TMI Blog1942 (2) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Commissioner there was a reference to this Court and this very Bench decided the reference, which is reported as Maharaja of Benares v. Commissioner of Income-tax [1938] 6 ITR 217. The contention advanced then on behalf of His Highness was that the entire proceedings taken by the income-tax authorities in the case were direct violation of the mandatory procedure prescribed by the Act inasmuch as the income-tax authorities had not, before proceeding to assessment, fixed upon an agent of the non-resident principal under Section 42 of the Act. We acceded to the contention advanced on behalf of His Highness and held that, granting that the assessee was a non-resident, the Income-tax Officer was precluded by certain provisions of the Indian Income-tax Act from serving a notice on him without appointing an agent within the meaning of Section 43 of the Act. On receipt of a copy of our judgment the Commissioner of Income-tax forwarded it to the Assistant Commissioner, and he on the 14th of February 1938 set aside the assessment in connection with the assessment year 1936-37, regarding which an appeal had been filed earlier before him, and directed a fresh assessment to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax, who dismissed it on the 22nd of September 1938. The assessee Kunwar Bishwanath Singh then applied to the Commissioner for reference to this Court under Section 66(2) of the Act. Five questions of law were formulated in the application which are mentioned at page 11 of the printed statement of the case. Questions Nos. 2 and 3 were not referred to us and a separate application under Section 66(3) was filed before us and it was prayed that we should require the Commissioner to state a case on those two questions as well, but we have rejected that application. The Commissioner, however, referred questions Nos. 1, 4 and 5 with some verbal alterations to us. The first question which the assessee wanted to bereferred to uswas : Whether the notice dated the 23rd February 1938 alleged to have been issued under Section 34 of the Indian Income-tax Act was invalid . When the matter was before the Assistant Commissioner, a plea was taken there to the effect that the notice purporting to have been issued under Section 22 and Section 34 was invalid, illegal and ultra vires. These two pleas challenged the validity of the notices on all possible grounds on which it co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued under Section 22 read with Section 34 was invalid, illegal and ultra vires, and when he proceeded to decide that plea he thought that the learned counsel for the assessee meant by that plea that the Income-tax Officer had failed to make a preliminary enquiry as laid down by their Lordships of the High Court of Judicature at Calcutta in the matter of Messrs. Mahaliram Ramjidas' s case (supra)and it was only on that ground that the Assistant Commissioner repelled the general plea of the assessee and he was of the opinion that the income altogether escaped assessment . Mr. Banerji on behalf of of the assessee has contended that no income escaped assessment, and it is on that ground also that the notice is being attacked. We think we are not attempting to do anything which might, even within the scope of the observations of their Lordships of the Privy Council, be considered to be irregular, but we are answering the question referred to us by the learned Commissioner without the imposition of the limitation contained in the phrase in view of the decision of the Calcutta High Court in the case of Messrs. Mahaliram Ramjidas' s case (supra) . The question that we propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities and the income of Burn Co., was omitted. The income-tax authorities then proceeded to assess the income of Burn Co., without taking any action under Section 34, merely treating the assessment as not having been completed and proceeded therefore under Section 23. When the assessment had been made on Burn Co., they appealed to the Assistant Commissiner, who rejected the appeal and confirmed the assessment. They then asked for a reference under Section 66 (2). The High Court held that the Income-tax Officer could proceed under Section 23( 1) and it was not correct that the income had escaped assessment and that therefore the only remedy left to the income-tax authorities was to proceed under Section 34. The assessee, Burn Co., then appealed to their Lordships of the Privy Council and the passage to which we have referred to above summarizes the argument of the assessee and the view of their Lordships.Their Lordships say:- The appellants, however, submit that this is a case of income escaping assessment within the meaning of Section 34. Assessment, they argue, is a definite act, indeed the most critical act in the process of taxation. If an assessment is not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there was no necessity to issue a notice under Section 34.They further observed: It may be that, if no notice, calling for a return under Section 22, is issued within the tax year, then Section 34 provides the only means available to the Crown of remedying the omission, but that is a different matter . Learned counsel for the Department has argued that in the present case no notice had been issued to the assessee, but a notice had been issued to the Maharaja, who was not the assessee and on whom notice could not be issued by reason of Sections 42 and 43 of the Indian Income-tax Act and the return that was filed by the late Maharaja was not a due return, that the notice was invalid and the assessment, if any, was invalid-which assessment was of course set aside by the Assistant Commissioner-and the position, therefore, is that there had been no notice, no return and no assessment, and the case comes within the observations of their Lordships when they say that if no notice calling for a return under Section 22 is issued within the tax year, then Section 34 provides the only means available to the Crown of remedying the omission . It was argued on behalf of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal, it would seem to follow that the non-resident principal is divested of that character.................... It appears to us that in the case of a person residing out of British India who has property or business connections in British India, the Income-tax authorities are not competent to serve notices upon him; such notices must be served upon his agent in British India or upon such person as may deemed to be his agent within the meaning of Section 43 and who will be treated as such. The proviso to Section 42 does not, to our minds, militate against the view that we have taken and does not support the opinion of the Commissioner that 'it is open to the Income-tax Officer to address notices direct to the assessee even though he be a non-resident' . We differed in this respect from the view taken by the learned Judges of the Madras High Court in Chief Commissioner of Income-tax, Madras v. Bhanjee Ramjee Co. [1921] 1 ITR. 147. At the instance of His Highness and invited by him, we took the view that the notice issued to him was wholly illegal and it comes with ill grace from the mouth of his agent that the former notice and the former proceedings which