TMI Blog1960 (4) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... dation of his Minister for Industries, Commerce and Communications, made an order on 18-1-1947 exempting from any form of taxation for a period of twelve years the income of certain industries and factories which M/s. Birla Bros., Ltd., Gwalior, intended to establish in Gwalior State. Consequent to this order of the Ruler, an agreement was entered into between the Gwalior Government and M/s. Birla Bros., Ltd., on 7-4-1947 for the grant of certain facilities, concessions and exemption from taxation in connection with the establishment and starting of certain industries mentioned in the agreement. One of the industries specified was the rayon silk manufacturing factory which included production of rayon or other synthetic fibres, yarns, and knitting, weaving and processing of such fibres and yarns. By Clause (3) of the agreement the Gwalior Government undertook To exempt, the above mentioned industries and/or any concern or concerns promoted or started or to be hereinafter promoted or started for the establishment of all or any of the above mentioned industries, from the payment of all taxes and/or duties, in any form or nature whatsoever, on their incomes, profits, gains or busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oon as may be practicable and in any event not later than the first day of July 1948. It proceeded to say inter alia that on the making over the administration of a State by its Ruler (a) ..... (b) all duties and obligations of the Ruler pertaining or incidental to the Government of the Covenanting State shall devolve on the United State and shall be discharged by it; (c) all the assets and liabilities of the Covenanting State shall be the assets and liabilities of the United State: and (d)..... In accordance with Article VIII of the Covenant, the Raj Pramukh executed on 19-7-1948 on behalf of the State of Madhya Bharat a revised Instrument of Accession, which was accepted by the Governor-General of India on 13-9-1948. By that Instrument, the Raj Pramukh accepted all the matters mentioned in List I and List III of the 7th Schedule of the Government of India Act, 1935, except the entries in List I relating to any tax or duty as matters with respect to which the Dominion Legislature may make laws for the State of Madhya Bharat Some time in May 1949 a supplementary covenant was entered into by the Rulers of Gwalior, Indore and certain other States of Central India mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year was deemed to be 'resident' in the taxable territories though Part B States were not part of taxable territories prior to 1-4-1950, and such an assessee, as a resident, was taxable in respect of all his income of the previous year. Section 60-A of the Act, which was inserted in the Indian Income Tax Act by the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, authorised the Central Government to make an exemption, reduction or modification as regards liability to tax in favour of any class of income or in regard to the whole or any part of income of any person or class of persons, for the purpose of avoiding any anomaly or removing any difficulty arising from the extension of the Income Tax Act to the merged territories or any Part B State. In exercise of the powers conferred by Section 60-A the Central Government issued the Part B States (Taxation Concessions) Order, 1950, The provision of the Order that is material here is paragraph 16 which provided for grant of exemption or concessions in respect of Income Tax or super-tax to industrial undertakings situated in any Part B State where such industrial undertakings were enjoying exemption o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-tax was a matter enumerated in the Union List. Under this head of the argument, learned counsel emphasised that the establishment of a new State of Madhya Bharat in 1948 and the State thereafter becoming a territory of the Republic of India were Acts of State; and that Article 295(1)(b) of the Constitution was a provision dealing not simply with mere transference of devolution of the rights, liabilities and obligations of the Government of any Indian State, corresponding to a State specified in Part B, to the Government of India, but that it also made the rights, liabilities and obligations devolving as the, rights, liabilities and obligations of the Government of India so as to bind that Government with the devolved rights, liabilities and obligations. Learned counsel emphasised the use of the word obligations in Article 295(1)(b) and proceeded to say that the obligation to exempt the petitioner-Company from any form of taxation during the period of twelve years having been thus embodied in an Article of the Constitution, it became a constitutional obligation which could not be abrogated by ordinary law; that the extension of the Indian Income Tax Act by the Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention that though Article 295(1)(b) did not limit the legislative power of Parliament, the Income Tax Act, the provisions of Section 13 of the Finance Act, 1950, and paragraph 16 of the Part B States (Taxation Concessions) Order, 1950, if they purported to annul the rights granted to the petitioner Company under the agreement. were quoad the petitioner, whose rights were thus infringed, unconstitutional and void, and were unenforceable from the decision in Behram Khurshid v. State of Bombay, (S) AIR 1955 SC 123; 1955-1 SCR 613. Learned counsel also referred to Probhat Chandra v. Emperor, AIR 1930 PC 209, Rajendra Narayan v. Commr. of Income Tax, AIR 1937 Pat 1, Maharaj Umeg Singh v. State of Bombay, (S) AIR 