Sri Sudhansu Shekhar Singh Deo vs The State Of Orissa And Another

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 307 to 309 of 1958

Decision Date: 21 September 1960

Coram: J.C. Shah, S.K. Das, M. Hidayatullah, K.C. Das Gupta, N. Rajagopala Ayyangar

In this case, the Supreme Court of India heard an appeal filed by Sri Sudhansu Shekhar Singh Deo against the State of Orissa and another party. The judgment was delivered on 21 September 1960. The opinion was authored by Justice J C Shah, who was joined by Justices S K Das, M Hidayatullah, K C Das Gupta and N Rajagopala Ayyangar. The appeal is reported in 1961 AIR 196 and 1961 SCR (1) 779, with subsequent citations in several law reports. The dispute concerned the Agricultural Income‑Tax Act of 1947 (Orissa Act No 24 of 1947), specifically sections 2(i) and 3, and the interpretation of certain provisions of the Constitution of India, namely articles 291, 362 and 363. The appellant, who had been the ruler of the former princely State of Sonepur, argued that he should be exempt from tax on agricultural income. He relied on two contentions. First, he claimed that before the merger of Sonepur into the Indian Union, the ruler enjoyed immunity from taxation on his private property, and that this immunity was guaranteed by articles 4 and 5 of the merger agreement executed on 15 December 1947. Second, he contended that the amendment made by the Adaptation of Laws Order of 1950, which removed the reference to “Ruler of an Indian State” from the definition of “person” in section 2(1) of the Agricultural Income‑Tax Act, meant that he no longer fell within the definition of a person liable to tax under the Act. The factual background recorded that the merger agreement of 15 December 1947 transferred full sovereign rights over Sonepur to the Government of India, while preserving the ruler’s ownership and enjoyment of his private property and personal rights existing before 15 August 1947. Subsequently, on 27 July 1949, the Governor‑General of India issued an order treating the merged Orissa States, including Sonepur, as if they were part of the Province of Orissa. The Orissa Agricultural Income‑Tax Act had been enacted by the provincial legislature, and an ordinance of the Governor of Orissa dated 30 December 1949 made the Act applicable to the merged territories. Section 2(1) of that Act originally defined “person” to include a ruler of an Indian State. However, the Adaptation of Laws Order, 1950, removed that reference effective 26 January 1950. The Court held that the amendment of the definition of “person” was not intended to create a special exemption for former rulers, but merely to delete a clause that had become obsolete due to political changes since the statute’s enactment. Consequently, the appellant could not claim exemption from tax on the basis that he was not a “person” within the meaning of the Act, absent an explicit exemption provision. The Court also observed that the privileges guaranteed by articles 4 and 5 of the merger agreement were personal privileges of the ex‑ruler and did not extend to his private property. Finally, the Court concluded that the claim of immunity from taxation based on the merger agreement was not a justiciable issue.

