Pre-Constitution grant exemption cannot override later income-tax legislation or limit Parliament's legislative power.

A pre-Constitution sovereign grant was held not to have the force of law so as to bar later fiscal legislation, and the claimed income-tax exemption under clause 18 could not survive the extension of the Indian Income-tax Act to the merged territory. Article 295(1)(b) was also held not to restrict Parliament's legislative power under article 245 or invalidate the Finance Act, 1950. The asserted immunity from income-tax therefore failed, and the exemption claim was negatived.

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Issues: (i) Whether the grant of 2 May 1945, especially clause 18, operated as law so as to exempt the appellant from income-tax during the currency of the grant despite the Finance Act, 1950; (ii) Whether article 295 of the Constitution prevented Parliament from enacting a law extending the Indian Income-tax Act, 1922, to the Kotah territory so as to affect the rights claimed under the grant.

Issue (i): Whether the grant of 2 May 1945, especially clause 18, operated as law so as to exempt the appellant from income-tax during the currency of the grant despite the Finance Act, 1950.

Analysis: The grant was examined in the light of the earlier decision delivered in the connected appeal. The controlling question was whether the grant had the force of law after the integration of Kotah and the extension of the Indian Income-tax Act, 1922, to Rajasthan. The Court held that the grant was not law in the constitutional sense and therefore could not continue to operate as a legal bar against the application of the later fiscal enactment.

Conclusion: The grant did not continue as law and did not exempt the appellant from income-tax.

Issue (ii): Whether article 295 of the Constitution prevented Parliament from enacting a law extending the Indian Income-tax Act, 1922, to the Kotah territory so as to affect the rights claimed under the grant.

Analysis: The Court held that article 295(1)(b) did not fetter the legislative power of the Union under article 245 so as to invalidate the Finance Act, 1950. The constitutional provision did not bar Parliament from extending the income-tax law to the merged territory or preserve the claimed exemption against that legislative action.

Conclusion: Article 295 did not invalidate the Finance Act, 1950, and did not sustain the claimed exemption.

Final Conclusion: The constitutional challenge failed, the asserted immunity from income-tax was negatived, and the appeal was dismissed with costs.

Ratio Decidendi: A pre-Constitution sovereign grant is not treated as law so as to fetter later fiscal legislation, and article 295(1)(b) does not restrict Parliament's power under article 245 to extend income-tax legislation to merged territories.

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