1955 SC 540: 1955-2 SCR 164 and Associated Stone Industries (Kotah) Ltd. v. Union of India ILR (1958) Raj 700 , and said that these cases were essentially distinct from the present case and did not in any way affect the validity of his argument. The distinction which the learned counsel sought to make between those cases and the one before us will be referred to later on, In answer to these contentions, learned Advocate-General submitted that the agreement dated 7-4-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support the proposition that a general statute should be interpreted so as not to interfere with the rights created under special laws, learned Advocate-General said that those cases turned on the wording of the enactments considered in those cases, but here the intention of the Legislature to abrogate exemption or concession in respect of Income Tax or super-tax granted by the Ruler of an Indian State and to repeal any law relating to Income Tax or super-tax in force in any Part B State before 1-4-1950 was patent from the explicit and clear wording of the definition of taxable territories given in Section 2 (14A) of the Income Tax Act and of the provisions of Section 13 of the Finance Act, 1950, and paragraph 16 of the Part B States (Taxation Concessions) Order, 1950; and that, therefore, the petitioner's claim for exemption from Income Tax or super-tax for the period mentioned in the agreement dated 7-4-1947 was altogether unsutainable. On the submissions made by the learned counsel, the question that arises in this case can be Stated, briefly, thus: whether the exemption from tax accorded to the petitioner-Company by the former Gwalior State by Clause (3) of its agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of lands made by the Rulers of erstwhile States of Charkari and Sairola, which were independent States under the paramountcy of the British Crown before the integration of the States into United States of Vindhya Pradesh and their subsequent accession to the Dominion of India, could be revoked as an act of State by the State of Uttar Pradesh. The Supreme Court, after pointing out that these grants which had been created by the Rulers of Charkari and Sairola wore recognised in 1948 by the Vindhya Pradesh Union and that when this Union was dissolved its rights, duties and obligations became those of the Government of India under the Vindhya Pradesh Merger Agreement and that subsequently the muafi granted by the said Rulers in respect of four villages became the obligation of the Uttar Pradesh Government when these villages were absorbed in Uttar Pradesh under the Provinces and States (Absorption of Enclaves) Order, 1950, on 25-1-1950, proceeded to say; The grants are absolute in character and would under any civilised system of law pass an absolute and indefeasible title to the grantee. Let it be conceded, as was argued (though we do not so decide) that they were defeasible at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but a sequel to this order. By that order exemption from any form of taxation on the income for a period of twelve years from the date of starting of the factories was granted. Now, as is clear from the decisions of the Supreme Court in Ameer-un-Nissa Begum v. Mahboob Begum, AIR 1955 SC 352, and Director of Endowments, Govt. of Hyderabad v. Akram Ali, (S) AIR 1956 SC 60, the said order of the Ruler had the effect of law. In the former case the Nizam of Hyderabad had issued a Firman directing that the report of a Commission appointed by him to advise on a case of succession of a deceased Nawab be implemented. The Supreme Court said that the Firmans of the Nizam were expressions of his sovereign will; that they were binding in the same way as any other law; that they would even override all other laws which were in conflict with them; and that so long as the Firman held the field, that alone would regulate the rights of the parties concerned though it could be annulled or modified by a later Firman at any time that the Nizam willed. The case of (S) AIR 1958 SC 60 (supra) dealt with a Finnan of the Nizam directing the Ecclesiastical Department to supervise a Dargah until the righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akur Amar Singhji v. State of Rajasthan (S) AIR 1955 SC 504 at p. 523) : 1955-2 SCR 303 at p. 335. And on principle, it makes no difference as to the nature of the act, whether it is acquisition of new territory by an existing State or as in the present case, formation of a new State out of territories belonging to quondam States. In either case, there is establishment of new sovereignty over the territory in question, and that is an act of State. It was then pointed, out that in law the process of acquisition of new territories was one continuous act of State terminating on the assumption of sovereign powers de jure over them by the new sovereign and it was only thereafter that rights accrue to the residents of those territories as subjects of that sovereign. The learned Judge then proceeded to say that no act done or declaration made by the new sovereign prior to his assumption of sovereign powers over acquired territories can quoad the residents of those territories be regarded as having the character of a law conferring on them rights such as could be agitated in his Courts. After discussing certain authorities, his Lordship then went on to say: The result of the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State in Section 4 are plain enough to show that any provision in the Covenanting States having the character or having the force of law was continued in Madhya Bharat by Section 4. Now, if the order dated 18-1-1947 of the