- (1.) THIS is a reference under Section 66 (2) of the Indian Income-tax Act and has been made by the Commissioner and United Provinces, at the instance of Kunwar Bishwanath Singh, the Assessee in the present case. It appears that the income-tax authorities hold the view that the income of His Highness the Maharaja of Benares who is "a person residing out of British India, if it has any connection, direct or indirect, with any business or property in British India, can be chargeable to income-tax on the ground that it shall be deemed to be income accruing or arising within British India and they, therefore, started certain proceeding for the assessment year 1934-35. The Income-tax Officer of Benares issued a notice directly on His Highness the late Maharaja and on a return being filed made an assessment.
(2.) AFTER an appeal, which was unsuccessful, to the Assistant Commissioner there was a reference to this Court and this very Bench decided the reference, which is reported as Maharaja of Benares v. Commissioner of Income-tax. The contention advanced then on behalf of His Highness was that the entire proceeding taken by the income-tax authorities in the case were direct violation of the mandatory procedure prescribed by the act inasmuch as the income-tax authorities had not, before proceeding to assessment, fixed upon an agent of the non-resident principal under Section 42 of the Act. We acceded to the contention advanced on behalf of His Higness and held that granting that the assessee was a non-resident, the Income-tax Officer was precluded by certain provisions of the Indian Income-tax Act from serving a notice on him without appointing an agent within the meaning of Section 43 of the Act. On receipt of a copy of our judgment the Commissioner of Income-tax forwarded it to the Assistant Commissioner, and he on the 14th of February 1938 set aside the assessment in connection with the assessment year 1936-37, regarding which an appeal had been filed earlier before him, and directed a fresh assessment to be made after the appointment of an agent under Section 43 of the Act. We do not know exactly how the situation stood regarding the assessment year 1934-35 about which reference had been made us. The Income-tax Officer of Benares then after entering into correspondence with the Chief Secretary of the Benares State and getting a reply from him to the effect that the proper person to be appointed as agent was not the Chief Secretary, but Diwan Nizamat Kumar Bishwanath Sing, issued a notice to the latter intimating to him the intention of the Income-tax Officer to appoint him as agent to Captain His Higness the Maharaja Sir Aditya Narain Singh Bahadur, K. C. S. I, D. Litt., within the meaning of Section 43 of the Indian Income-tax Act. In spite of proper service of the afosaid notice Kunwar Bishwanath Singh failed to appear, nor was any communication receive from him by post. The Income-tax Officer then passe an order treating Kunwar Bishwanath Singh as the agent of His Higness the Maharaja of Benares for the assesment year 1936-37, and in this reference we are conceerned with that assessment yar alone. It is conceded on all hands that a notice unde Section 22 (2) of the Act calling for a return must be issued within the assessment year, that is before the 31st of March 1937 in the present case. The Income-tax Officer, however, could not issue an ordinary notice undeer Section 22 (2) because by the time the record came to him from the Assistant Commissioner the financial year 1936-37 was over and he, therefore, issued notice under Section 34 read with Section 22 on the agent on the 2rd of February, 1938, that it within one year of the end of the year 1936-37. In response to these notices the late Maharajas agent filed a return of income and in response to futher notices under Section 23 (2) and 22 (4) made an appearance by counsel before the Income-tax Officer, who on the 1st of August, 1938, passed an order assessing Kunwar Bishwanath Singh, agent of His Highness the Maharaja of Benares, on an income of Rs. 40,908, which consisted of Rs. 19,618 as income from property and Rs. 21,290 as income from "other sources". The latter income was made up among other things of a sum of Rs. 2,702 on account of zar-i-chaharum and Rs. 3,033 on account nazrana.
(3.) AN appeal agianst this order was preferred before the Assistant Commissioner of Income-tax, who dismissed it on the 22nd of September 1938. The assessee Kunwar Bishwanath Singh then applied to the Commissioner for reference to this Court under Section 66 (2) of the ACt. Five questions of law were formulated in the applicati0n which are mentioned at page 11 of the printed statement of the case. Question Nos. 2 and 3 were not referred to us and a separate application under Section 66 (3) was filed before us and it was prayed that we should require the Commissioner to state a case on those two questions as well, but have rejected that application. The Commissioner, however, referred question Nos. 1,4 and 5 with some verbal alterations to us.;