TaxTMI 
TaxTMI 
1966 (2) TMI 97
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....e Legislative Assembly providing for the charging of income-tax for any year at a certain rate, income-tax at that rate was to be charged for that year in respect of the total income of every individual; but by Section 3-A the Act was not to "apply to His Highness, Her Highness, Heir-Apparent and his wife". By Section 4(1) the total income was to include all income, profits and gains received or deemed to be received or accrued or arisen in the State and all income, profits and gains accrued or arisen to a person resident in the State, it accrued or arisen during the previous year or brought into or received in the State during the previous year. Under the Government of India Act, 1935, the Rampur State like any other State was under the suzerainty of His Majesty the King of Great Britain. The paramountcy of the British Crown was based on Treaties, Engagements, Sanads as supplemented by usage and sufferance and decisions of the Government of India and the Secretary of State embodied in political practice. For external purposes the State territory and the State subjects were, for all practical purposes, in the same position as British territory and British subjects. The St....
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.... enjoy the same personal rights, privileges, immunities, dignities and titles which he would have enjoyed had this agreement not been made". By Article 3 the Nawab became entitled to receive for his life time from the revenues of the State a certain sum annually for his privy purse "free of all taxes". By Article 4 he remained full owner of all private properties belonging to him. By Article 5 all members of his family including his consorts and children became entitled to "all the personal privileges, dignities and titles enjoyed by them". Administration over the territory of the Rampur State was taken over by the Government of India on 1-7-1949 in accordance with the agreement. The Taxation Laws (Extension to Merged States and Amendment) Act No. 67 of 1949 received the assent of the Governor-General on 31-12-1949. By Section 3 of it the Indian Income-tax Act was extended to the merged States including the Rampur State with effect from 1-4-1949. By Section 7 the Rampur Income-tax Act ceased to have effect. Under the Indian Income-tax Act the Nawab would be liable to tax on the income received or accrued in India including the territory of the former Rampu....
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....his income for the assessment years 1951-52 and 1952-53 and this Court had refused to decide the claim of immunity on the ground that it arose out of the merger agreement and its jurisdiction to decide it was barred by Article 363 of the Constitution. The Nawab claimed before the Tribunal that on the same reasoning it should not refer the question. The Tribunal overruled his objection and referred it. 4. in this Court a preliminary objection was raised on behalf of the Nawab against our hearing the reference and answering the question on the ground that our jurisdiction to do so is barred by Article 363. There is no substance in the contention and it must be overruled. Sri Jagdish Swamp attempted to draw support for his preliminary objection from the decision of V. Bhargava and B. Upadhya, JJ., rejecting the Nawab's petitions for certiorari against the assessment proceedings for the assessment years 1931-52 and 1952-53. The learned Judges rejected the petitions on the ground that they were barred by the Article from considering, and giving effect to, the merger agreement. It does not follow from the rejection of the petitions that our jurisdiction to answer the question referr....
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....fore the Tribunal. There was no controversy before the Tribunal about the existence of the facts on the basis of which the immunity prior to the merger agreement was claimed but the interpretation of the law applicable to the facts and the effect of applying to them the law that was applicable were matters of contest before the Tribunal. The Department thereby denied that the Nawab possessed the immunity before the merger agreement. Then it further denied that the law applicable to the immunity, even if it existed, was what was asserted on the Nawab's behalf and that its effect was to continue it after the merger agreement and to render him exempt from taxation on any part of his income. The Nawab had to establish both that he possessed the immunity and that if was continued by virtue of the merger agreement so as to prevent his being taxed for the assessment year in question; if he failed to prove either he was to be taxed. The question referred by the Tribunal is about the Nawab's income being immune from taxation; though only one question is framed it really consists of the two questions, (1) whether he possessed the immunity before the merger agreement, and (2) whether....
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....It had also to decide whether the facts on the basis of which the immunity was claimed existed. It was a question of fact which could not be, and has not been, referred to us. The controversy between the Nawab and the Department cannot be decided unless that question also is decided. This confirms that the dispute between the Nawab and the Department has not been referred to us. The dispute still continues before the Tribunal and it has only sought our advice on the two questions of law. One of the questions that we have to answer relates to the merger agreement but what is barred by Article 363 is not answering a question relating to a merger agreement but exercising jurisdiction in a dispute arising out of it. The claim made by the Nawab that by virtue of the merger agreement the immunity possessed by him previously is being continued and he is immune from taxation is a dispute arising out of the merger agreement and the Tribunal is exercising jurisdiction over it; but it is retaining the whole of the jurisdiction and only seeks our advice as to the effect of the operation of the law on certain facts. It has not transferred the dispute to us. It was argued that "jurisdiction....