Maharaja of Gwalior exempting the petitioner Company from taxation had the effect of law --as it had undoubtedly on the authority of AIR 1955 SC 352, then it follows that under Section 4 of Act No. 1 of 1948 that order having the force of law in the Gwalior State was continued after the formation of Madhya Bharat. The continuance of that order by Section 4 was an act or conduct of the new State after it was formed and was one giving legislative recognition to the privilege of exemption from taxation granted to the petitioner. An equivalent result is reached from Section 3 of the Act, which provided as follows: When in pursuance of Clause (b) of paragraph (1) of Article II of the Covenant, any State be included in the United State, the provisions of paragraph (2) of Article VI of the Covenant shall immediately come into force. The provisions of paragraph (2) of Article VI of the Covenant, which were to come into force in relation to a State when it be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devolved on the State of Madhya Bharat when that State was brought into existence and became a liability of Madhya Bharat as a Part B State under Article 295(1) of the Constitution. It may be mentioned that the decision in the case of 1958 MPC 82: AIR 1958 Madh Pra 71, (supra) was upheld by the Supreme Court in that when the State's application for leave to appeal to the Supreme Court was rejected by this Court, it sought special leave to appeal from the Supreme Court which was refused. The next question that falls to be determined is whether this obligation of the Madhya Bharat Government to exempt the petitioner from taxation devolved on and became a binding obligation of the Union Government so as to prevent it from impairing the obligation. The question turns on the true construction of Article 295(1)(b) of the Constitution. Clause (a) of Article 295(1) relates to the vesting in the Union of all property and assets which immediately before the commencement of the Constitution were vested in any Indian State corresponding to a State specified in Part B of the First Schedule, if the purposes for which such property and assets were held immediately before such commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision dealing merely with the devolution on the Government of India of rights, liabilities and obligations of the Indian States. If that had been the intention of the farmers of the Constitution, it would have been sufficient to say that all rights, liabilities and obligations of the Indian States mentioned in Clause (b) shall devolve on the Government of India if the purposes for which such rights were acquired or liabilities and obligations were incurred were the purposes of the Government of India relating to any of the matters enumerated in the Union List. But the language of Clause (b) is different. It says that all such rights, liabilities and obligations shall be the rights, liabilities and obligations of the Government of India. The words shall be the rights, liabilities and obligations are a clear positive instruction that not only the rights, liabilities and obligations shall devolve on the Government of India but that it shall also be the duty of the Government of India to discharge them. It must be noted that the question is not whether the words shall be have been used in a mandatory or a directory sense. In Clause (b) they have, without any doubt, an imper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o considered the question whether the transference under Article 294 to the State of Bombay of the obligations undertaken by the Union Government in Clause 5 of the letters of guarantee imposed a fetter or limitation on the legislative competence of the State Legislature to enact the impugned legislation, and held that it did not. It is easy to see that fundamental to the contention of the petitioners in Maharaj Umeg Singh's case (S) AIR 1955 SC 540 (supra) was the question whether Article 294(1)(b) bound the State of Bombay by all the obligations which had been originally undertaken by the Dominion Government under the agreements of merger and letters of guarantee and which devolved on the State of Bombay under that Article. If ex facie Article 294(1)(b) was provision dealing merely with transference of rights, liabilities and obligations and not with the binding effect of the obligations transferred, then the Supreme Court would have said so and would not have thought it necessary to make an assumption that the obligations were binding on the State of Bombay and decide the question whether the petitioners before them were entitled to enforce those obligations against the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities and obligations of the Indian States devolving under Article 295(1)(b) being numerous and of a varied nature and kind, clearly it was impossible to enumerate them specifically in Clause (b) for the purpose of making them binding on the Government of India. The absence, therefore, of a specific mention in Clause (b) of a particular obligation, or obligations, cannot be taken as indicative of the fact that Clause (b) of Article 295(1) did not intend to make any transferred obligation binding on the Government of India. Learned Advocate General sought to read Article 295(1)(b) as merely declaring devolution of rights, liabilities and obligations on the argument that by the execution of the Instruments of Accession the sovereignty of the Indian States had already been extinguished long before 26-1-1950 and that, therefore, there was no occasion on that date for the recognition of the rights, liabilities and obligations of the Indian States mentioned in the provision. This