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TMI Blog1971 (10) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee during the relevant accounting year in what was then British India had not been brought to tax. The assessee objected to these proceedings and contended before the Income-tax Officer that he being a Ruler of the Faridkot State was immune from taxation on every source of income. He could not, therefore, by virtue of his sovereignty, be treated as an assessee for any purpose under the Act. It was also contended that the notices under section 34 were time-barred. The Income-tax Officer, however, rejected these objections and held that, though under the international law the Rulers of Indian States were sovereigns and immune from municipal law of other countries, there was no exemption as far as the personal incomes of the Rulers are concerned from being taxed under the Act. In that view he held that notices under section 34 were valid and accordingly made an assessment. The appeal to the Appellate Assistant Commissioner was without success, though similar contentions were raised before him with particular reference to the privileges which the Rulers enjoyed under international law both in respect of civil and criminal matters. The assessee appealed against this ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighness the Nizam had lost the character of a sovereign Ruler after October 26, 1950, he is still immune from taxation in respect of the income derived by him prior to that date. Following this decision the President held that the assessee was immune from taxation under the Act on his private income. In view of this decision, on an application by the revenue under section 66(1) of the Act, the following question was referred to the High Court : " Whether, on the facts and circumstances of the case, the assessee was not liable to tax under the Indian Income-tax Act, 1922, in respect of his personal income accruing or arising to him in British India in the two assessment years 1946-47 and 1947-48 ? " The High Court relying upon the decision of this court in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, which reversed the decision of the Andhra Pradesh High Court referred to and relied upon by the President of the Tribunal, held against the assessee. It is contended before us that the facts and circumstances in the Nizam's case are totally different and the decision of this court is clearly distinguishable. The learned advocate contends that in that case the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee would be that the Indian Rulers prior to the Constitution were granted immunity from taxation, and in any case this was so in respect of the income from the property of the State as distinct from the private or personal property of the Ruler though there were observations in some of the cases that it was difficult to distinguish public or private property owned by a Ruler. At this stage we think it necessary to advert to one argument adduced on behalf of the assessee, namely, that the income-tax authorities--particularly the Income-tax Officer--had accepted the international status of the assessee and the immunity from taxation of income from public property, but only rejected the claim for such immunity in respect of income from private or personal property. It is therefore contended that the status of the assessee as an international personality is not in issue before us ; what is in issue is whether his income from private property is exempt from taxation. We do not think this contention has validity, because the High Court has specifically, while rejecting the second contention addressed on behalf of the assessee, ruled that the status of the assessee as a Ruler of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold of this argument dealing with the immunity is whether the Rulers of the erstwhile Native States as they were called enjoyed the same or similar privileges as those of the heads of States recognised as members of the family of nations in international law. It is clear from the very nature of the Native States in India that they were subject to the sovereignty and protection of the British Crown. While their relations with the Crown were governed by treaties, though initially on terms of equality, as time went by and the British Crown in India became paramount, the relationship between it and the Rulers became unequal with the result that these treaties became subject to the reservation that they could be disregarded where the interests of the British Empire or those of the subjects of the native States were involved. When the Nizam claimed equality with the British Crown, the then Viceroy Lord Reading informed him on 27th March, 1926, that " the sovereignty of the British Crown is supreme in India and, therefore, no Ruler of an Indian State can justifiably claim to negotiate with the British Government on an equal footing. " After giving a few illustrations to negative the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States had no international personality. " Nonetheless the status of these Rulers in England was recognised as being on par with other Rulers in the matter of personal immunity from being sued in their courts. In so far as British India was concerned, these were governed partly by Acts of the legislatures, particularly the provisions contained in the Civil Procedure Code and by notifications of the executive under taxation laws as well as by executive or administrative instructions relating to their privileges. It is, therefore, apparent that in so far as this country is concerned the immunity from legal proceedings which is recognised in the common law has been the subject-matter of legislation under which the ruling princes of India, notwithstanding that they were not recognised as international personalities were however accorded this immunity. Section 433 of the Code of Civil Procedure of 1882 and subsequently sections 84 to 87 of the Civil Procedure Code of 1908 deal with these matters. Gajendragadkar C.J. in Mirza Ali Akbar Kashani v. United Arab Republic, cited with approval the observations of Strachey J. in Chandulal Khushalji v. Awad Bin Umar Sultan Nawaz Jung Bahadur, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our view, be under the relevant taxing Acts. The learned advocate for the assessee, however, points out that if the Rulers of Indian States were not exempted from tax apart from the statute there was no need to make a provision in section 3 of the Bengal Agricultural Income-tax Act, IV of 1944, specifically making every Ruler of an Indian State liable to agricultural income-tax. On the other hand, it would appear to us that this provision would itself militate against the assumption of immunity from taxation of the property of the Rulers and at any rate the legislature may have been acting ex abundanti cautela. It may, however, be noticed that in so far as the Income-tax Act is concerned exemption of the income of the Rulers derived from Central Government securities was specifically given under section 60 of the Act which implies that the Rulers were not exempt from other provisions of law. This position also finds support from a case cited by the learned author on the " Immunity from taxation on foreign owned property " in the American Journal of International Law XLI, at page 239, where the Supreme Court of Ceylon in Superintendent of the Government Soap Factory, Bangalore v. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat question did not directly arise in that case because the Nizam was being assessed in respect of assessment years 1950-51 and 1951-52, when he was not a ruling prince. This court specifically dealt with this matter as can be seen from the observations of Subba Rao J., as he then was, at page 671 : " International law vis-a-vis the liability of a sovereign to taxation in respect of his private property is in a process of evolution. It has not yet become crystallized. " After referring to Halsbury's Laws of England, 3rd edition, volume 20, page 589, and Oppenheim's International Law, 8th edition, volume I, page 759, and the article on immunity from taxation of foreign State-owned property in the Americal Journal of International Law, to which we have already adverted, he observed " that the question is not free from difficulty and that it requires serious consideration when it directly arises for decision ". Assuming for the purposes of these appeals that a foreign sovereign who has acquired an international personality has such an immunity from taxation, he proceeded to examine the question whether His Exalted Highness the Nizam had ever acquired international personality. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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