Appeals Nos 34 and 35 of 1969
Appeals by special leave from the judgment and order dated August 5 1968 of the Punjab and Haryana High Court in Income tax Reference No 40 of 1964
K C Puri K L Mehta section K Mehta and section section Hussain for the appellant in both the appeals
B Sen P L Juneja Badri Das Sharma for R N Sachthey for the respondent in both the appeals
The Judgment of the Court was delivered by P Jaganmohan Reddy J
These two Appeals are by Special Leave against the Judgment Of the Punjab  Haryana High Court answering the Reference under Section 661 of the Indian Income tax Act 1922 hereinafter referred to as the Act  against the assessee the Appellant
The Appellant who was admittedly a Ruler of the erstwhile Faridkot State challenged the assessments made against him for the years 1946 47 and 1947 48 with respect to which the accounting years were Vikram year 2002 and2003 corresponding to the period 13th April 1945 to 12th April 1946 and 13th April 1946 to 12th April 1947 respectively
The assessment in each of these years was made under Sec
34 read with Sec 23 of the Act as the assessee s income from dividends and interest and capital gains earned 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 Sec 34 were time barred
The Income tax Officer however rejected these objections and held that though under the 18 International Law the Rulers of Indian States were sovereigns and immune from Municipal Laws of other countries there was no exemption at far as the personal incomes of the Rulers are concerned from being taxed under the Act
In that view he held that notices under Sec
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 order to the Income tax Appellate Tribunal where however there was a divergence of view between the two Members and therefore the matter was referred to the President of the Tribunal
After considering the decisions in regard to the exemption of the sovereign from all Civil and Criminal Laws of another State the Judicial Member held that no assessment could be made on the assessee under the Act as he was the Ruler of a sovereign State during the assessment years under consideration
In this view he did not express any opinion on the question of the legality of the proceedings under Sec
34 of the Act
The Accountant Member however after considering the various provisions in the Act whereby exemption was granted to the Rulers in regard to certain types of income and the various decisions held that the assessee was liable to assessment in respect of his personal income arising or accruing to him from British India from his private properties
He also held that the proceedings under Sec
34 of the Act were perfectly legal and valid
In view of the difference of opinion the matter was referred to the President of the Tribunal under Sec 5A7 of the Act on the following question Whether on the facts and in the circumstances of the case the assessee was immune from tax under the Indian Income tax Act on his private income viz dividends and interest income as also the Capital Gains earned in British India
 The President of the Tribunal held in favour of the assessee by relying on a decision of the Andhra Pradesh High Court in the case of H E H Mir Osman Ali Khan Bahadur Nizam  Raj permukh of Hyderabad vs Commissioner of Income Tax1 where it was stated thus  Indisputably a sovereign ruler enjoys immunity from taxation under International Law and it is only in cases where this rule is superseded by express words that this should be denied to him
If a legislature wants to depart from these principles and bring such 1 Case No 35 of 1959
19 ruler to tax there must be clear indication in the enactment itself
In the absence of such express words the statute must be interpreted in conformity With International Law
Simply because the Municipal Law did  not provide for such an exemption the principles of International Law should not be regarded as having been superseded
In the aforesaid view the Andhra Pradesh High Court had held that notwithstanding the fact that His Exalted Highness the Nizam had lost the character of a sovereign ruler after 26 10 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 Sec
661 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 Andhra Pradesh vs H E H Mir Osman Ali Bahadur1 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 assessments related to the assessment years 1950 51 and 1951 52 the corresponding accounting year for which was the period between 1st April 1949 and 31st March 1950 and 1st April 1950 and 31st March 1951 respectively which years being after the inauguration of the Constitution on 26th January 1950 clearly make the Act which was made applicable from 1st April 1950 to all the Part B States applicable to the assessee
But it is submitted that in the case before us there could be no ques tion of Act being made applicable to Faridkot State as the assessment years and the accounting years are prior to the inauguration of the Constitution and the application of the Act
The learned Advocate cited a large number of decisions in support of his contention that the Native States in India had International
1 20 personality and their Rulers had immunity similar to those that were accorded to any other Head of a State under International Law
It was also argued that though these princely States in India may have been protected States it was not necessary for the recognition of the privileges and immunities of the Rulers of such States to possess all the attributes of sovereignty and complete independence in support of which the decisions of Mighall vs Sultan of Jahore1 Duff Development Co Ltd vs Govt
of Kelantan  Anr2 Stathem vs Stathem  H H the Gaekwad of Baroda3 were referred to
It was therefore contended that in this country also the position was the same as that recognised by the Common Law of England for which proposition decisions were referred to from Punjab Recorder onwards
