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TMI Blog1968 (12) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the 1 1/4% loan for Rs. 4,50,00,000 is a security of the State Government within the meaning of section 8 of the Income-tax Act ? ; and (2) Whether, on the facts and circumstances of the case, the interest on the 1 1/4% loan for Rs. 4 1/2 crores is exempt from tax in the hands of the assessees under the third proviso to section 8 ? The statement of the case would show that these questions arose in respect of assessments for 1955-56 to 1961-62 respectively and concern the nature of 1 1/4% interest loan of O.S. Rs. 4 1/2 crores advanced by the Nizam to the then Government of Hyderabad. After the police action the Military Governor had applied to the Nizam for this loan on behalf of the State of Hyderabad, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he miscellaneous trust, they lost that exemption. In appeal against the judgment of this court delivered by a Bench of which one of us was a party in R.C. No. 35/59 dated July 4, 1961, their Lordships of the Supreme Court confirmed the judgment of this court in respect of its answer holding that the loan was a State Government security, but reversed its answer on the second question that the assessee was not entitled to tax free exemption. It was held that the transfer of the loan by the Nizam to the Nizam's Miscellaneous Trust Fund did not make any difference in so far as the exemption to tax is concerned. Sri Anjaneyulu on behalf of the assessee contends that the judgment in Commissioner of Income-tax v. H. E. H. Mir Osman Ali Bahadur, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the securities free from tax under the Indian Income-tax Act; otherwise, there was no point in considering whether the Nizam was exempt from tax or the trust or the trust was exempt from tax, as admittedly, the Hyderabad Income-tax Act did not apply to any income of the Nizam whether from securities or otherwise during the period when he was the ruling sovereign of the State of Hyderabad, viz., till January 25, 1950. The reference therefore to the loan being tax free could only be in respect of a tax which is leviable under some other statutory provision of which was not then applicable to the Nizam. It may be observed and it is not denied that, at the time when the Nizam agreed to grnt a loan, the Nizam and the Governor-General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hyderabad Government can do in the matter." These letters clearly indicate that the Government of Hyderabad had agreed to take the loan free of income-tax with the concurrence of the Government of India. But if the Government of India is not going to keep up its obligation, the Hyderabad Government would have to do so. In any case, there is no question of the loan, which was taken by the State Government, not being free from income-tax because it was one of the important and vital conditions for the grant of the loan. In Commissioner of Income-tax, v. H.E.H. Mir Osman Ali Bahadur as we have already observed, what their Lordships of the Supreme Court considered was in respect of the same loan, same rate of interest and with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t." In view of the aforesaid decision, we do not think that the department would be justified in raising the matter once again on the basis that the assessee had not made out that the agreement to grant the loan was not subject to the condition that it was free of income-tax under the Indian Income-tax Act. We have already stated that not only the decision of the Supreme Court deals with both the questions, one of which pertains to the grant of the identical loan free of Indian income-tax but also that, even on the perusal of the correspondence, that conclusion becomes unassailable. In the result, we answer the question in the affirmative and in favour of the assessee with costs. Advocate's fee Rs. 200. Question answered in the affirm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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