In this case, the Court observed that the amendment of the definition of ‘person’ in Section 2, clause (1) of the Act was intended only to delete an obsolete provision, not to grant any exemption to former rulers. Consequently, the appellant could not rely on the absence of a specific exemption clause in the Act to claim that he was not a ‘person’ for tax purposes. The Court further held that the privileges guaranteed by Articles 4 and 5 of the merger agreement were personal to the appellant in his capacity as an ex‑Ruler and did not extend to his private property. In reaching this conclusion, the Court followed the precedent set in Vishweshwar Rao v. State of Madhya Pradesh, [1952] S.C.R. 1020. The Court also concluded that the appellant’s claim of immunity from taxation based on the merger agreement was not a matter that could be adjudicated by the courts. The judgment was rendered in the Civil Appellate Jurisdiction concerning Civil Appeals Nos. 307 to 309 of 1958, which arose from the Orissa High Court order dated 1 August 1956 in O.J.C. Nos. 16, 19, 137 and 61 of 1954. Counsel for the appellant were C.B. Aggarwala and P.C. Aggarwala, while N.C. Chatterjee, J.H. Umrigar and T.M. Sen appeared for the respondents in all three appeals. The judgment was formally delivered on 21 September 1960 by Justice Shah, who presided over the hearing of the three appeals. These appeals were filed under a certificate of fitness issued in accordance with Article 132 of the Constitution by the High Court of Judicature, Orissa. The Legislature of the Province of Orissa had enacted the Orissa Agricultural Income‑Tax Act, Twenty‑fourth of 1947, hereinafter referred to as the Act, to impose tax on agricultural income arising from lands situated in Orissa. The Act came into force on 10 July 1947 and, pursuant to Section 3, required that agricultural income‑tax at the scheduled rates be payable each financial year on the total income of the preceding year of every person. A proviso to that section exempted agricultural income of the Central Government, the State Government or any local authority from taxation. Section 2, clause (1) of the Act provided a definition of ‘person’ that expressly included a Ruler of an Indian State among those liable to tax. The appellant in these appeals was the Ruler of State of Sonepur, who after India was on 15 August 1947 executed an instrument of accession limited to defence, external affairs and communications. On 15 December 1947 the appellant executed a merger agreement that merged the territory of the State of Sonepur with the territory of the Dominion of India. The agreement provided that the Government of India would acquire full sovereign rights over the merged territory, while guaranteeing the appellant’s ownership and full enjoyment of his private properties under Article 3. Pursuant to the powers granted by the Extra‑Provincial Jurisdiction Act, 1947, the Government of India, by a notification dated 23 March 1948 delegated to the Provincial Government of Orissa authority to administer the merged States, including Sonepur. Thus, despite the historical changes, the statutory definition continued to encompass the appellant, making him subject to the tax imposed by the Act. The absence of any specific provision granting immunity meant that the appellant could not escape his liability for agricultural income‑tax. The decision reaffirmed that tax exemptions must be expressly stated in legislation and cannot be inferred from historical agreements.

In this case, the Court noted that the Government of Orissa was vested with full powers to administer the merged States of Orissa, including the State of Sonepur. The Provincial Government of Orissa applied Section 1 of the relevant Act to the merged States from 19 January 1949, and by a notification dated 1 April 1949 it extended the remaining provisions of that Act to those territories. During this period, two new sections, namely Section 290(A) and Section 290(B), were inserted into the Government of India Act, 1935 by amendment. Those sections authorised the Governor‑General of India to issue an order directing that any merged State should be administered in every respect as if it were part of the Governor’s Province specified in the order. Exercising the authority conferred by Sections 290(A) and 290(B), the Governor‑General issued, on 27 July 1949, an order stating that the merged Orissa States, including the State of Sonepur, would be administered as if they formed part of the Province of Orissa, effective from 1 August 1949. Subsequently, on 30 December 1949, the Governor of Orissa promulgated Ordinance No. IV of 1949, which, among other matters, provided that the Agricultural Income‑Tax Act, 1947, should be applied to the merged Orissa States. That ordinance was later superseded by the Orissa Merged States (Laws) Act, XVI of 1950.

After the enactment of these measures, the Agricultural Income‑Tax Officer called upon the appellant to file a return of his agricultural income. The appellant disputed his liability under the agricultural income‑tax and refused to furnish the required return. In response, the Tax Officer made inquiries regarding the income derived from the appellant’s lands and proceeded to assess the appellant for tax liability for the assessment years 1949‑50 through 1953‑54. The Officer also imposed a penalty on the appellant for his failure to submit returns for the years 1949‑50 and 1950‑51. The appellant challenged the assessment and the penalty by filing appeals before the Assistant Collector of Agricultural Income‑Tax at Sambalpur, but those appeals were dismissed. Subsequent revision applications to the Collector of Commercial Taxes at Cuttack and to the Board of Revenue were likewise unsuccessful. Undeterred, the appellant filed four separate petitions in the High Court of Orissa—Petitions Nos. 17, 16, 19 and 137 of 1954—contesting the tax assessments for the years 1949‑50, 1950‑51, 1951‑52 and 1952‑53 respectively. He also filed two additional petitions—Petitions Nos. 18 and 138 of 1954—challenging the penalties imposed for the years 1949‑50 and 1950‑51. These six petitions, together with certain other related petitions, were heard before a Division Bench of the Orissa High Court. The High Court held that, despite the guarantee of full ownership, use and enjoyment of private property contained in the merger agreement, the appellant’s properties were not exempt from liability to pay tax as imposed by the Act. Moreover, in the absence of any express provision granting immunity, the income generated from his lands was subject to agricultural income‑tax. The Court further observed that, although the appellant had previously been the Ruler of a former Orissa State, he remained liable under the statutory definition of “person” within the meaning of the Act.