A reference was also made to several cases pertaining more specifically to the immunity enjoyed by the Rulers from payment of Income tax on the basis of their status under International Law
These are  The Patiala State Bank vs Commissioner of Income tax Bombay4 Rani Amrit Kunwar vs Commissioner of Income tax CP  UP5 The Accountant General Baroda State vs Commissioner of Income tax Bombay City6 A H Wadia as Agent of the Gwalior Durbar vs Commissioner of Income Tax Bombay 7 and Maharaja Bikram Kishore of Tripura vs Province of Assam 8
On behalf of the Revenue reliance is placed on Commissioner of Income tax Andhra Pradesh vs H E H Mir Osman Ali Bahadur9 to sustain the Judgment under appeal and it is conceded that if this decision was not applicable to the facts and circumstances of this case the position as contended by the assessee 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 1 1894 I Q B 149
3 1912 Probate 92
5 XIV ITR 561
7 XVII ITR 63
9 59 ITR 2 4 XI ITR 617
6 XVI ITR 78
8 XVII ITR 220
9 59 ITR666 21 the assessee as an international personality is not in issue beforeus s 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 the Indian State could  not be equated with that of a sovereign in international law
Even the reference to the High Court does not limit or circumscribe the matter for consideration as contended for but on the other hand enables us to deal with the question whether as an erstwhile ruling prince the assessee can at all be entitled to the immunity from taxation
In considering the question referred to by the Tribunal it may be useful to examine briefly the basis and extent of the privilege and immunity enjoyed by Head of State in International Law particularly having regard to the lengthy arguments
addressed before us
In International Law the Head of a State
represent the State as such and not as an individual representing his own rights
In that capacity he enjoys certain extra territorial privileges in other States which are friendly and in peace known as the receiving States with the State he represents
These are ceremonial honours for himself the Members of his family and his retinue special protection to his person and  exemption from Criminal jurisdiction the grant of extra terri toriality on the basis that one sovereign does not have any powerover the other such as immunity from filing of suits against him except where he is himself a plaintiff and from
other civil processes exemption from taxation rating and other fiscal enactments and the invilobility of immovable property in which he of the representatives of the State accorded diplomatic immunity
reside etc
Some of these privileges and immunities are political and are generally the subject of executive and administrative instructions such as ceremonial honours Police protection
exemption from customs in accessability of their residences to officers of Justice Police or Revenue officials unless consented to by them
There are yet others in relation to the applicability of the Municipal Laws the immunity from which are either recognised by the Common Law and which Courts will not enforce as
in England or are dealt with by those laws themselves by affording the necessary exemption
There are yet others which may be regulated by Treaties or international covenants
Whatever may be the various aspects of the immunity and privileges enjoyed by the Heads of the State under the Laws of the Country where questions relating to them arise what we are concerned with at the very thresh hold of this argument dealing with the immunity is whether the rulers of the erstwhile native States as
22 they were called enjoyed the same or similar privileges as those of the Heads of States recognised as Members of the family of nations ln 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 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 claim of the Nizam the Viceroy proceeded to observe other illustrations could be added no less inconsistent than the foregoing with the suggestion that the Government of your Exhalted Highness and the British Government stand on a plane of equality  1
This paramountcy was described by Shah J as he then was as brazen faced autocracy in H H Maharajadhiraj Madhav Rao Jivaji Rao Bahadur of Gwalior etc
vs Union of India 2
What then becomes of the claim of these States or their rulers to recognition
as International personality
The answer to this specific question is furnished even towards the end of the 19th Century
The status of these native States as International personalities was negatived
in the Notification of the Government published in Gazette of India Part 1 dated 21st August 1891 at page 485 which was a resolution containing a proclamation regarding the trial of accused persons in Manipur and the regrant of the Manipur State
In this regard the following passage at page 488 is of interest  The principles of the International law have no bearing upon the relations between the Government of India as representing the Queen Empress on the one hand and the Native States under the suzerainty of Her Majesty on the other
The paramount supremacy of the former presupposes and implies the subordination of the latter
In the exercise of their high prerogative the Government of India have in Manipur as in other protected States the unquestioned right to remove by 1 Vide Appendix I of the White Paper on Indian States
2  161 23 lm15 administrative order any person whose presence in the State may seem objectionable
They also have the right to summon a Darbar through their political representative for the purpose of declaring their decision upon matters connected with the expulsion of the ex Maharaja through their Officers After stating that any one resisting the decision and not complying with orders will be liable to arrest the declaration went on to say In the opinion of the Governor General in Council any armed and violent resistance to such arrest was an act of rebellion and can no more be justified by a plea of self defence than could resistance to a police officer armed with a Magistrate s warrant in British India
