In March 1849, the area was annexed by the British after the Second Anglo-Sikh War, and soon a subsidiary cantonment for the troops stationed at Kangra was established on the slopes of Dhauladhar, on empty land, with a Hindu resthouse or dharamshala; hence the name for the new cantonment, Dharamshala. During the British rule in India, the town was a hill station where the British spent hot summers, and around the late 1840s when the district headquarters in Kangra became overcrowded, the British moved two regiments to Dharamshala. A cantonment was established in 1849, and in 1852 Dharamshala became the administrative capital of Kangra district. By 1855 it had two important places of civilian settlement, McLeodGanj and ForsythGanj, named after a Divisional Commissioner. In 1860, the 66th Gurkha Light Infantry, later renamed the historic 1st Gurkha Rifles, was moved to Dharamshala. Soon 14 Gurkha paltan villages were established nearby and the Gurkhas patronised the ancient Shiva temple of Bhagsunath.
Lord Elgin, the British Viceroy of India (1862–63), liked the area so much that he even suggested at one point that it be made the summer capital of India. He died at Dharamshala while on a tour there, on 20 November 1863, and lies buried at the St. John in the Wilderness at ForsythGanj, just below McLeodGanj. His summer residence, Mortimer House, became part of the private estate of Lala Basheshar Nath of Lahore and was acquired by the Government of India to house the official residence of the Dalai Lama. The original Tea House built by Lord Elgin and catered to by a local grocery store called Nowrosjee & Son continues to prosper to this date. Nowrosjee & Son is a popular hangout for visitors to McLeodGanj and has been at its present location since 1860. The Tea House set up by Lord Elgin became homeless when the Government acquired Mortimer House and shifted to a new base in Chengdu, Sichuan Province, China. It continues to this date under the name