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....ng upon the claim. If the Tribunal is not a Court, it was not debarred and had full Jurisdiction to adjudicate upon the claim (as it did). It had also full jurisdiction to refer any question of law arising out of the adjudication to this Court under Section 66(1). It would have been anomalous if it had the jurisdiction all right to adjudicate upon the claim and to refer it to this Court's jurisdiction to answer it were barred by the Article. Under Section 66(5) the Tribunal on receipt of an answer to the question from this Court would be obliged to decide the case conformably to it. The object behind the provisions of Section 66 is that on questions of law arising before the Tribunal it should be governed by the answers given to them by the High Court. This object would be completely defeated, and the provisions rendered useless, if it were held that a question of law arising out of a merger agreement is within the sole jurisdiction of the Tribunal and that the High Court has no jurisdiction to answer it. There was no justification for the Constitution to distinguish between a question of law arising out of a merger agreement and all other questions of law and conferring exclu....
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....ction in regard to the dispute. Because the question must be answered before the dispute is decided answering it does not itself amount to deciding the dispute. 8. A Court is an authority created under a statute as a Court whereas a tribunal is not created as a Court though it is created for deciding certain matters. All Courts are tribunals but all tribunals are not Courts. Article 227 of the Constitution laying down that "every High Court shall have superintendence over all Courts and tribunals" suggests that "Court" is not synonimous with "tribunal". There are provisions in the Constitution, such as Articles 228 and 235, which are expressly applicable to Courts and do not seem to be applicable to tribunals. J. F. Garner in his "Administrative Law" pp. 155, etc., writes that a Court is normally a body which has historically and formally been so regarded whereas a tribunal has some special statutory origin, a Court is presided over by the ordinary Judges whereas a President of a tribunal is not necessarily a lawyer and often is not a Judge and that the accepted rules of evidence govern proceedings before a Court but not proceedings before a....
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.... a Court and was, therefore, not debarred by the Article from deciding the claim of the Nawab based on the merger agreement. That decision of the Tribunal, right or wrong, is binding upon the Department because it failed to get Hie question regarding its being debarred from deciding the Nawab's claim referred to this Court. If the Department's case was that it is a Court, whether it was debarred from deciding the Nawab's claim or not should have been the first question to be got referred. The Department by not getting it referred submitted to the decision of the Tribunal and is now estopped from contending that it was wrong. 9. The Tribunal, not being a Court, could decide the claim by considering, and giving effect to, the merger agreement. It would be meaningless for this Court, to say that it cannot consider and give effect to the merger agreement when answering it. If the Tribunal could consider and give effect to it but not this Court when answering the question, the Tribunal would be bound to maintain its order on receiving the Court's answer given without considering, and giving effect to it. The Tribunal has to decide the dispute after adjudicating upon the....
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....olved in the question referred to us; if we have no jurisdiction to answer the question we have no jurisdiction to decide whether the immunity existed or not. It is illogical to proceed to decide a matter involved in the question referred to us in order to decide whether we have jurisdiction over the question or not, One cannot proceed to exercise jurisdiction without deciding that one has the jurisdiction or for the purpose of deciding whether one has it or not. One cannot lose jurisdiction on the basis of a rinding reached on a certain matter in the exercise of the same jurisdiction; jurisdiction cannot be lost simply by being exercised. Further, if we have no jurisdiction to answer the question any finding given by us that the Nawab did not possess the immunity before the merger agreement would itself be a finding without jurisdiction and of no validity. We ourselves would be debarred from giving effect to it by giving a further finding that we have no jurisdiction to answer the question referred to us. The existence of the immunity prior to the merger agreement is not a condition precedent to our exercising the jurisdiction over the question; it is not that we have jurisdictio....
