Law:

Section:

Section 2(24) of the Income-tax Act 1961 [Corresponding to section 2(6C) of the Indian Income-tax Act, 1922] - Income - Chargeable as - Various Princely States entered into a covenant with Union of India and formed State of Patiala - Ruling Princes of covenanting States surrendered their sovereignty and Government of India, in turn, agreed to pay privy purses and allowances to ruling Princes, their dependants and relatives etc. - Assessee, who was half-brother of late Raj Pramukh of State of Patiala, was sanctioned certain amount per month as allowance - Pursuant to circular issued by Finance department on 17-5-1955, Treasury Officer started making advance deductions of income-tax from allowance admissible to assessee - Assessee's case was that he was being paid this allowance as a member of HUF out of income of family, hence, same was not liable to tax - Whether since under an agreement Union of India agreed to pay maintenance allowance to relations of Ruler of erstwhile states and said allowance were paid out of consolidated fund of union in contradistinction with income of joint Hindu Family or an impartial estate, case of assessee did not fall within exemption to general rule - Held, yes - Whether therefore, assessee had been rightly burdened with liability of payment of tax - Held, yes FACTS After India attained independence on 15-8-1947, various erstwhile Princely States entered into a covenant with the Union of India and formed a State commonly known as the Patiala and East Punjab States Union. The then His Highness the Maharaja of Patiala, by common agreement, was appointed as the Raj Pramukh of the State. The ruling Princes of the covenanting States surrendered their sovereignty, the State properties and the territories forming their respective States. The Government of India, in turn, agreed to pay privy purses to the ruling Princes and allowances to their dependants or their relations. The assessee was half brother of late Raj Pramukh State of Patiala. He was sanctioned an amount of Rs. 2,000 per month as allowance out of the sum of Rs. 5 lakhs set apart for the relations of the then Raj Pramukh. Pursuant to the circular issued by the Finance…

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