LexUNION OF INDIA AND OTHERS versus GWALIOR RAYON SILK MANUFACTURING (WEAVING) CO. LTD. AND ANOTHER
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1964 .April 28 892 SUPREME COURT REPORTS [I96iJ UNION OF INDIA AND OTHERS v. GWALIOR RAYON SILK MANUFACTURING (WEAV- ING) CO. LTD. AND ANOTHER [P. B. GAJENDRAGADKAR, C. J., K. N. WANCHOO, M. HIDAYAT- ULLAH, K. C. DAS GUPTA AND N. RAJAGOPALA AYYAN- GAR, JJ.] lncome Tax-Exemption from taxation-Agreement with erstwhile Indian State-Indian State becoming a Part B State under the Constitution of India.-Binding nature of the agree- ment-Finance Act, .1950 (25 of 1950), s. 13-Part B States (Taxation Concessions) Order, 1950, cl. 16-Constitution of India, Arts. 278, 295, 372. . In October 1946, B wrote to the Government of thi! erstwhile> State of Gwalior stating that certain industries would be established in Gwalior if the Government gave certain facili-· ties including exemption from taxation. The matter was eventu- ally put up before the Ruler who on January 18, 1949, made an, J order .sanctioning the proposals made by the minister which ._ included exemption from taxation as desired by B. On April 7, 1947, an agreement was entered into between the Govern- ment and B in accordance with the order of the Ruler dated January 18, 1947, under whlch certain facilities and concessions were granted to B for the establishment of industries in Gw,.-· lior, which included exemption from any iorm of taxation on the income for a period of 12 years from the date of starting of the factories. In pursuance ·of the agreement the appellant company was started and actual production began sometime in June 1949 so far as the weaving section of manufacturing: cloth from artificial silk yarn was concerned, while the staple· fibre section of the company started actual working on or about February 18, 1954. In April 1948 the Ruler of Gwalior enterecll into a covenant with the rulers of certain other States for the· formation of a United State called Madhya Bharat, under which· the Rulers made over the administration to the Raj Pramukh .. Article VI of the Covenant provided, inter alia, that the duti5 and obligations of the Ruler pt!rtaining or incidental to the> Government of the covenanting states •hall devolve on th<> United State and sha)) be discharged by it. On December 13,. 1948, the Madhya Bharat Act, No. 1 of 1948, was passed which provided, inter alia, that alI laws of the covenanting states f shall continue to remain in force until repealed' -Or amended .. On January 26, 1950, the Constitution of India ca~e into force> and the State of Madhya Bharat became a Part B 1State under the Constitution. On April 1, 1950, the Indian Income-tax Act. 1922, was extended to the Part B State of Madhya !Bharat, and from the same date Finance Act, 1950, also became applicable to that State. The effect of s. 13 of the Act of 1950 v.!as to repeal ail laws relating to income-tax prevailing in t~e pa,rts of India to which the Indian Income-tax Act was e nded. On February 25, 1950, an agreement was entered into tween the * Pre•ident of India and the State of Madhya Bhara~ which was to be in force for a period of ten years under which certain recommendations of Indian States Finances Enquir\r Committee were accepted. The Government of India also issued the Part . I 7S.C.R. SUPREME 'COURT REPORTS 893 1961 B States (Taxation Concessions) Order, 1950, by cl. 16 of which, certain concessions were given to industri3.1 ulldertaklngs Union of lndfa which had beerr granted exemption from income-tax by the anti Ot1'era Ruler of an Indian State. In December 1950, the company . v. applied under cl. 16 of the Concessions 6rder fpr an exemption . Gwah~1;;,Y'"! from payment of income-tax for the full period of twelve years B•lk Man. ) :',""9 as provided in the agreeme.nt dated April 7, 1947, but ·the Gov- Jl•a•,;n~n~r;.., ernment of India decided to exempt the company from income- ·an tax and super-tax for the ',assessment years 1950-51 to 1954-55 in respect of the weaving section and rejected the cl"im for • exemption of the staple 1ibre section which began working in April 1954. On November 23, 1956, the company filed a suit against the Uriion of India for a declaration _that under the a,greement W:ted Apnl 7, 1947, it was entitled to exemption from income-tax and super-tax for a period of 12 years frbm June 1949 with respect to the weaving section and for a period of 12 years from February 1954 with respect to the staple fibre section of the company. The company all;p filed a peti
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