Raja Raghavinder Singh vs The State of Punjab and others

B.R. Tuli, J.—India attained Independence on August 15, 19(sic) 7, and the Indian States thereafter acceded to India or Pakistan on the basis of contiguity. The instruments of accession were executed by most of the Indian princes in favour of the Government of India whereunder the State properties and territories along with the sovereignty were surrendered. The Government of India, in its turn, undertook to pay privy purse to each ruling prince and some allowances to his dependents or other relatives. The Ruler of the erstwhile State of Patiala entered into a similar covenant and by letter dated April 2, 1949, the Ministry of States communicated to the Maharaja of Patiala its decision with regard to his privy purse, allowance as Raj Pramukh and allowances for the Rajmatas and other relations as under:--

(a) Privy Purses.--Your Highness''s privy Purse is fixed at Rs. 17,00,000/- per annum. This amount will be personal to your Highness and the provisions to be made for your Highness''s successors will be considered subsequently as provided in Article 11(1) of the Covenant for the formation of the Union.

(b) Raj Pramukh Allowance--Your Highness''s allowance as Raj Pramukh of the Union is fixed at 5 lacs per annum. This amount will also be personal to your Highness and it will be reconsidered in the case of future Raj Pramukh. The allowance will be exclusive of the cost of the staff required for the Private Secretary''s office which will be paid for separately by the Patiala and East Punjab States Union Government and the budget for this office should be sent to us when ready.

(c) Allowances for Rajmatas and other relations. -- It was agreed that a sum of Rs. 5 lacs per annum should be the maximum amount which should be provided for the allowance to the Rajmatas and your Highness''s other relations who are at present in receipt of such allowances. Out of this sum, the allowance paid to your Highness''s mother will be Rs. 50.000/- per year. This will include all her expenses. The balance of Rs. 41/2 lacs should be distributed between all other relations and your Highness should re-fix allowance in such a way that this amount is not exceeded.

The petitioner is a half-brother of the Maharaja of Patiala. He was allowed an allowance of Rs. 2.000/- per month. According to the petitioner, the State of Patiala was an impartible estate or property of the joint Hindu family of the petitioner, which was regulated by the rule of primogeniture in matters of succession According to this rule, the eldest son succeeded to the Gaddi while the younger ones, who were called Maharajkumars, were entitled to a suitable maintenance allowance out of the income of the impartible estate. The right of the Junior Maharajkumars to receive maintenance allowance out of the income of the impartible estate was settled by means of an agreement entered into between the States of Patiala, Nabha and Jind on October 13, 1960. Translation in English of that agreement has been filed as Annexure "A" to the petition. This agreement was known as Dastur-Ul-Amal.

On August 20, 1948, the Union of Patiala and East Punjab States (Pepsu) was formed of which the State of Patiala was a constituent, and was given the status of Part ''B'' State.

Out of the sum of Rs. 5 lacs sanctioned as allowances for Rajmatas and other relations, the petitioner was paid Rs. 2,000/- per month and the distribution of that amount used to be made by the Maharaja of Patiala till 1953, when the Maharaja, of his own accord, declined to undertake this job and the members of the family started drawing their allowances directly from the Patiala treasury without deduction of any income tax. This arrangement continued till May, 1955. Thereafter, the amount of allowance was paid to the petitioner by the Treasury Officer, Patiala, after deducting income tax at the source in accordance with the circular issued by the Finance Department on May 17, 1955. The petitioner''s plea in this petition is that the respondents were not justified in deducting the income tax out of the amount of allowance paid to him by the Government of India through the Treasury, Patiala. Reliance is placed on section 14 (1) of the income tax Act, 1922 (hereinafter called the 1922 Act) reading as under:--

Exemptions of a general nature :--

(1) The tax shall not be payable by an assessee in respect of any sum which he receives as a member of a Hindu undivided family where such sum has been paid out of the income of the family or in the case of an impartible estate where such sum has been paid out of the income of the holder of the estate belonging to the family.

