COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH versus H. E. H. MIR OSMAN ALI KHAN

Citation: [1966] 2 S.C.R. 296 · Decided: 25-10-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Case Partly allowed

Judgment (excerpt)

COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH 
A 
v. 
H. E. H. MIR OSMAN ALI KHAN 
October 25, 1965 
[K. SUBBA RAo, J. C. SHAH AND S. M. SIKRI, JJ.] 
Income-tax Act (11 of 1922) s. 8 proviso 3-Scope of. 
Part B Stales (Taxation Concessions) Order, 1950-Efject of. 
Indian State-Status under International Law. 
In respect of the assessments made on the Nizam of Hyderabad for 
the assessment years 1950-51 and 1951-52 the following questions arose 
in the High Court in a reference under s. 66(1) of the Income-tax Act, 
1922 : (i) Whether having regard to the Covenant dated 25th January 
1950 entered into by the assessee with. tb.e Oo..,,rnment of India at the 
time of merger of the State or Hyderabad wun tlle LJominion of India, 
the assessee was not liable to tax under the Income-tax Act; (ii) whether 
undeo: International law, the assessee was immune from taxation in respect 
of the assessment year 1950-51; (iii) Whether having regard to the pro-
visions of Part B States (Taxation Concessions) Order, 1950 the assessee'a 
income was totally exempt from tax; (iv) whether the interest received 
by the assessee in respect of certain income-tax free loans issued by the 
State Government was exempt from tax; and (v) whether the income 
payable to the assessee under two trnsts-the Family Trust and the Miscel-
laneous Trust-arising from Government securities settled by the assessee 
B 
c 
D 
on the trusts, was exempt f'rom payment of tax. 
E 
The High Court imswered some of the questions in favour of the · 
assessee and others against him. The Commissioner of Income-tax and 
the assessee appealed to this Court. 
HELD : (i) The privileges guaranteed by the relevant articles of tb.e 
merger agreement were only personal privileges of the assessee as an Bx· 
Ruler, and those privileges did not justify his claim to immunity from 
taxation. [300 DJ 
Sri Sudhansu Sheklzar Singh Deo v. State of Orissa, [1961] I S.C.R. 
779, followed. 
(ii) Hyderabad State never acquired international personality under 
the International Law and so its ruler could not rely upon International 
law for claiming immunity from taxation of his personal properties. From 
1858, Hyderabad was under the suzerainty of the British Crown till the 
Indian Independence Act of 1947 was passed, and thereafter, after nego· 
tiations it acceded to the Indian Dominion. It was never 
recognised 
as an international 
personality by the family 
of nations. The 
High 
Court, therefore, erred in holding that the income received by the assessee 
up to 26th January 1950, was not liable to tax under the Income-tax Act. 
[302 E; 303 B; 304 F-G; 305 BJ 
F 
G 
Further, the assessee's right to exemption if any, under International 
Law, during the accounting year, was irrelevant to the qnestion of taxation 
under the Act. Under 
the Act, an individual is assessed to income-
H 
tax on the income of the previous year at the rate or rates fixed f<li" 
the year by the annual Finance Act. If during the assessment year 
an individual is assessable to tax, the fact that during tb.e previous year 
• 
• 
' -
-
A 
B 
C.I. T. V. MIR OSMAN 
297 
he. was not liable to tax at all because there was no income tax in the 
area to which the Act was extended, or because, under an income-tax 
Act in force therein during that year his income was exempted from 
tax, or because, of any other law including international law he was 
so exempt from tax, would not be of any relevance. After the extension 
of the Indian Income-tax Act to the Hyderabad State the charge was 
under the Act and not under the provisions of the previous law. There· 
after, the charge as well as the manner of computation of income did 
not depend upon the pre-existing law, but only upon the provisions of 
the Act. After 26th January 1950, the assessee ceased to be a ruling Chief 
and he was, therefore, liable to assessment under the Act. If he• wa. 
assessable to tax, the statutory charge• on his income during the pre-
vious year was only traceable to the Act, \Vhich vvas retroactive in ope-
ration to that extent. [307 F-H; 308 A-CJ 
(iii) The assessee was not entitled to any :exemptions under the 
C 
Part B State (Taxation Concessions) Order, 1950. [309 G] 
D 
E 
F 
G 
H 
If the assessee was not liable to pay tax undet the State law, bis 
non-liability related only to the. domain of exemption. It would be in· 
congruous to say that a person exempted from taxation was paying a nil 
rate and on that basis contend that no tax was payable 

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