Braund, J. - (1.) THIS is a case referred to us under Section 66(1), Income-tax Act, 1922, by a strong Bench of the Income-tax Appellate Tribunal. The assessee is Rani Amrit Kunwar Sahiba, hereinafter referred to as the Rani. The Rani is the wife of Raja Ravi Sher Singh Bahadur, the Ruler of Kalsia State, and is the sister of His Highness the present Maharaja of Nabha State. Kalsia and Nabha States were formerly part of what were known as the Cis-Sutlej States, which are now under the superintendence of the Agent to the Governor-General, Punjab States.
(2.) THE Rani for some years past has lived at Dehradun in British India with her sons and daughters who are being educated there and it is common ground that in the year of assessment she was resident in British India within the meaning of Section 4A, Income-tax Act, 1922. THE relevant accounting year is 1938-39; and the relevant assessment year is 1939-40. In the assessment year, the Rani received at Dehradun a sum of Rs. 14,744 from Kalsia State and a sum of Rs. 8910 from Nabha State. On the facts as they have been found by the Income-tax Tribunal it may be taken that similar payments had been made to the Rani of varying amounts in each of the years she had lived at Dehradun and that they represented allocations for her benefit made in the relative State budgets. In the case of the payments out of Kalsia State they were made for the purpose of meeting the Eani s household and living expenses and the education of the children at Dehradun; and, in the case of the allowance from Nabha State, it was made as an annual "wardrobe allowance" and as presents on certain specified days of festival in each year. Each payment, as I have said, was specifically budgeted for in the annual budget of each State and the evidence is that they had been made in each year consecutively for a period of almost twenty years. It is also common ground that the Rani has never been asked to give any account of her expenditure of these monies and that any surplus she may have had over at the end of the year has been tacitly assumed to be her personal property. Indeed we are told that the Rani has been able to effect considerable savings during this period and has invested them in house property at Lahore, Dehradun and Mussoorie. THEse facts may be taken to be common ground, as also the fact that, although the payments made to the Rani appear in the relative budgets as items of State expenditure, there is no dividing line between that part of the income of the State which the Ruler spends on public purposes and that part which he spends for his own private purposes. In neither case is the Ruler himself resident in British India, nor is there any evidence that either Ruler is assessed on any income in British India. In these circumstances, the Rani was assessed under Section 4(1)(a), Income-tax Act, 1922, to income-tax by the Income-tax Officer of Dehradun in August 1939 on (inter alia) the two sums in question. This assessment was upheld by the Appellate Assistant Commissioner of Income-tax, Meerut, but was set aside in June 1940 by the Commissioner of Income-tax, Central and United Provinces, on the ground that there were insufficient findings of fact to support it. He accordingly directed the Income-tax Officer to start assessment proceedings afresh after reaching findings of fact, first whether Kalsia State was an Indian State; secondly, whether the remittances received by the Rani were made out of the income of the State as such or out of the private income of its Ruler; and, thirdly, to what particular "vested right" the payments were respectively to be attributed. The Income-tax Officer in January 1941 found that Kalsia State was an Indian State and that the remittances received by the Rani were out of State income and not out of the private income of the Ruler; but he was unable to reach any conclusion as to any "vested right" to which the payments were to be attributed. He apparently reached the same conclusion as regards the payments received from Nabha State. In the result he took the view that they were received by the assessee from the two States respectively as "her income in view of a vested customary right recognized by the State and its Ruler." He, therefore, again treated them as taxable and the Rani was again assessed on them as income from other sources under Section 4(1)(a), Income-tax Act. This assessment was upheld by the Appellate Assistant Commissioner of Income-tax, Agra, and in due course came on appeal before a Pull Bench of the Income-tax Appellate Tribunal. The Full Bench consisted of four members - two of them judicial members, who have since been elevated to the Benches of the High Courts of Madras and the Punjab respectively. This Bench was divided in opinion, it being held by the President, first, that the Rani, notwithstanding that she was the wife of the Ruler of Kalsia State, was not exempt from assessment to income-tax in British India under the Income-tax Act, 1922, and, secondly, that the payments in question were not income of the assessee under Section 4(1) of the Act; and that, if they had been, they would not have been assessable to tax because they were casual and non-recurring within the meaning of Section 4(3)(vii) of the Act. On the other hand the other learned judicial member of the Pull Bench of the Tribunal, while agreeing that the Rani was not entitled to exemption from taxation on the ground that her husband was the Ruler of a sovereign State, took the view that