In the Income tax Act, 1961, (hereinafter called the 1961 Act), the corresponding provision is to be found in section 10 (2) reading as under:--

Incomes not included in total income:--

In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included :--

(1) * * * *

(2) any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family.

The question that arises for determination is whether the allowance paid by the Government of India to the petitioner every month can be said to be a mm received by an individual as a member of the Hindu undivided family out of the income of the family or out of the income of the impartible estate belonging to the family. The territories of the former State of Patiala have merged into the territories of India and all the joint Hindu family property or the impartible estate, which existed prior to the accession, if at all, have ceased to exist as such. The petitioner is not receiving the allowance from the Government of India as a member of Hindu undivided family out of the income of that family or as a member of the family owing an impartible estate from the holder thereof out of the income of that estate. The obligation was taken by the Government of India unequivocally under the agreement that had been arrived at between the Maharaja of Patiala and that Government. The provisions of section 14 (1) of the 1922 Act or section 10 (2) of the 1961 Act do not apply to the facts of the present case. The petitioner, therefore, cannot claim that the allowance received by him from the Government was or is exempt from the payment of income tax. It is pertinent to note that exemption from payment of income tax was allowed 10 the privy purse paid to the princes or Indian States under Article 291 of the Constitution, section 4 (x) (a) of the 1922 Act and section 10(19) of the 1961 Act. The Legislature deliberately did not allow such exemption to the other members of the princely order who were allowed allowances under the agreements, like the one in the case of the petitioner. It was known to the Legislature that such allowances were being paid to the relatives of the acceding princes. While the rulers ware granted exemption from the payment of income tax, the allowance paid to the other relatives were not made exempt from that payment. The Central Government made the ''Part B States (Taxation Concessions) Order, 1950 specifying the exemptions reductions in rate of tax and the modifications, in exercise of its powers conferred by section 60-A of the 1922 Act. Paragraph 15 of this Order granted the following exemption, among others :--

15 (1) (i) any sum which the widow or the mother of a person who was the Ruler of an Indian State receives as her maintenance allowance out of public revenues.

This exemption granted only to the widow or the mother of the former Ruler and not to his other relations or dependents, clearly shows the intention of the Government not to exempt the allowance paid to such relations or dependents from the payment of income tax It is, therefore, abundantly clear that the income-lax deducted from the allowance paid to petitioner was in accordance with law and no exception can be taken thereto.

The learned counsel for the respondents has relied on the judgment of a Division Bench of the Orissa High Court in RAJKUMAR LAKSHMINARAYAN BHANJA DEO Vs. COMMISSIONER OF Income Tax, BIHAR and ORISSA., . In that case, the assessee, the younger brother of the Ruler of Keonjhar was entitled to maintenance allowance of Rs. 2,000/- a month. This amount was exempted from payment of income tax by virtue of section 4 of the Keonjhar income tax Regulation, 1938. Keonjhar State merged with the province of Orissa with effect from January 1, 1948, but under the Administration of Orissa Order, 1948, the Keonjhar income tax Regulation continued to be operative in the ex-Keonjhar State until altered or amended by an order made under the Foreign Jurisdiction Act, 1947. The income tax Officer included the annual maintenance allowance of Rs. 24,000/- in the assessee''s total income for each of the assessment years 1950-51 to 1956-57 on the grounds that the Keonjhar income tax Regulation ceased to have effect from April 1, 1949, by virtue of section 7 (1) of the Taxation Laws (Extention to Merged States and Amendment) Act (67 of 1949), and the Indian Income tax Act, 1922, became the law relating to income tax in the ex-Keonjhar State with effect from April 1, 1948 and the maintenance amount of Rs. 2,000/- a month of the petitioner had not been exempted from income tax u/s 60 A. The assessee contended that the State Income tax Regulation continued in force even after Act 67 of 1949, and the Constitution of India came into effect, and that in any event, the maintenance allowance was exempted from taxation u/s 14 (1) of the Indian income tax Act, as the payment to the assessee was made by the Ruler of Keonjhar as a member of the Hindu undivided family but these contentions were rejected by the Appellate Tribunal. The High Court held that section 7(1) of Act 67 of 1949 must be construed as an express repeal of the Keonjhar income tax Regulation as from January 1, 1949, that is, even prior to the coming into force of the Constitution of India, and the said Regulation cannot be deemed to continue in force by virtue of Article 372 of the Constitution. Only the Indian income tax Act, 1922, applied from April 1, 1949, and as the allowance was not exempted by any notification u/s 60, it was rightly assessed to income tax.

