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1965 (11) TMI 34 - SC - Income TaxWhether, on the above facts and circumstances of the case, the assessee is entitled to rebate equal to the difference between the British Indian rate and Baroda State rate in respect of the dividend income ? Whether, on the facts and circumstances of the case, the dividend income accrued or arose to the assesee at Bombay ? Held that - Since that amendment, income accruing or arising after the merger in Indian States outside British India alone would be exempt under section 14(2)(c). There is nothing in the Concessions Order which suggests that it was intended to ensure continuance of the exemption under section 14(2)(c) to residents of British India as it was before merger, as if the merger had not taken place. The use of the expression had he been resident in the taxable territories introduces a fiction; it grants the benefit of section 14(2)(c), though on the express terms it is not available, to a person who was not before the merger covered thereby, and in respect of income which would have been, if the Merger Act had not been passed, exempt from taxation in his hands, if he had been resident in British India. In the view on the first question, it is unnecessary to record an answer on the second question. Appeal dismissed.
Issues Involved:
1. Entitlement to rebate under the Merged States (Taxation Concessions) Order, 1949. 2. Determination of the location where dividend income accrued or arose. Detailed Analysis: 1. Entitlement to Rebate under the Merged States (Taxation Concessions) Order, 1949: The appellant, a private trust, argued that its dividend income received in the State of Baroda should qualify for a rebate under paragraph 6 of the Merged States (Taxation Concessions) Order, 1949. The relevant statutory developments in tax laws post-August 15, 1947, were considered, particularly the application of the Indian Income-tax Act to merged states and the subsequent repeal of corresponding state laws. Paragraph 4 of the Order stipulates that the provisions apply to income that would have been exempt under section 14(2)(c) of the Indian Income-tax Act, 1922, if the Act had not been passed. The appellant contended that paragraph 4 intended to preserve the benefits conferred by section 14(2)(c) to residents of British India before August 15, 1947, in respect of income arising within the merged states. However, the court found that paragraph 4 does not substantively grant any exemption but merely designates the income to which the provisions of the Order apply. The exemption was intended for residents of the merged states and not for residents of British India as it was before the merger. The court held that the denial of the benefit of the exemption under section 14(2)(c) to British Indian residents was a result of the merger of the states into British India. The operation of section 14(2)(c) was restricted by the modification of the definition of British India, and there was nothing in the Concessions Order suggesting an intent to continue the exemption for residents of British India post-merger. 2. Determination of the Location where Dividend Income Accrued or Arose: The second issue was whether the dividend income accrued or arose to the appellant at Bombay or Billimora. The High Court declined to answer this question, and the Supreme Court found it unnecessary to record an answer in light of its decision on the first issue. The dividend income was received by the appellant in the State of Baroda and was not brought into British India. The court noted that income arising in merged states post-merger was chargeable under the Indian Income-tax Act, and the benefit of the lower state tax rates was only for a limited period. Conclusion: The Supreme Court dismissed the appeals, holding that the appellant was not entitled to the rebate claimed under the Merged States (Taxation Concessions) Order, 1949. The court emphasized that the benefits of section 14(2)(c) were not extended to residents of British India post-merger, and the denial of such benefits was a consequence of the merger of the states into British India. The appeals were dismissed with costs.
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