argument cannot stand. The Instruments of Accession executed by the Rulers of Indian States in August 1947 and the revised Instruments of Accession executed by the Raj Pramukhs' of the Union of States ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Instrument of Accession conclusively show that the limitations imposed by the Instrument on the sovereignty of the State of Madhya Bharat had no application over a substantial sphere. Within those limitations the State continued to remain a sovereign foreign State even after the execution of the Instrument of Accession. It is not necessary to labour the point further. In the decision of the Supreme Court in AIR 1954 SC 447 the nature and effect of a similar Instrument of Accession executed by the? Ruler of Rewa State was considered, and it was observed: Broadly speaking, the effect of the accession was to retain to the Rulers their full autonomy and sovereignty except on three subjects : Defence, External Affairs and Communications, These were transferred to the Central Government of the new Dominion. The fact that with the formation of the Union the legislative power of the Dominion Parliament was extended by revised Instruments of Accession to all matters specified in the Federal and Concurrent Lists does not alter the position. In Shiv Bahadur Singh v. State of Vindhya Pradesh, AIR 1953 SC 394 it was pointed out that the provisions under the Government of India Act u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjects, that the accession did not imply financial liability and no encroachment on the internal autonomy or sovereignty, and that it did not fetter their discretion in respect of their acceptance of the new Constitution of India Even when they acceded, the Dominion Legislature did not get any power to impose any tax or duty in the territories of Indian States. It was in the context of these commitments and assurances for safeguarding their rights, liabilities and obligations that it was provided by Article VI of the Covenant, under which the State of Madhya Bharat was formed, as in other Covenants, that all rights, liabilities and obligations of the Rulers of Covenanting States shall devolve on the United State and shall be discharged by it. These commitments and assurances could not have been clearly forgotten when the Indian States were persuaded to accept the new Constitution of India, as adopted by the Constituent Assembly, as the Constitution for their States also. The Constituent Assembly could do no less than make a provision for the protection of these rights, liabilities and obligations unless it was prepared to repudiate them and commit a deliberate breach of faith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Income Tax Act or the Finance Act of 1950 or the Taxation Concessions Order, 1950. This brings us to the consideration of the contention of the learned counsel for the petitioner that there being thus a constitutional obligation on the Government of India to exempt the petitioner from taxation the relevant provisions of the Indian Income Tax Act, Finance Act of 1950, and the Taxation Concessions Order, 1950, purporting to authorise imposition of tax on the petitioner, Company so as to abrogate the exemption were unconstitutional and unenforceable against the petitioner. In view of the decision of the Supreme Court in (S) AIR 1955 SC 540 (supra), learned counsel did not dispute that Article 295(1)(b) did not impose a fetter or limitation on the legislative competence of Parliament. What he contended was that though it was within the legislative competence of Parliament to impose Income Tax in Part B States, the provisions levying the tax would be unconstitutional and unenforceable against the petitioner inasmuch as they infringed the right secured by Article 295(1)(b) in the matter of exemption from taxation. Strong reliance was placed by the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em from enacting any legislation which had the effect of destroying the enjoyment and ownership of Ja-girs. It was on the basis of this effect of the Clause (5) of the letters of guarantee that the Supreme Court made the observation: The provisions of Article 294(b)of the Constitution which is said to have transferred the obligations of the Government of the Province to the State of Bombay would not by involving the transference of the obligation undertaken by the Dominion Government in Clause (5) of the letters of guarantee to the State Government impose a fetter or limitation on the legislative competence of the State Legislature to enact legislation on any of the topics enumerated in Lists 2 and 3 of the Seventh Schedule to the Constitution. The remedy of the petitioners would be elsewhere and not in this forum. The Supreme Court had no occasion to consider whether, if there had been an absolute guarantee against legislation abolishing Jagirs in Clause (5) and if that obligation had become a binding obli- gation of the State of Bombay under Article 294(1)(b), the Bombay Merged Territories and Areas (Jagirs Abolition) Act, 1953, though within the legislative power of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier in some detail. Briefly stated, the argument is that the language of these provisions is not so clear and explicit as to operate as a repeal of the order of the Ruler of Gwalior State, which has the effect of law, and of the contractual exemption under the agreement dated 7-4-1947, which has now become a constitutional obligation under Article 295(1)(b). It was said that a specific exemption from taxation could not he abrogated by general provisions of a subsequent Act imposing taxation as there must be a specific