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TMI Blog1958 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ork all quarries, strata, seams and beds of kankar, rorey, limestone or other like materials." Under clause (7), the licence is to last for a period of 25 years with option for successive renewals. Clause (10) requires that a public limited company should be formed before July 21, 1936, to work the concessions, and that it should be registered in the Jind State. Under clause (11), the State is to be allotted 6 per cent. cumulative preference shares fully paid up of the face value of rupees one lakh and ordinary shares fully paid up of the total face value of Rs. 50,000 without any payment whatsoever. Then there are provisions for the payment of royalty to the State and sale of cement at concession rates to local consumers. Clause (23) is very material for the present dispute, and is as follows : "The company shall be assessed to income-tax in accordance with the State procedure but the rate of income-tax shall always be four per cent. up to a limit of the income of rupees five lacs and five per cent. on such income as is in excess of rupees five lacs........................................................." Clause (24) grants exemption from export, import and other duties excepti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not later than the 20th August, 1948, make over the administration of his State to the Rajpramukh ; and thereupon, (a) all rights, authority and jurisdiction belonging to the Ruler which appertain, or are incidental to the Government of the Covenanting State shall vest in the Union and shall hereafter be exercisable only as provided by this Covenant or by the Constitution to be framed thereunder ; (b) all duties and obligations of the Ruler pertaining or incidental to the Government of the Covenanting State shall devolve on the Union and shall be discharged by it; (c) all the assets and liabilities of the Covenanting State shall be the assets and liabilities of the Union ; and (d) the military forces, if any, of the Covenanting State shall become the military forces of the Union." Article X provides that a Constituent Assembly should be formed as early as practicable, and that it should frame a Constitution for the State, and that until the Constitution is so framed, the Rajpramukh is to have power to make and promulgate Ordinances for the peace and good government of the Union. Under article XVI, the Union "guarantees either the continuance in service of the permanent member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law applicable to the appellant for the period prior to August 20, 1948, was the income-tax law of Jind, for the period, August 20, 1948, to April 13, 1950, the Patiala Income-tax Act, S. 2001, which came into force under Ordinance No. 1 of S. 2005 and after April 13, 1950, the Indian Income-tax Act. Civil Appeal No. 230 of 1954 arises out of proceedings for assessment of income-tax for the year 1949-1950. But its order dated November 11, 1952, the Appellate Tribunal has found that the taxable profits of the appellant for the year of account which is the calendar year 1948 was Rs. 1,94,265, and that finding is not now in dispute. The substantial point now in controversy is as to the rate at which tax should be levied on that amount, whether it should be what is enacted in the Patiala Income-tax Act as contended for the respondent, or what is provided in clause (23) of the agreement, exhibit A, as claimed by the appellant. On this question, the Appellate Tribunal held that the Patiala Union which was a new State that had come into existence as a result of the Covenant was not bound by the agreements entered into previously by the rulers of the Covenanting States, that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition, in addition to the contentions raised in Civil Appeal No. 230 of 1954 the petitioner also urges that even if the Union of India is entitled to repudiate the agreement dated April 1, 1938, it has not, in fact, done so, and that it has, on the other hand, recognised it as good and is, therefore, not entitled now to go back upon it, and that the levy of tax in accordance with the provisions of the Indian Income-tax Act is accordingly illegal. As the contentions raised in the appeal and in the petition are substantially identical, they were heard together. Before us, the validity of the assessment of income-tax for the year 1949-1950 was challenged by Mr. Pathak on the following grounds : (1) Ordinance No. 1 of S. 2005 under which the Patiala Income-tax Act is sought to be applied to the appellant does not, on its true construction, annul the rights granted under exhibit A ; (2) if the Ordinance in question is to be construed as having that effect, then it is in contravention of article VI of the Covenant, and is, therefore, unconstitutional and void ; (3) even apart from the Covenant, the agreement, exhibit A, is binding on the Patiala Union and the impugned Ordinance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) of the Covenant, which provides that the obligations of the rulers pertaining to or incidental to Government of the Covenanting State shall devolve on the Union and be discharged by it. It is argued that the Ruler of Jind had for good and valuable consideration undertaken certain obligations under clause (23) of exhibit A with reference to taxation which is a Governmental function, that he had himself scrupulously honoured them so long as be was a Ruler, and then passed them on under article VI(b) to the new State created under the Covenant, that the Rajpramukh who was a party to the Covenant and claimed under it was bound by that obligation, that his power to enact laws is subject under article VI(a) to the obligations mentioned in article VI(b), and that the impugned law is, if it is to be construed as having the effect of abrogating those obligations, ultra vires his powers under the Covenant and is, in consequence, void. In answer to this, the respondent contends that the Covenant entered into by the rulers is an act of State and that any violation of its terms cannot form the subject of any action in the municipal courts, that the obligations mentioned in article (VI)(b) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e XVI, which guaranteed the rights of the permanent members of the public services in the Covenanting States to continuance in service, and contended that this could not be regarded as an act of State but only as a law relating to the administration of the new State. In this view of the Covenant, he argued, article VI must be held to be a constitutional provision enacted for the protection of private rights, that it was, in consequence, binding on the ruler of the new State, and that the municipal courts were competent to grant appropriate reliefs for the breach thereof. This argument proceeds, in our view, on a misconception as to what is an act of State and what is a law of the State conferring rights on the subject, or, as the learned counsel for the appellant termed it, Constitution of the State. When the sovereign of a State--meaning by that expression, the authority in which the sovereignty of the State is vested, enacts a law which creates, declares or recognises rights in