1958 (4) TMI 6 - SC - Income Tax

Whether even apart from article VI of the Covenant the impugned Ordinance No. 1 of S. 2005 is bad in so far as it annuls rights granted by the Ruler of Jind under the agreement dated April 1 1938? Held that - It was argued that article VI of the Covenant would at least be valuable evidence from which affirmance of those rights could be inferred. That is so ; but that inference must relate to act or conduct of the new State and that can only be after its formation on August 20 1948. If there were any acts of the new State which were equivocal in character it would have been possible to hold in the light of article VI of the Covenant that its intention was to affirm the concessions in clause (23) of exhibit A. But the act of the new sovereign immediately after he became in titulo was the application of the Patiala State laws including the Patiala Income-tax Act to the territories of Jind involving negation of those rights. It was said that the levy of income-tax for 1948-1949 was made in accordance with exhibit A but that relates to a period anterior to the formation of the new State and is within the saving enacted in the proviso to section 3 of the Ordinance. The appellant has failed to substantiate his plea that there has been affirmance of clause (23) of exhibit A by the Patiala State Union and this point also must be found against it. Appeal dismissed.

Summary

Issues Involved:
1. Interpretation of Ordinance No. 1 of S. 2005 and its effect on rights under Exhibit A.
2. Constitutionality of Ordinance No. 1 of S. 2005 in light of Article VI of the Covenant.
3. Binding nature of the agreement, Exhibit A, on the Patiala Union.
4. Recognition and affirmation of Exhibit A by the Patiala Union.
5. Fundamental rights under the Indian Constitution post its enforcement.

Detailed Analysis:

1. Interpretation of Ordinance No. 1 of S. 2005 and its effect on rights under Exhibit A:
The appellant argued that the agreement, Exhibit A, was a special law and should not be overridden by the general provisions of Ordinance No. 1 of S. 2005. However, the court held that Section 3 of the Ordinance explicitly repealed all laws in force in the Covenanting States before its commencement, including the rights under Exhibit A. The court stated, "In the face of this language which is clear and unqualified, it is idle to contend that Ordinance No. 1 of S. 2005 saves the rights of the appellant to the tax concessions under clause (23) of exhibit A."

2. Constitutionality of Ordinance No. 1 of S. 2005 in light of Article VI of the Covenant:
The appellant contended that if the Ordinance annulled rights under Exhibit A, it violated Article VI(b) of the Covenant, which mandated that the obligations of the rulers devolve on the Union. The court rejected this, stating that the Covenant was an act of State and not enforceable in municipal courts. The court emphasized, "The Covenant was signed by the rulers on May 5, 1948, whereas the new State came into being only on August 20, 1948. The new State could not and did not enter into any Covenant before August 20, 1948, and, therefore, in strictness, it cannot be held to be bound by article VI, to which it was not a party."

3. Binding nature of the agreement, Exhibit A, on the Patiala Union:
The appellant argued that Exhibit A was a binding contract entered into for valuable consideration and could not be revoked by the Patiala Union. The court held that the Patiala Union was not bound by agreements made by the Ruler of Jind unless it chose to recognize them. The court stated, "There is no scope for the contention that the impugned Ordinance is bad as involving breach of contractual obligations, which were entered into by the Patiala Union, or which devolved on it."

4. Recognition and affirmation of Exhibit A by the Patiala Union:
The appellant contended that the Patiala Union had affirmed Exhibit A and was thus bound by it. The court found no evidence of such affirmation. The court noted, "The appellant has failed to substantiate his plea that there has been affirmance of clause (23) of exhibit A by the Patiala State Union, and this point also must be found against it."

5. Fundamental rights under the Indian Constitution post its enforcement:
The appellant argued that the tax concessions under Exhibit A were protected by Article 19(1)(f) of the Constitution. The court dismissed this, stating that the concessions under Exhibit A had ended with the promulgation of Ordinance No. 1 of S. 2005, and thus no rights subsisted on the date the Constitution came into force. The court concluded, "The petition must, therefore, be dismissed on this short ground."

Conclusion:
The Supreme Court dismissed both the appeal and the petition, holding that the appellant's rights under Exhibit A were extinguished by Ordinance No. 1 of S. 2005, that the Covenant was an act of State not enforceable in municipal courts, and that no fundamental rights under the Constitution were violated. The court affirmed the applicability of the Patiala Income-tax Act and the Indian Income-tax Act to the appellant.