1960 (4) TMI 88 - HC - Income Tax

Summary

Issues Involved:
1. Whether the agreement dated 7-4-1947 cast a binding obligation on the Gwalior Government to exempt the petitioner from taxation.
2. Whether the obligation of the Gwalior State devolved on the State of Madhya Bharat.
3. Whether the obligation of the Madhya Bharat Government to exempt the petitioner from taxation devolved on the Union Government under Article 295(1)(b) of the Constitution.
4. Whether the relevant provisions of the Income Tax Act, Finance Act of 1950, and the Taxation Concessions Order, 1950, repealed the specific exemption granted to the petitioner.

Detailed Analysis:

1. Binding Obligation of the Agreement Dated 7-4-1947:
The agreement concluded between the petitioner and the Gwalior Government on 7-4-1947 imposed a binding obligation on the Gwalior Government to exempt the petitioner from taxation for a period of twelve years. The court noted that the agreement was a fully constituted obligation at the time of its execution. The Maharaja of Gwalior's order dated 18-1-1947, which granted the exemption, had the effect of law, as established by the Supreme Court in previous cases, such as Ameer-un-Nissa Begum v. Mahboob Begum and Director of Endowments, Govt. of Hyderabad v. Akram Ali. Therefore, the Gwalior Government was bound to exempt the petitioner from taxation as per the agreement and the Maharaja's order.

2. Devolution of Obligation to the State of Madhya Bharat:
The obligation of the Gwalior State to exempt the petitioner from taxation devolved on the State of Madhya Bharat when the new state was formed as a result of the Covenant entered into by the Rulers of Gwalior, Indore, and Central India States on 22-4-1948. Article VI of the Covenant and Sections 3 and 4 of the Madhya Bharat Act No. 1 of 1948 provided that all duties and obligations of the Ruler of Gwalior State pertaining to the government of that state would devolve on the State of Madhya Bharat. Section 4 of the Act gave continuity to the laws of the Covenanting States, and the order dated 18-1-1947, having the force of law in the Gwalior State, continued in Madhya Bharat. This legislative recognition meant that the State of Madhya Bharat was bound to discharge the obligation of exempting the petitioner from taxation.

3. Devolution of Obligation to the Union Government under Article 295(1)(b):
The obligation of the Madhya Bharat Government to exempt the petitioner from taxation devolved on the Union Government under Article 295(1)(b) of the Constitution. Article 295(1)(b) states that all rights, liabilities, and obligations of any Indian State corresponding to a State specified in Part B of the First Schedule shall be the rights, liabilities, and obligations of the Government of India, if the purposes for which such rights were acquired or liabilities or obligations were incurred relate to any of the matters enumerated in the Union List. The court held that the obligation to exempt the petitioner from taxation was a constitutional obligation of the Government of India, as it was related to the matter of taxation, which is enumerated in the Union List.

4. Repeal of Specific Exemption by Income Tax Act, Finance Act of 1950, and Taxation Concessions Order, 1950:
The court concluded that the relevant provisions of the Income Tax Act, Finance Act of 1950, and the Taxation Concessions Order, 1950, did not repeal the specific exemption granted to the petitioner. The principle that a general law does not repeal a particular one unless expressly stated was applied. Section 60-A of the Income Tax Act and Section 13 of the Finance Act, 1950, did not specifically repeal the exemption granted to the petitioner. The Part B States (Taxation Concessions) Order, 1950, issued under Section 60-A, provided for exemptions or concessions but did not rescind any exemption already granted. Therefore, the exemption granted to the petitioner by the order of the Maharaja of Gwalior and the agreement dated 7-4-1947 remained valid and enforceable.

Conclusion:
The petitioner is entitled to the exemption from taxation as per the agreement dated 7-4-1947, and the relevant provisions of the Income Tax Act, Finance Act of 1950, and the Taxation Concessions Order, 1950, do not repeal this specific exemption. The court issued a direction restraining the opponents from making any assessment under the Indian Income Tax Act and levying or collecting Income Tax or Super-tax in contravention of the exemption given by the agreement dated 7-4-1947. The assessment proceedings taken by the Income Tax authorities in contravention of the said exemption were quashed.