the subjects, any infraction of those rights would be actionable in the courts of that State even when that infraction is by the State acting through its officers. It would be no defence to that action th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that clauses in a treaty entered into by independent rulers providing for the recognition of the rights of the subjects of the ex-sovereign are incapable of enforcement in the courts of the new sovereign. In Cook v. Sprigg, the facts were that the ruler of Pondoland in Africa had granted certain concessions in favour of the appellants and subsequently ceded those territories to the British Government. The latter having declined to recognise those concessions, the appellants sued for a declaration of their rights thereunder, and the question was whether they had a right of action in respect of what was an act of State. One of the contentions urged on their behalf was that the ruler of Pondoland had at the time of cession of his territories expressed his desire to the British Government that the concessions in favour of the appellants should be recognised and that, in consequence, the appellants had the right to enforce them against the new Government. In rejecting this contention, the Lord Chancellor observed : "The taking possession by Her Majesty, whether by cession or by any other means by which sovereignty can be acquired, was an act of State and treating Sigcau as an indepen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e result is the same. Any inhabitant of the territory can make good in the municipal courts established by the new sovereign only such rights as that sovereign has, through his officers, recognized. Such rights as he had under the rule of predecessors avail him nothing. Nay more, even if in a treaty of cession it is stipulated that certain inhabitants should enjoy certain rights, that does not give a title to those inhabitants to enforce these stipulations in the municipal courts. The right to enforce remains only with the high contracting parties." In Hoani Te Heuheu Tukino v. Aotea District Maori Land Board, the question arose with reference to the Treaty of Waitangi entered into by the British Government with the native chiefs of New Zealand in 1840. Under clause (1) of the treaty, there was a complete cession by the chiefs of all their rights and powers of sovereignty. Clause (2) guaranteed to the chiefs, the tribes and the respective families and individuals certain rights in lands, forests and fisheries. In 1935, the Legislature of New Zealand enacted a law, the provisions of which were impugned as ultra vires on the ground that they infringed the rights protected by clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices, and this was relied on as showing that the rights of the subjects of the quondam States were intended to be protected. This argument is sufficiently answered by what we have already observed, namely, that a clause in a treaty between high contracting parties does not confer any right on the subjects which could be made the subject-matter of action in the courts, and that the Patiala Union is not bound by it, because it was not a party to the Covenant. It should, however, be mentioned that after the formation of the new State on August 20, 1948, the first legislative act of the sovereign was the promulgation of Ordinance No. 1 of S. 2005, and section 4 thereof expressly recognises the rights of the permanent members of public services. That undoubtedly is a law enacted by the sovereign conferring rights on his subjects and enforceable in a court of law, but at the same time the enactment of such a law serves to emphasise that the articles have not in themselves the force of law and were not intended to create or recognise rights. In this connection, reference should also be made to clause XVI of the Ordinance which enacts that the provisions of articles XV and XVII of the Cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1,50,000 without payment and had incurred considerable expense in working the concessions, and that, therefore, it was not open to the Patiala Union to go back upon it. The decisions in The Piqua Branch of the State Bank of Ohio v. Knoop and Home of the Friendless v. Rouse were relied on as authorities for the proposition that a State is not competent to revoke a grant made by it for consideration. In The Piqua Branch of the State Bank of Ohio v. Knoop, a law of the State of Ohio of the year 1845 had provided for the incorporation of banks and it contained provisions as to the taxes payable by them to the State and the mode of payment. In 1851 another Act was passed, the effect of which was to increase the tax payable and the validity of this Act was questioned by a bank incorporated under the Act of 1845. It was held by the majority of the court that the Act of 1845 was a legislative contract, and that the State Legislature was not competent to impair the rights which had been acquired under that contract. In Home of the Friendless v. Rouse, a society called the Home of the Friendless was established under a charter granted by the State of Missouri. The charter had provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n had, as a fact, affirmed the agreement. But has that been established ? It has been already observed that the rights of the appellant under exhibit A would become enforceable only if the new State had accorded recognition to them, and what is requisite, therefore, is a declaration or conduct of the Patiala Union subsequent to its formation which could be regarded as amounting to affirmation of exhibit A. Of that there is no evidence whatsoever. On the other hand, the first act of the Rajpramukh after assumption of office by him was the promulgation of Ordinance No. 1 of S. 2005, the effect of which was to sweep away the rights of the appellant under clause (23) of exhibit A. 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. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat I make is set out. If I judge aright, international opinion is divided about the effect that a change of sovereignty has on rights to immoveable property. The English authorities hold that all rights to property, including those in real estate, are lost when a new sovereign takes over except in so far as the new sovereign chooses to recognise them or confer new rights in them. But that, I gather, is not the view of the International Court of Justice. According to one of its opinions, which I have quoted at page 426 of Virendra Singh v. State of Uttar Pradesh, "private rights acquired under existing law do not cease on a change of sovereignty." Certain American cases take the same view though they can be distinguished on the facts. But this view, as I understand it, does not extend to personal rights, such as those based on contract, nor, in any event, does the new sovereign assume any obligations of the old State in the absence of express agreement. I have referred to this at page 427. In any event, whether I am right in thinking that that is what I might call the international view, I would agree that for our country that is, and should be, the law so far as personal rights ..... X X X X Extracts X X X X X X X X Extracts X X X X
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