 In the recent case of this Court in H H Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior1 referred to above the majority expressed the view that the 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 Civil Procedure Codes 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
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 CJ in Mirza Ali Akbar Kashani vs United Arab Republic  Anr2 cited with approval the observations of Strachey J in Chandulal Khushalji vs Awed Bim Umar Sultan Nawaz Jung Bahadur3 as correctly representing the result of the provisions of Sec
433 as much as of those contained in Sec
861
It may be mentioned that Strachey J after pointing out that in India before the enactment of Sec
433 of the Code the privilege of independent sovereign princes stood on exactly the same footing as in England observed 1  161
2  3 at 371 372 24 lm15 No doubt the question of privilege now depends on the construction of Sec 433 and I am alive to the danger of pressing too far an analogy between a rule of international law and a specific enactment of the Legislature
 It is apparent from a perusal of Sec 86 of the Civil Procedure Code that there is no absolute prohibition against a Ruler of a foreign State being sued in India
A Ruler can be sued with the consent of the Central Government certified in writing by a Secretary to that Government
It is also provided that such consent should not be given unless it appears to the Central Government that the Ruler has instituted a suit in the Court against the person desiring to sue him or by himself or another trades within the local limits of the jurisdiction of the Court or is in posses sion of immovable property situate within those limits and is to be sued with reference to such property or for money charged thereon or has expressly or impliedly waived the privilege accorded to him by this Section
In view of these provisions the several cases cited by the learned Advocate for the assessee which deal with immunity from suits against ruling princes under the English law have no application
In so far as the question whether there exists a rule of international law exempting a State or the property which it owns from taxation by a foreign State is concerned there seems to be no uniform practice followed by the various States
It is however suggested that immunity from taxation appears as a logical accompaniment of the principle of immunity of foreign State owned property from judicial process and on this basis it is sought to be contended that even personal private property of the Head of a State is exempt
It is unnecessary for us to examine this position because even if there was such an immunity the Rulers of an Indian State could only avail of it if they are recognised as international personalities which as we have seen they are not
Any exemptions which they may be given must in our view be under the relevant taxing Acts
The learned Advocate for the Assessee however points out that if the Rulers of Indian State were not exempted from tax apart from the statute there was no need to make a provision in Sec 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 cautale
It may however be noticed that in so far as the Income tax Act is 25 concerned exemption of the Income of the Ruters derived from Central Government securities was specifically given under Sec
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 Americal Journal of International Law XLI at page 239 where the Suppreme Court of Ceylon in the Suprintendent of the Government Soap Factory Bangalore vs Commissioner of Income tax held that the profits ade in Ceylon by the Mysore Government Soap Factory could be taxed by Ceylon without violation of international law
The Ceylon Court held that the State of Mysore had no position in international law and could notinvoke any immunity arising by virtue of international law  In any case so far as immunity from taxation of the income from personal property of the Rulers of the Native States is concerned this is now concluded by a decision of this Court in the Commissioner of Income Tax Andhra Pradesh v
HEH Mir Osman Ali Bahadur1
In that case the question directly arose as to whether the Ruler of the Hyderabad State prior to 26th January 50 could claim immunity from taxation under international law namely whether the assessee enjoyed immunity from taxation under the Act in respect of income which accrued or arose to him and which was received by him upto 26th January 1950
The learned Advocate for the revenue had contended that under the International law a foreign sovereing was not immune from taxation in respect of his private properties situated in the Taxing State even if there was such an immunity under the international law the assessee being under the suzerainty or he paramountcy of the British Crown had never enjoyed the status of a sovereign as understood in the international law and therefore was not governed by that law and that in any event as on January 26 1950 the date when he became liable to tax he was no longer a sovereign and therefore he could not claim exemption under the international law
Respondent s Advocate claimed that the assessee was not liable to Income tax on the ground that under the Act income tax was charged on the assessee s income received during the accounting year and that as during the accounting year the assessee was a ruling chief he was exempt from taxation under the international law
He argued that under the international law as understood by English Courts a foreign sovereign was exempt from taxation that the said interpretation of the law had become the common law of England and that the said common law was the law of India before the Constitution and it continued to have force thereafter reason of Article 372
