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.
(3.) 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.;