the payments made to the assessee both from Kalsia State and from Nabha State in the accounting years did form part of the total income of the Rani for the purpose of assessment in British India. The two other members of the Tribunal agreed with the latter view and accordingly the assessment was once more upheld. It is in these circumstances that the matter now comes before us. The actual questions put to us by the Tribunal under Section 66(1), Indian Income-tax Act, are these: (1) (a) Whether the allowances received by the assessee from the Kalsia State constitute her personal income assessable under the Indian Income-tax Act? (b) If so, whether they are of a casual and non-recurring nature and as such exempt under Section 4(3)(vii) of the Act? (2) (a) Whether the moneys received by the assessee from the Nabha State constitute her personal income assessable under the Indian Income-tax Act? (b) If so, whether they are of a casual and non-recurring nature and as such exempt under Section 4(3)(vii) of the Act? (3) Whether, by reason of her being the wife of the Euling Chief of Kalsia, the assessee, who is a resident in British India, is exempt under the canons of International Law from taxation under the Indian Income-tax Act, in respect of her personal incomes accruing, arising or received in British India? Omitting question 3 for the moment, I think that the first two questions in reference to Kalsia State are susceptible of a short answer. The question reduced to its simplest terms is whether the payment of the Rupees 14,744 in question received by the Eani in the accounting year at Dehradun from Kalsia State was in her hands "income...from whatever source derived...received or deemed to be received in British India..." within the meaning of Section 4(1)(a), Indian Income-tax Act, 1922. If it did constitute, or is to be deemed to have constituted, her "income" then it was properly assessed, subject to any question which may arise under Section 4(3)(vii) of the Act as to whether it was of a casual and non-recurring nature.
(3.) IN my view, in the case of the payments which emanated from Kalsia State we are relieved by Sub-section (2) of Section 4 of the Act from any inquiry whether these payments actually constituted the Rani s "income," because, when that sub-section is examined, it is found that, whether or not they were her income, they were, by virtue of their character as "remittances received by" her, "deemed" to be part of her income accruing in British INdia. Sub-section (2) of Section 4 of the Act is in this language: (2) For the purpose of Sub-section (1), where a husband is not resident in British INdia, remittances received by the wife resident in British INdia out of any part of his income which is not included in his total income shall be deemed to be income accruing in British INdia to the wife. In the case before us the Eani s husband, the Raja of Kalsia, was admittedly not resident in British India. The Rani herself was at all material times resident in British India. The Rs. 14,744 received by her in the accounting year must, I think, be taken to have been paid to the Rani out of her husband s income, since it has not been and cannot be suggested that there is any distinction between the personal income of the Raja and the revenues of his State which are allocated under the annual State Budget. There is no suggestion that the payments made to the Rani from Kalsia were paid out of any income of the Raja which satisfies the definition of "total income" contained in the Act, nor, indeed, that the Raja had any income in British India at all. Upto this point, therefore, the conditions of Sub-section (2) appear to be fulfilled exactly. But the noticeable point about Sub-section (2) of Section 4 of the Act is that what it "deems to be income of the wife accruing in British India" are all "remittances" received by her out of her husband s income not included in his total income as defined by the Act. The word "remittances" is most noticeable. The word is not used anywhere else in the charging section and it stands in marked distinction to the word "income" which is elsewhere used to describe what is taxable. The only conclusion to be drawn from this is that Sub-section (2) has been very careful, and, indeed, is designed for no other purpose than, to make it clear that, where the wife residing in British India is found to be receiving money from her husband residing outside British India and that money has not already been taxed in British India, the actual "remittances" themselves are to be "deemed" to be the wife s income, irrespective of whether by any other test they would fulfil that definition. Sub-section (2) says that these "remittances" are to be "deemed to be income accruing in British India to the wife"; and, in my opinion, the object of this sub-section is, in view of the obvious difficulty in the way of the British Indian taxing authorities investigating the real character of such payments, to raise an absolute presumption against the wife that the "remittances" as such are themselves taxable under the head of what is deemed to be her income irrespective of its true character. On the other hand, in a case in which the remittances to the wife are shown to have been already included in the total income of the husband and presumably already taxed or taxable as such the Act has given the wife the benefit of the doubt and has at any rate provided no irrebuttable presumption that they are to be "deemed" to be her income.;