M/S. DALMIA DADRI CEMENT CO. LTD. versus THE COMMISSIONER OF INCOME-TAX

Citation: [1959] 1 S.C.R. 729 · Decided: 28-04-1958 · Supreme Court of India · Bench: SUDHI RANJAN DAS · Disposal: Dismissed
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Judgment (excerpt)

• 
S.C.R. 
SUPREME COURT REPORTS 
729 
In the result all the questions framed in this case 
ate answered in favour of the appellant. The order 
passed by the High .Court is set aside and the appeal 
is allowed with costs throughout. 
Appeal allowed. 
Cmuniissioner 
of Jncome-ta:r, 
Bombay 
v. 
M fs. Amritlal 
Bhogilal & Co. 
Gajendragadkar ] . 
M/S. DALMIA DADRI CEMENT CO. LTD. 
v. 
THE COMMISSIONER O.B' INCOME-TAX 
• 
(and connected petition) 
(S. R. DAS c. J., VENKATARAMA AIYAR, s. K. DAS, 
GAJENDRAGADKAR and VIVIAN BosE JJ.) 
Act of State-Covenant between States for merger--Rights of 
subjects of the Covenanting States-Enforcement in municipal courts 
of the New State-Income-tax-Concessional rates granted by the 
Covenanting State-Whether binding on the New State. 
The appellant company which was incorporated in 1938 in 
the erstwhile State of Jind obtained certain concessions from 
the Ruler of the State under an agreement dated April l, 1938, 
which, inter alia, provided that the State was to be allotted 
certain shares in the company without any payment and as 
regards income-tax the company was to be assessed at conces-
sional rates. On May 5, 1948, the Ruler of Jind along with the 
Rulers of seven other States entered into a Covenant for the 
merger of their territories into one State. Article VI of the 
Covenant provided, inter alia, that the Ruler of the Covenant-
ing State shall make over the administration of his State to the 
Rajpramukh of the new State and that all duties and obligations 
of the Ruler of the Covenanting State shall devolve on the New 
State and shall be discharged by it. In accordance with that 
Article the Rajpramukh took over the administrii.tion of Jind on 
August 20, 1948, and immediately after assumption of ofiice 
promulgated Ordinance No. I of S. 2005, by s. 3 of which all 
laws in force in the State of Patiala were made applicable 
mutatis mutandis to the territories of the New State and that all 
laws in. force in the Covenanting States stood repealed. On 
November 24, 1949, the Rajpramukh issued a proclamation 
accepting the Constitutiorr of India and on April 13,' 1950, the' 
New State became a taxable territory of the Union of India. 
April 28. 
• 
730 
SUPREME COURT REPORTS 
[1959] 
x958 
The result of the constitutional changes was that the law relat-
-
ing to income-tax applicable to the appellant, for the period 
M/s. Dalmia Dadri prior to August 20, 1948, was that of Jind, for the period August 
Cement Co. Ltd. 
20, 1948, to April 13, 1950, that of the Patiala Income-tax Act 
v. 
and after April 13, 1950, the Indian Income-tax Act; but the 
The Commissioner appellant contended that the income-tax should be levied on 
of Income-tax 
him as provided in the agreement entered into with the Rnler of 
Jind, dated April l, 1938: 
• 
Held, (1) that s. 3 of the Ordinance No. l of S. 2005 on its 
true construction extinguished the right to tax concessions con-
ferred on the appellant under the agreement dated April l, 1938, 
and that the appellant cannot rely on that agreement after 
August 20, 1948. 
(2) The Covenant dated May 5, 1948, entered into by the 
Rulers of the States, is in whole and in parts an act of State and 
Article VI cannot be relied on by the appellant for the enforce-
ment of the rights conferred on him under the agreement with 
the Ruler of Jind as against the Rajpramukh of the new State· 
Per S. R. Das C. J., Venkatarama Aiyar, S. K. D~s and 
Gajendragadkar JJ.-When a treaty is entered into by sovereigns 
of independent States whereunder sovereignty in territories 
passes from one to the other, clauses therein providing for the 
recognition by the new sovereign of the existing rights of the 
residents of those territories must be regarded as invested with 
the character of an act of State and no claim based thereon 
could be eniorced in the municipal courts established by the 
new sovereign unless those rights have been recognised by 
him. 
Secretary of State for India v. Bai Rajbai, (1915) L. R. 42 I. A. 
229, V ajasingji J oravarsingji and others v. Secretary of State, (1924) 
L. R. 51 I. A. 357, Secretary of State v. Sardar Rustam Khan, 
(1941) L. R. 68 l. A. 109, Cook v. Sprigg, [1899] A. C. 572 and 
Hoani Te Heuheu Tukino v. Aotea District Maori Land Board, 
[1941] A. C. 308, relied on. 
Per Bose ].-International opinion is divided about the 
effect that a change of sovereignty has on rights to immoveable 
property and this decision must not be used as
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