The Court observed that the appellant qualified as a “person” within the meaning of the statute and therefore was subject to the liability of agricultural income‑tax. Consequently, the learned Judges dismissed the petitions that contested the appellant’s liability for the assessment years 1950‑51, 1951‑52 and 1952‑53. In addition, the Court set aside the assessment order relating to the year 1949‑50 and annulled the orders that imposed penalties for the years 1949‑50 and 1950‑51. The appellant challenged the dismissal of the applications seeking to set aside the assessments for the years 1950‑51, 1951‑52 and 1952‑53, and these challenges were taken up as appeals filed under a certificate granted by the High Court pursuant to Article 132 of the Constitution.

The appellant acknowledged that he had been the Ruler of an Indian State prior to 15 August 1947. However, he asserted that his sovereignty was terminated by the merger agreement that he executed on 15 December 1947. Under Article 1 of that agreement, the appellant transferred to the Dominion of India full and exclusive authority, jurisdiction and power concerning the governance of his State, and he agreed that the administration of the State would be handed over on the appointed day, after which the Dominion Government became competent to exercise all such powers through any agency it deemed appropriate. Article 3 preserved the appellant’s complete ownership, use and enjoyment of all private properties that he possessed at the date of merger, expressly excluding any State‑owned assets. Article 5 guaranteed the succession, in accordance with law and custom, to the gadi of the State as well as the personal rights, privileges, dignities and titles of the appellant. Article 4 provided that the Raja, the Rani, the Rajmata, the Yuvraja and the Yuvrani would continue to enjoy all personal privileges that they had before 15 August 1947, whether these privileges were exercised within or outside the former territory.

The appellant contended that, as the former Ruler of the State of Sonepur, he enjoyed immunity from any tax liability on his private property both within his former State and abroad. He argued that such immunity derived from the principles of International Law, which he claimed protect the property of a sovereign ruler situated in a foreign State from taxation. Relying on Articles 4 and 5 of the merger agreement, the appellant maintained that the Dominion Government had guaranteed him all personal rights, privileges, dignities and titles that he had enjoyed immediately before 15 August 1947, and that any attempt by the State of Orissa or by the Union Government to tax his private property would contravene that guarantee. Accordingly, the appellant submitted that, to give effect to the guarantee contained in the merger agreement, every piece of legislation must be interpreted in the light of that agreement, which he asserted was incorporated into Article 362 of the Constitution, thereby exempting him from tax liability despite the absence of an explicit legislative provision to that effect.

In this case the appellant contended that the merger agreement, which he argued was incorporated in Article 362 of the Constitution, required that he be exempt from any liability to pay tax even though the legislature had made no explicit provision to that effect. The Court found no merit in the appellant’s submissions. It held that the privileges guaranteed by Articles 4 and 5 were personal privileges granted to the appellant in his capacity as a former ruler, and that such privileges did not extend to his private property. The Court referred to a similar argument that had arisen in the interpretation of Article 4 of the merger agreement entered into by the ruler of Khairagarh, which was materially identical to the agreement executed by the appellant. In that earlier decision, S R Das, J., observed in Visweshwar Rao v. The State of Madhya Pradesh (1) that “the guarantee or assurance to which due regard is to be had is limited to personal rights, privileges and dignities of the ruler qua a ruler. It does not extend to personal property which is different from personal rights.” The Court then examined the statutory framework governing agricultural income tax. The Act imposed a liability to pay agricultural‑income tax on the agricultural income of “every person.” The proviso to section 3 exempted the agricultural income of the Central Government, State Government and local authorities, but that exemption did not extend to any other body or person. Although the original definition of “person” in section 2, clause (1) expressly included a ruler of an Indian State, the Adaptation of Laws Order 1950 removed the reference to rulers of Indian States effective from 26 January 1950. The Court concluded that this amendment was not intended to create an exemption for former rulers from tax liability; rather, it merely deleted a clause that had become meaningless in view of the political changes that had occurred between the enactment of the Act and the issuance of the Adaptation of Laws Order. By 26 January 1950, when the Order became operative, there were no longer any Indian States, the sovereign rights of the erstwhile rulers had been extinguished, and their territories had been merged into the Indian Union. Consequently, the amendment to the definition of “person” in section 2, clause (i), of the Act was made not to exclude former rulers from tax liability but simply to remove a redundant provision. Since the Act imposed tax liability and did not contain any express exemption in favor of the appellant, his claim to exemption on the ground that he was no longer a “person” could not be sustained.

