JUDGMENT T.P. Mukerjee, J.
1. This is a reference made by the Appellate Tribunal under Section 27(1) of the Wealth-tax Act (hereinafter referred to as "the Act"). The reference has been made at the instance of Maharaja Vibhuti Narain Singh of Varanasi (hereinafter referred to as "the assessee"). The statement of the case submitted by the Tribunal relates to the assessment years 1957-58 and 1959-60, the corresponding period being the 31st March, 1957, and the 31st March, 1958.
2. The material facts bearing on this reference are as follows:
3. The assessee was previously the ruler of a Native State called the Banaras State. On 5th September, 1949, there was an agreement between the Governor-General of India and the assessee. India at that time enjoyed dominion status under the British Crown. Article I of that agreement, extracts from which have been annexed to the statement of the case as annexure "A", runs as follows:
"The Maharaja of Banaras hereby cedes to the Dominion Government full and exclusive authority jurisdiction and powers for and in relation to the governance of the State and agrees to transfer the administration of the State to the Dominion Government on the 15th day of October, 1949 (hereinafter referred to as 'the said day') As from the said day, the Dominion Government will be competent to exercise the said powers, authority and jurisdiction in such manner and through such agency as it may think fit.";
4. Article 2 entitles the assessee to receive the sum of Rs. 2,80,000 free of tax as his privy purse. Article 3 of the agreement said that the Maharaja shall be entitled to the full ownership, use and enjoyment of all private properties (as distinct from State properties) belonging to him on the date of this agreement, and that even if a dispute arose with regard thereto, it should be referred to such officer with judicial experience as the Dominion Government may nominate and the decision of that officer would be final and binding on both the parties. Article 4 provided as follows:
"The Maharaja and his family shall be entitled to all personal privileges enjoyed by them whether within or outside the territories of the State, immediately before the 15th day of August, 1947."
5. The rest of the articles provided for immunity of the assessee from legal proceedings in respect of anything done or omitted to be done by him or under his authority during the period of his adminstration of that State and it also reserves to him certain other privileges.
6. The agreement of merger was signed by Mr. V. P. Menon, Adviser to the Government of India in the Ministry of State, on behalf of the Governor-General of India and also by the assessee.
7. There is no dispute that the agreement of merger is binding on both the parties.
8. The above agreement dated 5th September, 1949, was followed by a letter written by the said Sri V. P. Menon to the assessee conveying certain assurances on behalf of the the Government of India. Paragraph 3 of this letter runs as follows:
"3. The gaddi of Maharaja shall continue at Fort Ramnagar and the Fort and its appurtenances and Your Highness' private palace known as Nandeswar Palace shall not be liable to attachment or sale and shall descend to the successors of your Highness. This will continue as hitherto to be exempt from all property or other municipal taxation."
9. After the Wealth-tax Act was introduced in 1957, the Wealth-tax Officer proceeded to estimate the value of the net wealth of the assessee for the first two assessment years 1957-58 and 1958-59. The Wealth-tax Officer included the Nandeswar House in the list of immovable properties constituting the assets of the assessee and estimated the value of the house at Rs. 1,20,000. The Wealth-tax Officer, however, excluded the "Ramnagar Palace "from the list of assessable properties. This house was declared as the "official residence" of the assessee under "paragraph 13 of the Merged States (Taxation Concessions) Order, 1949". Under Section 5(1)(iii) of the Act, any one building in the occupation of a ruler declared by the Central Government as his "official residence" was exempt from wealth-tax. The Wealth-tax Officer, therefore, granted the exemption with regard to the "Ramnagar Palace" but not with regard to "Nandeswar House".
