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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 ..... acts 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 was to be income-tax free. The Nizam agreed to grant the said loan at the rate of interest specified. Though, at some stage, he seemed to have said that it was free of all taxes, nonethel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir 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, applies with equal force to the identical questions raised in this reference. Sri Anantha Babu, on the other hand, contends that the question in so far as the exemption from tax is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt 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 had already agreed to apply the provisions of the Constitution, the draft of which was signed by the Constituent Assembly. In other words, the Nizam and Military Governor were both aware t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment 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 the same trust, viz., Nizam's Miscellaneous Trust. The question for consideration that arose was (at page 679) whether the1 per cent. loan is a State Government security within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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