COMMISSIONER OF INCOME TAX Vs. NAWAB OF RAMPUR

JUDGEMENT

(1.) THIS statement of a case submitted under Section 66(1) of the Indian Income -tax Act by the Income -tax Appellate Tribunal, Delhi Bench at the instance of the Commissioner of Income -tax, U. P., has been laid before a Full Bench because of the importance of the question arising in it. The question referred by the Tribunal is: - -

(2.) HIS Highness the Nawab of Rampur, who would be referred to as 'the Nawab' for the sake of brevity, was the ruler of the former State of Rampur. Since 1944 there was in force in the State 'The Rampur State Income -tax Act, 1944', the main provisions of which were similar to those of the Indian Income -tax Act. By Section 3, on the enactment of an Act of the Rampur State 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 States had no international life and the paramount power had the exclusive authority of making peace or war or negotiating or communicating with foreign States. The Paramount Power was responsible for implementing its international commitments and the Rulers were required to give effect to the international obligations entered into by the Paramount Power. The Paramount Power was responsible for the defence of the States. By Section 7 of the Indian Independence Act of 1947 the suzerainty of His Majesty the King over the States lapsed with effect from 15 -8 -1947 and all treaties and agreements in force between His Majesty and Rulers of States, all functions exercisable by His Majesty with respect to the States and all poweRs. rights, authority and jurisdiction exercisable by His Majesty in or in relation to the State by treaty, grant, usage, sufferance or otherwise also lapsed. On 24 -12 -1947 the Extra Provincial Jurisdiction Act was passed. On 12 -1 -1949 the Government of India Act of 1935 was amended and Sections 290 -A and 290 -B were added. By the Indian Independence Act an independent dominion known as India was set up and the Government of India Act provided that an Indian State could accede to the Dominion by an Instrument or Accession executed by its ruler. Under an Instrument of Accession of a State in the Dominion of India the Dominion was given the power of exercising in relation to the State such functions as might be vested in it by or under the Government of India Act as in force on 15 -8 -1947; otherwise the sovereignty of the ruler was to remain in tact. The Nawab executed an Instrument of Accession accordingly. Defence, external affaiRs. communications and ancillary matters were the subjects with respect to which the Dominion Legislature was authorised to make laws for the State. Rampur State merged in the Dominion by virtue of the merger agreement executed on 15 -5 -1949 between the Nawab and the Governor -General of India. By Article 1 of the agreement the Nawab ceded to the Dominion full and exclusive authority, jurisdiction and powers for and in relation to the governance of the State and agreed to transfer the administration of the State to the Dominion Government on 1 -7 -1949 with effect from which date the Dominion Government became competent to exercise the said poweRs. authority and jurisdiction. By Article 2 the Nawab was to

(3.) 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 referred to us also is barred by the Article. The jurisdiction that we are exercising is quite distinct from the jurisdiction that the learned Judges were called upon to exercise; we are exercising jurisdiction under Section 66(5) of the Income -tax Act whereas they were exercising Jurisdiction under Article 226 of the Constitution. Our jurisdiction is advisor)' and confined to answering the question of law referred to us whereas their jurisdiction was adjudicatory. As I shall show presently, not the dispute between the Nawab and the Department but a certain question of law arising in the dispute is before us whereas the whole dispute was before them. We have only to state what rights and liabilities arise in a given sot of circumstances whereas they had to decide the rights and liabilities of the Nawab and the Department in respect of the Nawab's income during the financial years 1951 -52 and 1952 -53. They held that the dispute between the Nuwab and the Department arose out of the merger agreement and that they had to decide it; we are; not deciding any dispute at all between the Nawub and the Department. I respectfully agree with the opinion expressed by them that then1 jurisdiction was barred by the Article, but as the Jurisdiction exercised by them is essentially different from the jurisdiction we are called upon to exercise it does not follow that our jurisdiction also is barred. I may also point out that it was vehemently argued on behalf of the Nawab before them that the dispute did not arise out of the merger agreement; if it did not arise out of the merger agreement the question that we have to answer is all the more one not arising out of the merger agreement.