repeal of the exemption, This contention must be given effect to. The principle is firmly established that a general law has to be construed as not repealing a particular one, that is one directed towards a special object or a special class of objects and a general later law does not abrogate an earlier special one by mere implication. The applicability of this principle in the matter of taxation is illustrated by the decisions in (1790) 100 ER 862 and (1790) 100 ER 863. In the case of (1790) 100 ER 862 (supra), houses built on lands embanked from the Thames in pursuance of 7 Geo. 3, c. 37, which vested in the owners free from taxes, were held not liable to be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pepsu could not be construed unless the contrary appeared expressly or by necessary implication, as repealing the provisions of the agreement. Now, as we have endeavoured to point out earlier, the order of the Ruler of the Gwalior State dated 18-1-1947 was a law granting exemption to the petitioner Company. The exemption granted under the subsequent agreement executed to implement the order became after 26-1-1950 a constitutional obligation of the Government of India under Article 295(1)(b) of the Constitution. The petitioner's claim for exemption is thus founded on statutory provisions granting specific exemption. The State of Madhya Bharat became a taxable territory from 1-4-1950. But there is nothing in any of the amendments made in the Indian Income Tax Act imposing Income Tax in that State and making it a taxable territory which repealed the exemption granted to the applicant. In AIR 1958 SC 816 (supra), the Supreme Court was not inclined to regard the general provisions of an ordinance bringing into the State of Pepsu all laws which were in force in the Patiala State on the date of the commencement of the ordinance, as a provision sufficient to repeal the rights gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to conform both with a special law granting exemtion and the provisions of the Income Tax Act, 1922. The general provisions of the Income Tax Act, Section 13 of the Finance Act of 1950 and paragraph 16 of the Taxation Concessions, Order, 1950, cannot therefore be read as taking away the exemption granted to the petitioner. In the absence of a specific repeal of the special law, it cannot be held that the petitioner, is liable to tax for the period during which it was entitled to the special exemption. Learned Advocate-General seemed to place some reliance on the decisions in AIR 1930 PC 209 and AIR 1937 Pat 1 to support the contention that the amendments in the Income Tax Act and the Finance Act, 1950, repealed the provision granting exemption from taxation to the applicant. These cases are not of any assistance to the opponents. In AIR 1930 PC 209 (supra) the question was whether the income of a zamindar from his estate was liable to tax under the Income Tax Act, 1922, The assessee claimed that he was exempt from assessment as at the time of the Permanent Settlement in 1793 definite guarantees and assurances were given by the governing authority and were embodied in the Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other Act under which the exemption is claimed. The learned Chief Justice also mentioned that counsel for the assessee was not able to cite any authority in support of the proposition that if special exemption from future taxation is granted under an Act, then unless there was a specific repeal of exemption in a subsequent Act, it must be taken to be subsisting. The authorities in support of this proposition have been already pointed out and discussed by us. It is firmly settled that repeal by implication is only effected when the provisions of a later enactment are so inconsistent with or repugnant to the provisions of an earlier one that the two cannot stand together. It is difficult to see how a special statutory provision granting exemption from taxation and a general statute imposing taxation cannot stand together. The learned Chief Justice relied on AIR 1930 PC 209 (supra). But that decision, as already stated, is distinguishable by the fact that in that case the assessee's claim for exemption was rejected because there was nothing in the Regulations granting him immunity from taxation. To sum up, our conclusions are: (i) that the order dated the 18th January ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under the Indian Income Tax Act, 1922, after 13th April 1950. The claim rested on the agreement and Article VI of the Covenant. The Supreme Court rejected the claim on the grounds that the agreement if it was in the nature of a private Act was expressly repealed by Ordiance No. I of Samvat 2005 and that Article VI itself could not operate to confer on the Company any right as against the Fatiala Union; and that there was no act or conduct of the new State from which any affirmance of the rights which the petitioner had in Jind could be inferred. There is thus a material distinction between the present case and the case of D. D. Cement Co., Ltd. AIR 1958 SC 816 (supra). Here Section 4 of Act No. 1 of 1948 gave continuity to the order of the Ruler of Gwalior State which had the effect of law. Again Section 3 gave statutory recognition to the rights, duties and obligations of the Ruler pertaining or incidental to the Government of the State which devolved on Madhya Bharat and enjoined the State of Madhya Bharat to discharge them. Article 295(1) was no doubt not considered by the Supreme Court in the case of D. D. Cement Co. Ltd., AIR 1958 SC 816 (supra). But the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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