It was further observed that the payment of the maintenance amount to the assessee could net be held to fall u/s 14(1) of the Indian income tax Act, 1922, as the amount was paid out of the revenues of the State of Orissa and not out of the income of the Hindu undivided family or out of the income of the holder of the impartible estate. These observations squarely apply to the facts of the present case.

Their Lordships of the Supreme Court pointed out in Kunwar Shri Vir Rajendra Singh Vs. The Union of India (UOI) and Others, that as far as the right to privy purse of a Ruler is concerned, Article 291 of the Constitution enacts that payment of any sum which has been guaranteed to any Ruler of a State as a privy purse shall be charged on and paid out of the Consolidated Fund of India. The privy purse is not an item of private property to which the Ruler succeeds. On a parity of reasoning it can be said that the allowance for maintenance of the relations of the former Rulers is charged on and paid out of the Consolidated Fund of India and not out of the income of any Hindu undivided family or any impartible estate.

It has to be remembered that the impartible estate of the former State of Patiala was put an end to by an act of State and, therefore, it shed its character as an impartible estate and merged in the territories of India. It was pointed out by their Lordships of the Supreme Court in H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior and Others Vs. Union of India and Another, in paragraphs 123 and 124 of the report that :--

Article 291 does not merely incorporate recognition of the obligation to pay the privy purse under covenants incurred by the Government of the Dominion of India, it gives rise to a liability de hors the covenants. Under the covenants and agreements the obligation to pay the privy purse was undertaken in the case of all Princes (bar the heads of the States of Bhopal, Hyderabad and Mysore) to be made out of the revenues of their respective States. The Government of India concurred in and guaranteed payment of the amount of the privy purse under the terms of the agreements constituting the Unions. By the States Merger (Governors'' Provinces) Order, 1949, this liability was imposed upon the Provinces when the States merged with those Provinces. In the case of a Union of States the liability to pay the privy purse to a head of State lay upon the Union of States to be discharged out of the revenues of the Slate. In the case of centrally merged States the Dominion Government had to pay the privy purse out of the revenues of the State.

Even after the integration of States, the obligations under the covenants were to be met out of the revenues of the respective States. The covenants and the various stages through which ultimate integration was achieved probably remained acts of State. The rights and obligations accruing or arising under those acts of State could be enforced only if the Union of India accepted those rights and obligations. After the Constitution the obligation to pay the privy purse rested upon the Union of India, not because it was inherited from the Dominion of India; but because of the constitutional mandate under Article 291. The source of the obligation was in Article 291, and not in the covenants and the agreements. Reference to the covenants and agreements in Article 291 was for defining the privy purse; the obligations of the provinces in respect of the Provincially merged States'', and obligation of the Union of States in respect of the States merged in such Unions, ceased by recognition to retain their original character. The obligation which arose out of the merger agreement and was on that account an act of State shed its original character on acceptance by the Constitution. The entity obliged to pay the privy purse did not, after the Constitution, remain the same; the source out of which the obligation was to be satisfied was not the original source; the incident relating to exemption from payment of tax was vitally altered, and the amount also was in some cases different. Whereas the liability to pay the privy purse to the Rulers under the merger agreements was assured by the Dominion Government, the Constitution imposed upon the Union Government a directive to pay the privy purse.