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....hole question referred to us, will arise. Tf the immunity did not exist the question referred to us must be answered in the negative. Sri Gulati referred us to State of Bihar v. Sir Kameshwar Singh, AIR 1952 SC 252 and Jagannath Behera v. Harihar Singh, AIR 1958 SC 239. The Article did not come in for discussion in the former case. In the latter case an ex-Ruler of a native State was the defendant, who himself set up the merge)- agreement executed between him and the Dominion of India and pleaded the bar of the Article. The suit was brought against him for possession by tenants whom he had dispossessed from the land which he claimed to be his personal property. The dispossession was against the law in force in the State but he claimed that by virtue of the agreement he had the right to eject the plaintiffs. The Supreme Court held that he could not rely upon the Article to prevent the jurisdiction of the civil court over the suit brought by the plaintiffs against him. The plaintiffs' suit did not raise any dispute arising out of the agreement; it was based on the illegality of their dispossession by the defendants. It was the defence that was based upon the agreement and could ....
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....he court's jurisdiction in them was barred they could not succeed in their claims. in the case of Sri Sudhansu Shekhar Singh Deo, (1961) 1 SCR 779: (AIR 1961 SC 196) the Supreme Court observed at p. 786 (of SCR): (at p. 199 of AIR) that "if, despite the recommendation that due regard shall be had to the guarantee .....given under the. . . .agreement, the Parliament or the Legislature of a State makes laws inconsistent with the personal rights, privileges and dignities of the Ruler. .... .the exercise of the legislative authority cannot, relying upon the agreement. ... .be questioned in any court, and that is so expressly provided by Article 363". it rejected the contention of the ex-Ruler that he was not seeking to enforce the terms of the agreement by stating that "in truth, the appellant sought by his petitions under Article 226. . . .to enforce the terms of. . . .the merger agreement" (see at p. 786) (of SCR): (at p. 199 of AIR). 14. So far I have dealt with the first part of Article 363. The second part of the Article is to the effect that no court shall have jurisdiction in any dispute in respect of any obligation arising out of any provision of the Co....
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....debarred from considering whether the immunity has been continued by the Parliament. 16. Coming to the merits, I take up first the question whether the Nawab had the immunity from taxation prior to the merger agreement. This question arises because of Article 2 of the merger agreement continuing to him the personal rights, privileges, immunities etc. It was contended by Sri Jagdish Swarup that the adjective "personal" governs the noun "rights" immediately following it and not the nouns "privileges", "immunities", "dignities" and "titles" which follow subsequently, Sri Gulati contended on the other hand that the adjective governs all the nouns. Dignities and titles are more of a personal nature than rights, privileges and immunities. I do not know why the parties chose to confine the guarantee to personal rights and not the personal privileges, personal immunities, personal dignities and personal titles. There was no point in not having the guarantee in respect of rights other than personal when they were having it in respect of privileges, immunities, dignities and titles other than personal privileges, immunites etc. Acc....
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....rved at p. 835 that "the word 'privilege', in its ordinary meaning, when used in this connection, includes an exemption from taxation" and that "words in a Constitution, as well as words in a statute, are always to be given the meaning they have in common use, unless there are very strong reasons to the contrary". Peckham, J. said in Phoenix Fire and Marine Insurance Co. v. State of Tennessee, (1896) 40 Law Ed 660 as follows: "The words 'rights, privileges and immunities' when used in a statute of the kind under consideration are certainly full and ample for the purpose of granting an exemption from taxation contained in the first or original statute, and when in granting to still another company certain rights the word 'immunities' is dropped, its absence would seem and ought to have some special significance...... The word 'immunity' expresses more clearly and definitely an intention to include therein an exemption from taxation than does either of the other words. Exemption from taxation is more accurately described as an 'immunity' than as a privilege, although it is not to be denied that the latter words may so....
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....rsonality by the family of nations. it was all through a vassal of the British Crown.......It is, therefore, clear 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 facts regarding the Nawab's claim of international personality are similar and he also must be held not to have attained international personality on the lapse of paramountcy. He, therefore, did not become immune from taxation under the Indian Income-tax Act on the income accrued to him in the Indian Dominion. In Philadelphia and Wilmington R. R. Co. v. The State of Maryland, (1850) 13 Law Ed 461, Taney, C. J. stated that "the taxing power of a Stale is never presumed to be relinquished, unless the intention to relinquish is declared in clear and unambiguous terms". This was confirmed in the cases of White Worth, (1886) 29 Law Ed 833 and Phoenix Fire and Marine Insurance Co., (1896) 40 Law Ed 660. In the latter case it was stated that the claim for exemption must be made out wholly beyond doubt because 'it is the settled doctrine of th....