10. The order of the Wealth-tax Officer, in point, was maintained by the Appellate Assistant Commissioner.
11. The assessee then took the matter in second appeal to the Appellate Tribunal. It was contended on his behalf that the claim for exemption was not based on any one of the specific exemptions allowed by the several clauses in Section 5 of the Wealth-tax Act. It was stated that the claim was founded on the agreement for merger dated 5th September, 1949, between the assessee and the Governor-General of India, as clarified by the letter written by Sri V. P. Menon to the assessee which formed part of the agreement. It was pointed out that according to paragraph 3 of that letter, the assessee would continue as hitherto, to be exempt from "all property or other municipal taxation." It was urged that the wealth-tax is a tax on property and it was, therefore, covered by paragraph 3 of the aforesaid letter. It was also contended that, at all events, the words "other municipal taxation" in paragraph 3 of the letter should be construed by the rule of ejusdem generis. On this construction the explanation covers wealth-tax payable on property. There was another argument based on Articles 291 and 362 of the Constitution. It was contended that these articles purport to' preserve the personal rights and privileges and dignities of a ruler of an Indian State and the Appellate Tribunal was bound to pay due regard to the provisions thereof, while making an assessment on the ruler of an Indian State. On behalf of the department, however, it was urged that in an assessment for wealth-tax, the Wealth-tax Officer must be guided only by the provisions laid down in the Act and by no other considerations. It was pointed out that under Section 5(1)(iii), exemption was granted in regard to only "one building" which had been declared by the Central Government as the "official residence" of the ruler under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949, and to no other buildings. It was, therefore, submitted that the Wealth-tax Officer was perfectly justified in not allowing exemption in respect of "Nandeswar House" which had not been declared as the "official residence" of the ruler. The Wealth-tax Officer having already granted exemption in regard to the "Ramnagar Palace" as the official residence of the assessee, rightly included the value of "Nandeswar Palace" in the net wealth of the latter.
12. The Tribunal accepted the contentions put forward on behalf of the revenue and disallowed the claim for exemption made by the assessee in regard to "Nandeswar House".
13. Aggrieved by the decision of the Tribunal the assessee had made this reference on the following question of law :
"Whether, on the facts and in the circumstances of the case, the value of 'Nandeswar Palace' was rightly included in the net wealth of the assessee for the assessment years 1957-58 and 1958-59 ?"
14. A similar matter came up for consideration of a Full Bench of this court in the case of Commissioner of Income-tax v. Nawab of Rampur. The facts in that case were that the Nawab of Rampur was the ruler of the former State of Rampur. Since 1944, the Rampur Income-tax Act, 1944, was in force in that State, and under Section 3A of that Act, the Act was not to apply to the Nawab. By an agreement between the Governor-General of the Dominion of India and the Nawab of Rampur, the Nawab of Rampur ceded to the Dominion Government full and exclusive authority, jurisdiction and powers for and in relation to the governance of the State and reciprocally the Dominion Government agreed that the Nawab shall "continue to enjoy the same personal rights, privileges, immunities, dignities and titles which he would have enjoyed had this agreement not been made". The Indian Income-tax Act was extended to the merged States, including the Rampur State, with effect from April 1, 1949, and the Rampur Income-tax Act ceased to exist from that date. The Nawab had earned income in the, territory of the former Rampur State and in other parts of India during the previous year relevant to the assessment year 1948-49 in addition to the privy purse. In the proceedings for assessment, the Nawab of Rampur claimed that he was immune from taxation on the income under the Rampur Income-tax Act and the immunity continued after the merger by virtue of the terms of the merger agreement and, consequently, he (the Nawab of Rampur) was not liable to pay tax. The contention of the Nawab of Rampur was accepted by the Tribunal and the Commissioner of Income-tax took out a reference to the High Court on the question as to whether the personal income of the assessee was immune or exempt from taxation under the Indian Income-tax Act. The learned judges who constituted the Full Bench agreed in holding that the merger agreement was no law and could not, therefore, be enforced in a court of law or by the Tribunal. It was further held that even assuming that there was immunity and that it had been continued up to the merger, it was not for the Tribunal or the court to .give effect to that and to hold that the Nawab was exempt from taxation. Following the decision of the Full Bench, we hold that the terms of the agreement of merger, read with the letter of assurance, cannot be regarded as law in force either by the Tribunal or by this court. So far as the taxability of an asset under the Act is concerned, only such exemptions could be allowed as have been mentioned in Section 5 of the Act. It has been already seen that under Section 5(1)(iii), the ruler of an Indian State is entitled to exemption from taxation in respect of only one building which the Central Government has declared as his official residence finder paragraph 13 of the Merged States (Taxation Concessions) Order, 1949. The Wealth-tax Officer has already allowed such exemption. The assessee is not entitled to exemption from tax in regard to the value of the "Nandeswar House" under any provision of the Wealth-tax Act. As already stated, the immunity from "property or other municipal taxes" purported to. have been granted by the agreement of merger is not enforceable in a court of law.
15. We, therefore, answer the question in the affirmative and against the assessee, but we make no order as to costs.