rate. This would be an obvious attempt to subvert the scheme of the Order to reach a desired result. We, therefore, hold, agreeing with the High Court, that the assessee was not entitled to any exemptions under the said Order. The said securities were held by the assessee as his private property and, therefore, he was clearly entitled to this exemption. We, therefore, hold, agreeing with the High Court, that the assessee was entitled to the exemption under the said item in respect of the said securities. The income from the said two trusts did not earn the exemption under item 8 of the said notification, thus in regard to the interest receivable by the assessee from the said securities and loans, he was not liable to pay income-tax, but he was not exempt from payment of super-tax under item 8 of the said notification. The said interest accrued only in British India. Though the assessee raised the question of the correctness of the view expressed by the High Court in the special leave petition, at the time of arguments, the learned counsel for the assessee did not press this point. Therefore, the opinion expressed by the High Court in this regard stands.
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