Judgment

P. JAGANMOHAN REDDY, J.:- These two Appeals are by Special Leave against the Judgment of the Punjab and Haryana High Court answering the Reference under Section 66 (1) 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 and 2003 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 Section 34 read with Section 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 Section 34 were time barred. The Income-tax Officer however, rejected those objections and held that though under the International Law the Rulers of Indian States were sovereigns and immune from Municipal Laws of other countries, there was no exemption as far as the personal incomes of the Rulers are concerned from being taxed under the Act. In that view he held that notices under Section 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 Section 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 Section 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 Section 5A (7) 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 Mr. Osman Ali Khan Bahadur v. Commr. of Income Tax, Case Refd. No. 35 of 1959 (Andh. Pra.) 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 ruler to tax, there must be clear indication in the