DIXIT, C.J. :- In this reference under section 66 (1) of the Indian Income-tax Act, 1922, by the Appellate Tribunal the question propounded for our decision is :

"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the allowance of Rs. 12,000/- received by the assessee was not exempt from Income-tax in the hands of the assessee?"

2. The material facts are that the assessee Raj Kumar Bikram Bahadur Singh is the younger brother of Shri Birendra Bahadur Singh, the ex-Ruler of the Khairagarh State which was before its merger in December 1947 with the old Central Provinces and Berar one of the Chhatisgarh States. The assessee is also a member of the Indian Police Service and is at present holding the post of District Superintendent of Police. On 18th November 1943 Shri Birendra Bahadur Singh, who was then the Ruler of the Khairagarh State, made an order with regard to the grant of a monthly allowance to the assessee. The order was as follows :

"Whereas it is expedient to increase the allowance of Rajkumar Bikram Bahadur Singh and to give him certain

privileges, according to the customs and tradition in vogue in the State, consequent on his marriage, it is hereby ordered as follows:

(i) With retrospective effect from 9-7-1943 (the date of his wedding) the Rajkumar Sahib's allowance is fixed at Rs. 800/- per month. In case he takes up an appointment outside the State, with a view to enable him to meet the extra expenses at an outside place, his monthly allowance will be raised to Rs. 1,000/-.

(ii) As has already been decided, as soon as the war is over, a sum of Rupees 15,000/- should be spent for the extension of the Devi Bhawan, according to the choice of the Rajkumar Sahib.

(iii) The white-washing and repairs to the Rajkumar's residence in Khairagarh shall be a State charge.

(iv) The Rajkumar Sahib is exempt from payment of electric charges and water-tax at Khairagarh.

(v) The Rajkumar Sahib should be given a guard for the night at his residence at Khairagarh.

(vi) The Rajkumar shall receive a lump sum of Rs. 300/- annually for petrol, mobil oil, insurance, maintenance and upkeep etc. of his car. The above grants are subject to and governed by the usual provision of loyalty of the grantee to the Ruler and the Throne of Khairagarh."

Under this order the assessee began to get a monthly allowance of Rs. 1000/-from the revenues of the Khairagarh State when he took up an appointment in the Police Service of the Central Provinces and Berar. The allowance was continued after the integration of the Khairagarh State with the Province of the Central Provinces and Berar and the amount of allowance used to be paid to the assessee out of the public revenues of the Central Provinces and Berar.

3. In the assessment proceedings for the assessment year 1957-58 the assessee claimed that the amount of Rs. 12,000/-which he received as allowance in the relevant previous year was received by him as the subordinate chief of the Ruler of the merged State, namely, Khairagarh, and was, therefore, exempt from tax and could not be included in his total income under paragraph 13 (iii) of the Merged States (Taxation Concessions) Order, 1949 (hereinafter referred to as the Order). The assessee's claim for exemption was negatived by the Income-tax Officer as also by the Appellate Assistant Commissioner and the Appellate Tribunal in the appeals that the assessee preferred. The Appellate Assistant Commissioner took the view that the expression "subordinate chief as used in paragraph 13 (iii) of the Order meant a person "who must be next to the Ruler in point of succession in all rights and privileges"; that the assessee could not be a subordinate chief as a son was born to the ex-Ruler of the Khairagarh State before 1st August 1949; and that the assessee had not produced any evidence to show that immediately before 1st August 1949 he was a subordinate chief as contemplated by paragraph 13 (iii) of the Order. The Appellate