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....as follows as regards an act of State. A merger agreement is a treaty entered into by a Ruler of an Independent State by which he gave up his sovereignty over his territory and vested it in the Ruler of a new State. It includes acquisition of a territory by a sovereign State for the first lime, whether by conquest or by cession. As between a sovereign and his subjects there is no such thing as an act of State and an officer must show that his action which is challenged is within the authority conferred on him by law. An altogether different consideration arises when the act of a sovereign has reference not to the rights of his subjects but to the acquisition of territories belonging to another sovereign; that is a matter between independent sovereigns and any dispute arising therefrom must be settled not in a municipal court of either State but by resort to diplomatic action or force. Clause in a treaty entered into by an independent Ruler providing for the recognition of the rights of his subjects are incapable of enforcement in the law of a new sovereign. Transactions of independent States between each other are governed by laws other than those which municipal courts administer....
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....and then take up the matter with the Political Department of the Government of India and ask for refund. He cannot ask the Tribunal to exempt him from the tax when there is no provision in the Income-tax Act exempting him and there is no law requiring the Tribunal to give effect to the merger agreement. 20. My answer to the question is in the negative. Dwivedi, J. 21. The facts of the case are already stated in the judgment of the learned Chief Justice, and I would not repeat them here. 22. At the threshold we are confronted with the preliminary objection of the assessee that Article 363 of the Constitution bars us from answering--at all events, effectively--the referred question. Sri Jagdish Swamp, counsel for the assessee, has put forth the objection in this way: the Income-tax Appellate Tribunal (hereinafter called the Tribunal) has examined and interpreted the Merger Agreement, dated 15-5-1949, between the assessee, as the former Ruler of the erstwhile State of Rampur, and the Dominion of India and has held that Article 2 of the said agreement granted the assessee immunity from taxation under the Indian Income-fax Act (hereinafter called the Act). We cannot examine and inte....
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.... in the first part the word 'controversies' is used with reference to the United States and States, the second part shows that the two words 'cases' and controversies' are interchangeable. In Sections 75 and 76 of the Australian Constitution Act these words are substituted by the word 'matters'. Both these sections have, however, adopted the words 'arising under'. In Article 363(1) the words 'cases', 'controversies' and 'matters' are substituted by the word 'dispute'; and for the words 'arising under' we have here the words 'arising out of. Further, while Articles 132, 133, 134, 135 and 136, which deal with the litigation ordinarily arising between two or more persons or between a person and the Government, use the words 'case' and 'matter', Article 131, which deals with litigation between States or between the Union Government and States, and Article 363 use the word 'dispute'. 27. Are those changes purposeful? if so, what is their purpose? According to Professor Corwin "'Controversies' are Civil actions or suits; 'cases' may be either civil or criminal&quo....
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....titution or a Federal law or a treaty only when it involves the construction of any of them; Cohens v. Virginia, (1821) 5 Law Ed. 257 (285) according to the other view, where a right or duty owes its existence to the Constitution or a Federal law or a treaty or depends on the Constitution or a Federal law or a treaty for its enforcement, whether or not the determination involves the interpretation of any of them, a case arises under the Constitution or a Federal law or a treat v. People of Puerto Rico v. Russell and Co., (1933) 77 Law Ed 903 (909); The King v. Commonwealth Court of Conciliation and Arbitration, 70 Com W. LR 141 (152-154). 31. There is, however, unanimity on one point: a case does not arise under the Constitution or a Federal law or a treaty, if it can be decided on any other basis and without reference to the Constitution or the Federal law or the treaty. McCain v. City of Des Moines, (1899) 43 Law Ed 936 (939), Miller v. Hawies, 5 Com-W. LR 89. Here, the Supreme Court has held that a dispute arises out of a treaty, agreement, etc., if it is founded on such treaty, agreement, etc. State of Seraikella v. Union of India, 1951 SCR 474 : (AIR 1951 SC 253), or if it qu....
