B.J.DIVAN, J. -
(1.) SINCE the facts giving rise to both these references are the same and the point of law arising in both the matters is the same, we will dispose of both these matters by our common judgment. As a matter of fact, in the matter out of which Income -tax Reference No. 257 arises, the Tribunal followed its own earlier decision in the matter out of which Income -tax Reference No. 43 of 1976 arises and, hence, it would be convenient to dispose of both the matters by a common judgment. The assessee in Income -tax Reference No. 257 is the wife of the assessee in Income -tax Reference No. 43 of 1976. The assessment years under consideration are 1968 -69, 1969 -70 and 1970 -71. The assessee in Reference No. 43 of 1976 was the adopted son of the Maharaja of Porbandar. During each of the relevant previous years relevant to the assessment years under consideration, the assessee received different sums from his adoptive father, the Maharaja of Porbandar. He received Rs. 24,000 in each of the first two years under consideration and Rs. 27,000 in the third year under consideration. These amounts were paid by the Maharaja to his adopted son from the time that the Maharaja started receiving the amounts of privy purse and he continued paying them till the abolition of the privy purse by th Central Government. The amounts varied from year to year and from time to time. The amounts were paid by the Maharaja to his adopted son from the amount of the privy purse that the Maharaja was receiving. Under the terms of the Covenant which was originally entered into by the Rulers of Kathiawar States for the formation of the United State of Kathiawar, which was subsequently known as the State of Saurashtra, the amounts of privy purses for the different rulers were fixed and as shown by the White Paper On Indian States, at page 239, and schedule to the Convenient, the Maharaja of Porbandar was entitled to receive a privy purse of Rs. 3,80,000 every year. Under art. 10 of the Covenant, the Ruler of each Covenanting State was to be entitled to receive from the revenue of United State of Kathiawar for his privy purse the amount specified against the Covenanting State in Sch.I. The said amount was intended to cover all expenses of the ruler and his family including the expenses on account of his personal staff, maintenance of his residences, marriages and other ceremonies and this amount was not to be increased nor reduced for any reason whatsoever. The Rajpramukh was to cause the said amount to be paid in four equal instalments at the beginning of each quarter in advance and this amount was to be free from all taxes whether imposed by the Government of the United State of Kathiawar or by the Government of India. This Covenant was entered into in 1948 and thereafter the privy purse used to be paid to the Maharaja and the different amounts used to be paid to the assessee in Reference No. 43 of 1976 by his adoptive father. As pointed out by the Tribunal in its order, payment to the assessee was started with the receipt by the Maharaja of the privy purse and ended with the abolition of the privy purse and further the amount of payment was not consistent or uniform all throughout but varied in different periods.
(2.) THE ITO sought to subject these amounts received by the adopted son from his father, the Maharaja, to income -tax on the ground that this constituted income in his hands and the ITO rejected the assessee's claim that the amounts were not taxable. It was contended on behalf of the assessee before the ITO that the assessee had no legally enforceable right either in the form of custom or usage or statutory obligation against the Maharaja. The assessee took the matter in appeal before the AAC, but the appeals were dismissed and the finding of the ITO that the amounts in question were taxable was upheld by the AAC. The matter was taken in further appeal before the Tribunal by the assessee and the Tribunal accepted the contention of the assessee and reversed the orders of the authorities below, namely, the ITO and the AAC. The Tribunal found that no material was brought on the record to show that the payments were received by the assessee by virtue of any custom or usage or an enforceable customary usage or under any statutory obligation. The Tribunal held that the fact that the quantum of the amount paid during the various periods was not constant or uniform and varied substantially showed that it entirely depended upon the bounty or discretion of the Ruler. Under the circumstances, the Tribunal held that the amounts could not be regarded as income and, accordingly, were not liable to tax. Thereafter, at the instance of the revenue, the following question has been referred to us for our opinion:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the payments received by the assessee out of the privy purse paid to the Maharaja of Porbandar was not liable to be taxed on the hands of the assessee as his income ?'
In Income -tax Reference No. 257 of 1975, the assessee is the wife of the assessee in Income -tax Reference No. 43 of 1976. In her case also, the assessment years under consideration are assessment years 1968 -69, 1969 -70 and 1970 -71. During each of the material previous year relevant to the assessment years in question the assessee received a sum of Rs. 18,000 in the first two years and Rs. 19,500 in the third year from her father -in -law, the Maharaja of Porbandar. These amounts were held to be taxable in her hands as income and the ITO rejected the assessee's claim that the amounts were not taxable because she had no legally enforceable right either in the form of custom or usage or statutory obligation. The matter was carried in appeal to the AAC and thereafter to the Tribunal and ultimately the Tribunal, following the reasoning in her husband's case, upheld her contention and set aside the orders of the ITO and the AAC. Thereafter, at the instance of the revenue, the following question has been referred:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the payments received by the assessee from out of the privy purse paid to be Maharaja of Porbandar was not liable to be taxed in the hands of the assessee as her income ?'
(3.) IT must be pointed out at the beginning that, apart from the immunity from tax set out in the article of the Covenant, art. 291 of the Constitution which came into force from January 26, 1950, granted immunity regarding privy purse and it was provided that the sums paid by way of privy purse to any ruler were to be exempt from all taxes on income. Even after November 1, 1956, when the article was amended, this exemption in respect of sums paid to any ruler by way of privy purse continued. In accordance with this provision in the Constitution, the provisions of the Indian I.T. Act, 1922, seem to have amended and s. 4(3)(x)(a) of the 1922 Act provided: 'Any income received by the Ruler of an Indian State as his privy purse under art. 291 of the Constitution was not to be included in the total income of the person receiving same.' Thus, so far as the Maharaja of Porbandar was concerned, the amount of the privy purse which he received from the Government of India was not liable to be included in his total income. A similar exemption was also incorporated in clause (19) of s. 10 of the I.T. Act, 1961. 'That clause also provided, reading the main words of s. 10: 'In computing the total income of previous year of any person, any income falling within any of the following clauses shall be included...' and clause (19) provided: 'Any amount received by the Ruler of an Indian State as privy purse under article 291 of the Constitution.' This clause was deleted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, with effect from April 2, 1973. Thus, prior to the abolition of clause (19), any amount received by the Maharaja of Porbandar as privy purse was not to be included in the total income of the Maharaja for any previous year.;