1 256SupCI72 26 We have noticed these contentions to show that there is no validity in the submission of the learned Advocate for the assessee that that question did not directly arise in that case because the Nizam was being assessed in respect of assessment year 1950 1951 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 670 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 cry stallized After referring to Halsbury s Laws of England 3rd Edition Volume 20 page 589 and Oppenheim s International Law 8th Edition Volume 1 page 759 and the Article on immunity from taxation of foreign State owned property in the American Journal of International Law to which we have already adverted
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
After examining the position he concluded at page 675  
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 front taxation of his personal properties
We are not here concerned with the alternative argument in that case that the Act having applied to the State of Hyderabad  after the inauguration of the Constitution on 6h January 50 the charge as well as the manner of computation of income did not depend on the pre existing law but only upon the provisions of the Act because in these appeals that question does not arise
in view of this legal position we do not propose to burden this Judgment with any detailed examination
of the several decisions of the High Courts which were prior to the decision of this Court cited by the learned Advocate in support of the proposition that the ruling chief of an Indian State has the same immunity from taxation as enjoyed by other foreign sovereigns
Two of those cases arose under the where different considerations were applicable The Patiala State Bank vs CIT Bombay1 A H Wadia as Agent of the Gwalior Durbar vs CIT Bombay 2
At any rate in one other case ie in Maharaja Bikram Kishore of Tripura vs Province of Assam3 a distinction was sought to be drawn 1 XI ITR 617
2 XVII ITR63
3 XVIT ITR 220
27 between the property of the State and the private property of the ruler
In that case the question whether the income derived from Chakla Roshanabad Estate was liable to tax under Assam Agricultural Income tax Act by assessment upon the State of Tripura or by assessment on the ruler of Tripura
It was held that the Chakla Roshanabad was the State property and not personal property of the then ruling Raja who held it in his capacity as a Ruler
No doubt in the other two cases refunds were not given for tax deducted at source on the assumption that the Rulers were not assessees
In the view we have taken the answer of the High Court to the reference was clearly right and the appeals are accordingly dismissed with costs one set
SN Appeals dismissed


Summary:
The appellant who was the ruler of an erstwhile princely state challenged the assessments made against him for the assessment years 1946 47 and 1947 48 in respect of his personal income earned in British India on the ground that he being a Ruler was immune from taxation on every source of income
On the question whether the appellant could claim immunity from tax under the Indian Income tax Act 1922 in respect of the income earned in British India HELD The appellant was not entitled to any immunity and therefore was liable to tax
a In International law the head of a State representing the State as such enjoys certain extra territorial privileges in other States
Some of these privileges and immunities are political and are generally the subject of executive and administrative instructions
There are others in relation to the applicability of the municipal laws the immunity from which are either recognised by the common law and which courts will not enforce as in England or are dealt with by those laws themselves by affording the necessary exemption yet others are regulated by treaties and international conventions
Whatever might be the various aspects of the privileges and immunities enjoyed by the Heads of State the rulers of the erstwhile princely states did not enjoy the same or similar privileges as those of the Heads of States recognised as members of the family of Nations in international law
From the very nature of these princely states it was clear 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 when the British Crown in India became paramount the re lationship 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 princely states were involved
The status of these States as inter national personalities was negatived by the British Government even towards the end of the 19th century and it had been maintained that the principles of International law had no bearing upon the relations between the Government of India as representing the Queen Empress on the one hand and the native states under the suzerainty of Her Majesty on the other
Again though the status of these rulers in England was recognised as being on par with other rulers in the matter of personal immunity from legal proceedings in so far as British India was concerned these were the subject matter of legislation under which the ruling princes in India notwithstanding that they were not recognised as international personalities were accorded this immunity
Therefore any exemption the Rulers could claim had to be under the relevant taxing acts
There is no such exemption under the Income tax Act
Besides the fact that the income of the 17 rulers derived from Central Government securities was specifically exempted by section 60 implied that the rulers were not exempted from other provisions of law
The provisions in certain statutes specifically making every Ruler of an Indian State liable to tax only militate against the assumption of immunity from taxation of the property of the Rulers at any rates provisions might have been ex abundant ceutela
21D 22B 24G
H H Maharajadhiraja Madhav Rao Jivaji Rao Rahadur of Gwalior etc
vs Union of India   referred to
b Further it is now concluded by a decision of this Court in Commissioner of Income tax Andhra Pradesh vs H E H Mir Osman Ali Bahadur  that the ruler of a princely state did not acquire international personality and so could not rely upon International law for claiming immunity from taxation of his personal properties