1965 Supreme(SC) 261

SUPREME COURT OF INDIA
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
Commissioner of Income-tax, Andhra Pradesh (Appellant in C. As. Nos. 46 and 47 of 1964 and Respondent in C. As. Nos. 46 and 49 of 1964), Appellant v. H. E. H. Mir Osman Ali Bahadur (Respondent in C. As. Nos. 46 and 47 of 1964 and Appellant in C. As. Nos. 48 and 49 of 1964), Respondent.
Civil Appeals Nos. 48 to 49 of 1964.
advocates appeared
Mr. A. V. Viswanatha Sastri, Senior Advocate, (M/s. N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, Advocates, with him), for Appellant (In C. As. Nos. 46 and 47 of 1964) and Respondent (In C. As. Nos. 48 and 49 of 1964); Mr. N. A. Palkhivala, Senior Advocate, (Mr. Anwarulla Pasha, Advocate and M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., with him), for Respondent (In C. As. Nos. 46 and 47 of 1964) and Appellant (In C. As. Nos. 48 and 49 of 1964).

A foreign sovereign is not immune from taxation in respect of his private properties situated in the taxing State, even if there is such an immunity under the International Law.

Headnote:

INTERNATIONAL LAW - Immunity from Taxation - Foreign Sovereign - Hyderabad State - Whether Hyderabad State had international personality under International Law - Whether its ruler could claim immunity from taxation of his personal properties - Whether Hyderabad State acquired international personality under the International Law and so its ruler could rely upon international law for claiming immunity from taxation of his personal properties - Whether the assessee was liable to income-tax for the assessment year 1950-51 - Whether, having regard to the provisions of Part B States (Taxation Concession) Order, 1950, the assessee's income during the year of account was totally exempt from tax - Whether on the facts of the case the interest received by the Assessee in respect of 3 per cent Nizam Government Income-tax free loan 1360-70 Fasli of the face value of Rs. 1,45,200, the 2-1/2 per cent Nizam Government Income-tax free development loan 1364-69 fasli of the face value of Rs 1.05 crores the 2 1/2 per cent Nizam Government loan 1363-73 fasli of the face value of Rs. 200 and the 2-3/4 per cent Hyderabad Government loan 1384 fasli of the face value of Rs. 8 crores was exempt from tax - Whether on the facts of the case the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the Assessee under the trust created by him known as "the Family Trust" , was exempt from payment of tax in his hands - Whether on the facts of the case the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the Assessee under the trust created by him known as "the Miscellaneous Trust" , was exempt from payment of tax in his hands - Whether on the facts of the case, the interest at Rs. 1,97,180 on the Government of India securities should be regarded as having accrued in the Hyderabad State and therefore chargeable at the rate obtaining under the Hyderabad Income Tax Act.

Fact of the Case:

The assessee, H. E. H. the Nizam of Hyderabad, was assessed to income-tax for the assessment years 1950-51 and 1951-52. He claimed immunity from taxation under International Law and the Covenant entered into by him with the Government of India at the time of merger. The High Court held that the assessee was immune from taxation under International Law upto 25-1-1950, but not thereafter. It also held that the assessee was not exempted from liability to pay income-tax under the Covenant.

Finding of the Court:

The Supreme Court held that the assessee was not immune from taxation under International Law, as Hyderabad State did not acquire international personality under the International Law. It also held that the assessee was not exempted from liability to pay income-tax under the Covenant. The Court further held that the assessee was liable to income-tax for the assessment year 1950-51, as the income of the previous year was taxable even though it was not liable to tax before the Indian Income-tax Act was extended to Hyderabad State. The Court also held that the assessee was not entitled to any exemptions under the Part B States (Taxation Concession) Order, 1950. However, the Court held that the assessee was exempt from payment of income-tax on the interest received by him from certain Government securities, but he was not exempt from payment of super-tax.

Issues: 1. Whether Hyderabad State had international personality under International Law and so its ruler could rely upon international law for claiming immunity from taxation of his personal properties. 2. Whether the assessee was liable to income-tax for the assessment year 1950-51. 3. Whether, having regard to the provisions of Part B States (Taxation Concession) Order, 1950, the assessee's income during the year of account was totally exempt from tax. 4. Whether on the facts of the case the interest received by the Assessee in respect of 3 per cent Nizam Government Income-tax free loan 1360-70 Fasli of the face value of Rs. 1,45,200, the 2-1/2 per cent Nizam Government Income-tax free development loan 1364-69 fasli of the face value of Rs 1.05 crores the 2 1/2 per cent Nizam Government loan 1363-73 fasli of the face value of Rs. 200 and the 2-3/4 per cent Hyderabad Government loan 1384 fasli of the face value of Rs. 8 crores was exempt from tax. 5. Whether on the facts of the case the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the Assessee under the trust created by him known as "the Family Trust" , was exempt from payment of tax in his hands. 6. Whether on the facts of the case the interest in respect of securities of the Government of India or of the Government of Hyderabad (including Nizam Government Promissory Note), which became payable to the Assessee under the trust created by him known as "the Miscellaneous Trust" , was exempt from payment of tax in his hands. 7. Whether on the facts of the case, the interest at Rs. 1,97,180 on the Government of India securities should be regarded as having accrued in the Hyderabad State and therefore chargeable at the rate obtaining under the Hyderabad Income Tax Act.

Ratio Decidendi: 1. Hyderabad State did not acquire international personality under the International Law and so its ruler could not claim immunity from taxation of his personal properties. 2. The assessee was liable to income-tax for the assessment year 1950-51, as the income of the previous year was taxable even though it was not liable to tax before the Indian Income-tax Act was extended to Hyderabad State. 3. The assessee was not entitled to any exemptions under the Part B States (Taxation Concession) Order, 1950. 4. The assessee was exempt from payment of income-tax on the interest received by him from certain Government securities, but he was not exempt from payment of super-tax.

Final Decision: The Supreme Court answered the questions referred to the High Court by the Income-tax Appellate Tribunal as follows: Question 1: in the affirmative. Question 2: in the negative. Question 3: in the negative. Question 4(i): in the affirmative. Question 4(ii): the assessee was exempt from payment of income-tax, but he was not exempt from payment of super-tax. Question 4(iii): the assessee was exempt from payment of income-tax, but he was not exempt from payment of super-tax. Question 4(iv): in the negative. The Court modified the order of the High Court accordingly in all the appeals. As the parties failed in part and succeeded in part, they will bear their own costs here and in the High Court.