In this case the Court examined the constitutional provisions that relate to guarantees made to the former Rulers of Indian States. Article 362 of the Constitution states that, when Parliament or a State Legislature exercises its law‑making power, or when the Union or a State exercises executive power, it must give due regard to any guarantee or assurance that is contained in a covenant or agreement referred to in Article 291, concerning the personal rights, privileges and dignities of a Ruler of an Indian State. Article 291, on the other hand, deals with the privy purse of the Rulers and provides that any payment made under a covenant or agreement entered into by a Ruler before the commencement of the Constitution is free from tax, as assured by the Government of the Dominion of India. Article 362 therefore recommends that Parliament and State Legislatures, when making laws after the Constitution came into force, should have due regard to the guarantees or assurances given under any such covenant or agreement. Although Article 362 is not limited to covenants relating only to the privy purse and indeed covers all agreements entered into by the Rulers before the Constitution that guaranteed their personal rights, privileges and dignities, the provision does not create a legal obligation that can be enforced by a former Ruler. If, despite the recommendation to give due regard, Parliament or a State Legislature enacts a law that is inconsistent with the personal rights, privileges and dignities guaranteed to a Ruler, the legislative action cannot be challenged in any court on the basis of the covenant or agreement, a principle that is expressly affirmed by Article 363 of the Constitution. The appellant argued that he was not attempting to enforce the terms of the merger agreement but was merely resisting a tax claim made by the authority appointed by the State of Orissa, alleging that the tax was inconsistent with the merger agreement. The Court found that argument to be without merit. In reality, the appellant, through petitions filed under Article 226 of the Constitution, sought to enforce Article 4 of the merger agreement. He contended that the enactment of the Agricultural Income‑Tax Act and its application to him by the State of Orissa violated the terms of the merger agreement, and he asked the High Court to enforce those terms. The Court concluded that liability for agricultural income tax on the appellant’s private property was imposed by section 3 of the Act, and that the immunity claimed by the appellant did not fall within the personal rights or privileges contemplated by the merger agreement. Consequently, the appellant’s claim could not be sustained.

In this case the Court observed that the objection raised by the appellant against liability to pay agricultural income‑tax assessed under the Act could not be sustained because the matter was not justiciable. The Court noted that two subsidiary contentions were also raised before it and it proceeded to refer to them briefly. First, the appellant argued that of the forty‑two villages for which the assessing authority regarded him as holder, two villages had been transferred by him in 1945 to the Yuvrani, who was his son’s wife, and that, on that basis, the income from those two villages should not be taxable in his hands. The assessment order showed that this contention had been presented to the Agricultural Income‑Tax Officer, who rejected it relying upon section 14, clause (1) of the Act. The Court held that it was unnecessary, for the purpose of these appeals, to decide whether the officer’s view was correct. Moreover, the Court observed that in the petitions filed by the appellant before the High Court this plea had not been raised and no relief concerning the income of the two villages had been claimed. Because the question had never been raised before the High Court, the State of Orissa had not been given an opportunity to meet the claim now advanced by the appellant, and consequently the Court rejected this contention. Secondly, the appellant contended that while the assessing officer had found that he possessed lands in forty‑two villages, the inventory of properties that the appellant had submitted to the Government listed only eighteen villages and that this inventory had been accepted by the Government of India. Relying on this premise, the appellant asserted that his tax liability should be limited to the income from those eighteen villages and should not extend to the remaining villages. The Court noted again that this plea had never been raised before the High Court, that no evidence on the point had been led and that no finding on the issue had been made by the High Court. Accordingly the Court declined to open an enquiry into a matter that had not been presented for determination. On these grounds the Court held that Appeals Nos. 307, 308 and 309 of 1958 failed and ordered them dismissed with costs, with a single hearing fee to be paid.