RUSSA H. MEHTA TRUST, BOMBAY versus COMMISSIONER OF INCOME-TAX, BOMBAY CITY I

Citation: [1966] 2 S.C.R. 579 · Decided: 12-11-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Judgment (excerpt)

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579 
RUSSA H. MEHTA TRUST, BOMBAY 
v. 
COMMISSIONER OF INCOME-TAX, BOMBAY CITY I 
November 12, 1965 
[K. SUBBA RAo, J. C. SHAH ANDS. M. S!KRI, JJ.J 
Merged States (Taxation Concession) 
Order, 1949 Paragraph 4--
Assessee resident in former British India-Income accruing in 
fornier 
Indian State-If entitled to rebate. 
By the Taxation Laws (Extension to Merged States and Amendment) 
Act of 1949 the Income-tax Act. 1922 was applied to the territories of 
the former Indian States which were merged with the former British 
Indian Provinces under tho States Merger (Governors' Provinces) Order. 
1949. 
By such application, the income received, accrued or arisen or 
deemed to be rece.ived, accrued or arisen to any person resident within 
the territory of the merged State became chargeable to income-tax. With 
a view to avoid hardship to residents of former Indian States, caused 
by the sudden application of the high rates of taxation, the Central 
Government issued the Merged States (Taxation Concessions) Order of 
1949 unde,r s. 60A of the Income-tax Act. Under Paragraphs 6 and 6A of 
this Order income of residents of the merged States became charageable 
to tax under the Indian Income-tax Act, but the income of any previous 
year ending after 3 lst March 1948 was to continue to get for a limited 
period the benefit of lower rates of tax operative under the law in force 
in the States before merger. This concession was to apply, under para~ 
graph 4 of the Order, only to so much of the income, profits and ~aios 
included in the total income of an assessee as would, had he been resident · 
in the taxable territorie•, have been exempt under s. 14(2) (c) of tbe 
Income-tax Act, if ,the Taxation Laws E~tension Act had 
not 
bees 
passed, that is, in respect of income arising or accuring to hint .within 
the territory of the merged State. 
In the Calendar years 1948 and 1949, the assessee, who was resi-
dent and ordinarily resident within British India in 1948, received oertain 
sums as dividend in the State of Baroda which was one of the merged 
States. The Income-tax Officer upheld its claim that the dividend in-
come -had accrued or arisen in the Baroda State and as the income was 
not brought into British India, it was exempt from liablility to tax under 
s. 14(2) (c) of the Income-tax Act. The Appellate Tribunal held that 
the dividend income arose in Baroda State, but by reason of the defi· 
nition of "taxable territories" in s. 2(14A) of the Income-tax Act, the 
income attracted liability to tax and did not qualify for the rebate equal 
to the difference between the British Indian rate and the Baroda State 
rate in respect of the dividend income, under paragraph 6 of the Taxa-
tion Concessions Order. 
The High Court also, on a reference, held 
that the assessee was not entitled to the rebate. 
In appeal to this Coart, the assessee contended that by the applica-
tion of the Taxation Laws Extension Act. all residents in the taxable 
territory become liable to pay tax at the Indian rates, but with a view 
to maintain the status quo ante, it was intended by the Taxation Con-
cessions Order, to restore the State rates of taxation to residents in the 
former Indian States, and also to continue the exemption in respect of 
the income of the former British India 
res:dents, arising 
or accruing 
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580 
SUPREME COURT REPORTS 
(1966] 2 S.C.R. 
in the territory of the merged States within the limits prescribed by 
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s. 14(2)(c). 
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HELD : In terms the concession is not given to residents of the terri-
tories of British India, and the context does not warrant an implication 
to the contrary. 
[587 C-Dl 
There is nothing in paragraph 4 of the Concessions Order 
which 
seeks to grant exemption from liability to tax in respect of income which 
prior to merger of the States was not liable to tax by virtue of 
s. 14(2) (c), but has, since the application of the Income-tax Act, become so 
liable. The paragraph applies. to income which would, if the Taxation 
Laws Extension Act had not been passed, have been regarded as accruing 
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or arising in an Indian State, and the assessee would in respect of that 
income, had he been a resident of the taxable territory before merger, 
have been exempt under s. 14(2)(c). It is true that by this interpreta-
tion of paragraph 4 British Indian resident• are denied the benefit of the 
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exemption under s. 14(2) (c) in respect of income arising or accruing 
in th

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