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....in the closing decades of the eighteenth century, Faizullah Khan found himself obliged to enter into an agreement, known now as the Treaty of Lal Dhang, with the Nawab of Oudh in 1774 under the British guarantee by which he was secured in the State of Rampur. The State, with some loss of territory subsequently, continued with the descendants of Faizulla Khan as Sovereign Rulers (1). As each Nawab ascended the Gaddi of Rampur he executed an agreement assuring the British Government of his intention to administer the affairs of the Jagir with Justice and equity. The State of Rampur, like other Indian States, was recognised as a suzerain of the British Crown, which was acknolwedged by it as the Paramount Power. The relations between the British Crown and the State of Rarnpur were governed by Treaties, Engagements, Sanads as supplemented by usage and sufferance and the decision of the Government of India and the Secretary of State embodied in political practice. The Paramount Power was responsible for the defence of the State against external aggression and enjoyed the exclusive authority of making peace or declaring war or negotiating or communicating with foreign Slates. As regards r....
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.... was executed between the assessee and the Governor-General of India by which the State of Rampur was merged into the Dominion of India with effect from July I, 1949. Under Article 1 of the Agreement the assessee ceded to the Dominion full and exclusive authority, jurisdiction and powers tor and in relation to the governance of the State and agreed to transfer the administration of the State to the Dominion Government with effect from July I, 1949. With effect from that date the Dominion Government became competent to exercise those poweRs. authority and jurisdiction. Article 2, which is of particular relevance, provided: "The Nawab shall continue to enjoy the same personal rights, privileges, immunities, dignities and titles which he would have enjoyed had this agreement not been made." The Merger Agreement then declared the assessee entitled to receive for his lifetime a Privy Purse free of all taxes and recognised him as full owner of his private properties. Article 5 continued in the members of his family "all the personal privileges, dignities and titles enjoyed by them." 37. The State of Rampur, before its merger with the Dominion of India, was governed....
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....to which the Government of the Dominion of India. ..... was a party and which has or has been continued in operation after such commencement . . . . 39. The assessee was assessed to income-tax under the Indian Income-tax Act, 1922, for the assessment year under reference, on his personal income. It is not clear from the statement of the case whether the income pertained to the territories originally comprised in the State of Rampur or in the territories originally described as British India, or both. Then; is no dispute that the Indian Income-tax Act would, on its provisions, apply to the assessee. The contention of the assessee before the Appellate Tribunal was that as sovereign Ruler of the State of Rampur he was immune from income-tax under international law before the merger of the State into the Dominion of India, and that by virtue of Article 2 of the Merger Agreement that immunity was continued. The Income-tax Department disputed that contention. 40. Mr. Jagdish Swamp, appearing for the assessee, has raised a preliminary objection. He urges that the reference cannot be entertained by us because it is barred by Article 363 of the Constitution and that we should decline to a....
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....nded his claim similarly on the plea that he was immune from taxation before merger under international law and that immunity was continued by Article 2 of the Merger Agreement. Now, what must be noted is that it was the assessee who initiated the proceedings in this Court. In order to s i icceed I ic was boi md to establish (a) that he enjoyed the immunity before merger and (b) that the immunity was continued by the Merger Agreement. To succeed in his claim, it was essential that he invokes the provisions of the Merger Agreement. This he could not do because the plea was denied him by Article 363. In the instant case, on the contrary, the reference has been made at the instance of the Commissioner. The Commissioner can succeed if he is able to show to the Court that the assessee never enjoyed the pre-merger immunity claimed by him. It he succeeds in that, the entire defence of the assessee against the assessment of his personal income under the Indian Income-tax Act must fail. In my opinion, the earlier decision of this Court dismissing the assessee's petitions cannot sustain his preliminary objection. 43. The first question, therefore, which must be considered is: Was the ....
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....rely upon international law for claiming immunity from taxation of his personal properties. It seems to me that all that has been observed by the Supreme Court in respect of the Nizam and the State of Hyderabad applies with equal force to the assessee and the State of Rampur. No distinction has been pointed out before us, and, indeed, it seems to me that upon the material before us no such distinction is possible. that being so, I must hold that the assessee did not, on the eve of the merger of the State of Rampur into the Dominion of India, enjoy immunity from taxation under the Indian Income-tax Act, That is the position as regards personal income which accrued to him outside the State of Rampur in the taxable territories contemplated by thff Indian Income-tax Act. 45. A contention was raised on behalf of the assessee that the personal income earned by him within the territories comprising the State of Rampur before its merger into the Indian Dominion was exempt from the operation of the Rampur State Income-tax Act and consequently as regards that income the assessee enjoyed immunity from taxation. Now, that contention, I think, cannot be raised before us. The immunity claimed ....