cul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us on the 4th of October 1940 we passed the following order:- One of the questions that has been referred to us in this case by the learned Commissioner of Income-tax, Central and United Provinces, for our decision is whether the fact that the late His Highness the Maharaja of Benares was a ruling Chief of an Indian State exempted him from taxation under the Act in respect of income from property owned by him in British India, and learned counsel for the assessee at the very threshold of the discussion on this point drew our attention to the case of Duff Development Co. v. Kelantan Government [1924] LRAC. 797, and pointed out that in matters like these there was a well established practice and we should follow the same. In that case Viscount Cave, after stating the facts, observed as follows:- First, it was argued that the Government of Kelantan was not an independent sovereign State, so as to be entitled by international law to the immunity against legal process which was denned in the Parlement Beige 5 P.D. 197. It has for some time been the practice of our Courts, when such a question is raised, to take judicial notice of the sovereignty of a State, and for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 311 of the Government of India Act, 1935. But, though His late Highness was thus not independent, His Majesty's Government accorded to him the status of a sovereign Ruler under the suzerainty of His Majesty exercised through His Majesty's Representative for the exercise of the functions of the Crown in its relations with Indian States. As such he possessed various attributes of sovereignty, including internal sovereignty, which was not derived from British law but was inherent in the Ruler; subject, however to the suzerainty of His Majesty and to the exercise by his Majesty's Representative of such rights, authority and jurisdiction as had by treaty, grant, usage, sufferance, or otherwise, passed to and were exercisable by His Majesty. These included the conduct of international relations, the exercise of jurisdiction over Europeans and Americans, interference to settle disputes as to succession to the State, the suppression of gross misrule in the State, and the regulation of armaments and the strength of military forces. The late Maharaja was, in regard to proceedings in the civil courts in India, covered by the provisions of Sections 85 and 86 of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be assessed belongs personally to His Highness or is a part of the State. It is conceded on behalf of the Department that income derived from properties owned by the State would be exempt, but it is said that in the present case the income was derived by His Highness in his personal capacity. We shall, therefore, answer the question referred to us on the assumption that the property which yields income in the present case is property belonging to the Maharaja in his personal capacity and is not property belonging to the State. Mr. Banerji then proceeded with his argument on the main question and drew our attention to Maxwell's Interpretation of Statutes, seventh edition, page 127, where the learned author says:- Under the same general presumption that the Legislature does not intend to exceed its jurisdiction, every statute is to be so interpreted and applied as far as its language admits, as not to be inconsistent with the comity of nations, or with the established rules of international law. If, therefore, it designs to effectuate any such object, it must express its intention with irresistible clearness to induce a Court to believe that it entertained it, for if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use . Oppenheim in his book on International Law, Vol. I, fifth edition, at page 590, says:- He (meaning a sovereign) must be granted so-called exterritoriality conformably with the principle, par in parem non habet imperium, according to which one sovereign cannot have any power over another sovereign. He must, therefore, in every point be exempt from taxation, rating and every fiscal regulation and likewise from civil jurisdiction, except when he himself is the plaintiff . Later on where the various privileges of diplomatic envoys are discussed, at page 626 the fifth privilege of an envoy in reference to his exterritoriality is said to be exemption from taxes and the like. Our attention is also drawn to the case of the Parlement Beige 5 PD 197where it was held that as a consequence of the absolute independence of every sovereign authority and of the international comity which induces very sovereign State to respect the independence of every other soverign State, each state declines to exercise by means of any of its Courts any of its territorial jurisdiction over the person of any sovereign or ambassador, or over the public property of any state which is destined to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, relations, the exercise of jurisdiction over Europeans and Americans, interference to settle disputes as to succession to the state, the suppression of gross misrule in the state, and the regulation of armaments and the strength of military forces, and it was specifically recognized that His late Highness was not independent . The exercise of rights mentioned above by the suzerain state is inconsistent with the idea of sovereignty in the state over which the suzerainty is exercised. As Oppenheim at page 165 in his book says: Suzerainty is a term which was originally used for the relation between the feudal lord and his vassal; the lord was said to be the suzerain of the vassal. But although such suzerainty has disappeared, modern suzerainty involves only a few rights of the suzerain State over the vassal State and such rights, are principally international rights it being a kind of international guardianship. A distinction is drawn by Oppenheim between vassal States and protected States and Oppenheim says that when a weak state surrenders itself by treaty into the protection of a strong and mighty State in such a way that it transfers the management of all its mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uler as denned in subsection (1) of Section 311 of the Government of India Act, 1935, and although Federation has not come in yet, some indication of the status and rights of His Highness is afforded from Section 155 of the Government of India Act. Sub-section (1), clause (b) , provides that a Ruler shall not be exempt from any Federal taxation in respect of any lands, buildings or income being his personal property or personal income. Under Section 60 of the Indian Income-tax Act the Central Government may, by notification in the Gazette of India, make an 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, and the Finance Department Notification No. 878-F (Income-tax), dated the 21st of the March 1932, as amended or added to from time to time, does not exempt the income derived by Ruling Chiefs and Princes of India from their private property. Nothing would have been easier than to make a provision to that effect just as the interest on Government securities held by, or on behalf of by, Ruling Chiefs and Princes of India as their private proper ..... X X X X Extracts X X X X X X X X Extracts X X X X
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