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TMI Blog1965 (11) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... 2nd Income-tax Officer, A-1 Ward, Bombay, upheld the claim of the appellant that its dividend income received from the company at Billimora had accrued or arisen in the Baroda State, and as the income was not brought into British India, it was exempt from liability to tax by virtue of section 14(2)(c) of the Income-tax Act. The Commissioner of Income-tax, Bombay, held that the income accrued or arose to the appellant in Bombay where the dividend was declared, and was on that account liable to be assessed under the Income-tax Act, 1922. The Commissioner accordingly directed the Income-tax Officer to pass orders imposing tax on the dividend income received by the appellant from the company. On appeal, the Income-tax Appellate Tribunal held that the dividend income accrued or arose at Billimora and not at Bombay, but by reason of the definition of " taxable territories ", the income which accrued at Baroda attracted liability to tax under the Income-tax Act and did not qualify for rebate under paragraph 6 of the Merged States (Taxation Concessions) Order, 1949. The following questions were referred by the Tribunal under section 66(1) of the Indian Income-tax Act, 1922, to the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the States specified in the schedule and it was to be administered as if it formed part of the Province of Bombay. The Indian Income-tax Act was applied to the merged States by section 3 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (67 of 1949), with retrospective effect from April 1, 1949, and by section 7 corresponding laws relating to income-tax in the merged States were repealed. It was provided that if immediately before the 26th day of August, 1949, there was in force in any of the merged States any law relating to income-tax, super-tax or business profits tax, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income-tax Act, 1922, as extended to that State by section 3, or, as the case may be, the levy, assessment and collection of business profits tax for any chargeable accounting period ending on or before the 31st day of March, 1948, and for any purposes connected with such levy, assessment or collection. By the application of Act 67 of 1949, and the repeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be allowed as rebate from the first mentioned tax, and the amount of the first mentioned tax as so reduced shall be the tax payable. (3) For the purposes of this paragraph-- (a) the merged State assessment year 1948-49 means the assessment year which commences on any date between the 1st April, 1948, and the 31st December, 1948, both dates inclusive ; and (b) the merged State assessment year 1949-50 means the assessment year which commences on any date between the 2nd January, 1949, and the 31st July, 1949, both dates inclusive. 6. (1) The income, profits and gains of any previous year ending after the 31st day of March, 1948, which does not fall within paragraph 5 of this Order or of any previous year commencing after the previous year referred to in the said paragraph shall be assessed under the Indian Income-tax Act, 1922, but the tax payable on so much of the income as pertains to the period ending before the 1st day of August, 1949, shall be determined as hereunder-- (i) the tax on so much of such income included in the total income shall be computed, (a) at the Indian rate of tax, and (b) at the rates of tax in force in the merged State immediately before the 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates became chargeable to tax under the Indian Income-tax Act, but it was to continue to get for a limited period benefit of the lower rates of tax operative under the law in force in the States before merger. This concession or benefit was to apply by the express provisions contained in paragraph 4 only to so much of the income, profits and gains included in the total income of an assessee as would, had he been resident in the taxable territories, have been exempt under clause (c) of sub-section (2) of section 14 of the Indian Income-tax Act, 1922, if the Act had not been passed. Counsel for the appellants claims that paragraph 4 applies to income of all assessees resident within British India as defined in section 2(3A) at the relevant time, and not merely to residents in the territories of the merged States. It is contended that by paragraph 4 it was intended not only to give the benefit of the State rate of taxation to residents of the former Indian States which were merged with the provinces under the States Merger (Governors' Provinces) Order, 1949, but also to preserve the benefit which was conferred by section 14(2)(c) of the Income-tax Act to residents of the territories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1949 had not been passed, have been regarded as accruing or arising in an Indian State, and the assessee would, in respect of that income, had he been a resident of the taxable territory before merger, have been exempt under section 14(2)(c). The use of the expression " had he been a resident " implies that the benefit is not to enure to persons who were before the merger entitled to the exemption under section 14(2)(c). The order provides that paragraphs 5, 6, 9, 10 and 11 apply to a slice of income and not to the entire income of an assessee, and by the express terms, it is that slice of the income, as would, had the assessee been resident in the taxable territories, have been exempt under clause (c) of sub-section (2) of section 14 of the Indian Income-tax Act, if the Taxation Laws Act, 1949, had not been passed. In terms the concession is not given to residents of the territories of British India, and the context does not warrant an implication to the contrary. It is true that by this interpretation of paragraph 4, British Indian residents are denied the benefit of the exemption under section 14(2)(c) in respect of income arising or accruing in the territories of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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