The learned counsel for the petitioner has relied on the following judgments :--

In re : In Re: Income Tax Reference of Vijaya Ananda Gajapatiraj Bahadur

COMMISSIONER OF INCOME TAX, BIHAR and ORISSA Vs. MAHARAJA VISWESWAR SINGH.,

COMMISSIONER OF Income Tax, BIHAR and ORISSA Vs. MAHARANI GYAN MANJURI KUARI.,

Commissioner of income tax v. Sarwan Kumar (1945) 13 ITR 316

Commissioner of income tax, Central and United Provinces v. Rani Bijay Raj Kunwai (1948) 16 ITR 1

Promod Chandra Deb and Others Vs. The State of Orissa and Others,

These judgments are not relevant in this case as in those cases there were admittedly properties of the Hindu undivided family or the impartible estate and the allowance was paid out of their income The cases were therefore, directly covered by the provisions of section 14(1) of the 1922 Act. In the same strain is the judgment of the Chief Court of Oudh in Rani Anand Kunwar v. Commissioner of income tax, CP and UP (1943) 11 ITR 235.

The result of the above discussion is that the former State of Patiala having merged in the Union of India, the impartible estate or the Hindu undivided family, if any existed, disappeared on account of an act of State and it cannot be said that the petitioner is or has been receiving the maintenance allowance from the Government of India either as a member of the joint Hindu family cut of the income of that family or as a member of a family owning an impartible estate from the holder thereof out of its income. The exemptions to such allowances were granted because the income of the Hindu undivided family or the impartible estate was taxed at one place and thereafter it was the distribution or dispersal of that income amongst its various members. The same cannot be said about the Government of India when it took the obligation to pay the monthly allowance to the petitioner after the merger of the erstwhile State of Patiala into the Union of India. The income tax has been rightly deducted from the allowance paid to the petitioner by the Treasuary Officer, Patiala.

The learned counsel for the petitioner then argued that the sum of Rs. 2, 00 paid every month to the petitioner by way of allowance cannot be said to be income, but is only maintenance allowance. Income has been defined in section 2(24) of the 1922 Act and 1961 Act, but that definition is inclusive and not exhaustive. In Commissioner of income tax v. Shaw Wallace and Company 59 I.A. 206 ; 6 I.T.C. 178, Sir George Lowndes gave the following definition of income :--

Income in this Act connotes a periodical monetary return ''coming in'' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus, income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as ''capital''. But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production.

This definition was followed in Gopal Saran Narain Singh v. Commissioner of Income Tax 1935 I.T.R 237, by Lord Russel of Killowen who, however, added the important amplification :--

Anything, which can properly be described as income, is taxable under the Act unless expressly exempted.

In Kamakashya Narain Singh v. Commissioner of income tax 1943 ITR 513, Lord Wright repeated the above observations of Sir George Lowndes and Lord Russel, and remarked :--

Income, it is true, is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation Sir George Lowndes speaks of ''income'' being likened pictorially to the fruit of a tree or the crop of a field. But it is clear that such picturesque similes cannot be used to limit the true character of income. Income is not necessarily the recurrent return from a definite source, though it is generally of that character. Income again may consist of a series of separate receipts, as it generally does in the case of professional earnings. The multiplicity of forms which ''income'' may assume is beyond enumeration.

These observations were approved by their Lordships of the Supreme Court in G. Venkataswami Naidu and Co. Vs. The Commissioner of Income Tax, . In the light of these weighty pronouncements, the allowance paid to the petitioner by the Government of India can be rightly termed as income. It has a regular source from which it has been flowing every month and such an allowance is not exempted from the payment of income tax under any provision of the 1922 Act or 1961 Act. The only provision under which exemption is claimed by the learned counsel for the petitioner is section 14(1) of 1922 Act and section 10(2) of the 1961 Act which have been fully discussed above and have been held to be not applicable. No other point was argued.

For the reasons given above, I find no merit in this petition which is dismissed. As the point of law involved was not free from difficulty, I leave the parties to bear their own costs.