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Issues: (i) whether the exemption from taxation granted by the Gwalior State order of 18 January 1947 and the agreement of 7 April 1947 created a binding obligation capable of devolving on Madhya Bharat and then on the Union of India under Article 295(1)(b) of the Constitution of India; and (ii) whether the Income-tax Act, Section 13 of the Finance Act, 1950, and paragraph 16 of the Part B States (Taxation Concessions) Order, 1950, repealed or abrogated that specific exemption.
Issue (i): whether the exemption from taxation granted by the Gwalior State order of 18 January 1947 and the agreement of 7 April 1947 created a binding obligation capable of devolving on Madhya Bharat and then on the Union of India under Article 295(1)(b) of the Constitution of India.
Analysis: The order of the Ruler granting exemption from taxation had the effect of law and the subsequent agreement imposed a clear obligation on the Gwalior Government to forbear from levying tax for the stipulated period. That obligation was continued by the Madhya Bharat legislation which gave legal recognition to the rights, duties and obligations of covenanting rulers and required them to be discharged by the United State. On that basis, the obligation became one of the State of Madhya Bharat and, on the commencement of the Constitution, devolved on the Union under Article 295(1)(b), which uses language making such obligations the obligations of the Government of India.
Conclusion: The exemption created a binding and enforceable obligation, and that obligation devolved on the Union of India.
Issue (ii): whether the Income-tax Act, Section 13 of the Finance Act, 1950, and paragraph 16 of the Part B States (Taxation Concessions) Order, 1950, repealed or abrogated that specific exemption.
Analysis: A general taxing statute does not repeal a prior special exemption unless the intention to do so appears clearly by express words or necessary implication. Section 60-A enabled concessions but did not cancel existing exemptions. Section 13 of the Finance Act, 1950, dealt with repeal of positive laws relating to income-tax or super-tax in Part B States, but it did not specifically repeal the special exemption arising from the Gwalior order and agreement. Paragraph 16 of the Taxation Concessions Order was also only enabling in character and did not authorise cancellation of an existing statutory exemption.
Conclusion: The taxing enactments did not repeal the specific exemption, and the assessee remained entitled to it.
Final Conclusion: The exemption from income-tax and super-tax was upheld, the assessment proceedings inconsistent with that exemption were quashed, and relief was granted to the assessee.
Ratio Decidendi: A specific exemption from taxation having the force of law is not taken away by a later general taxing provision unless repeal is express or necessarily implied, and an obligation devolving under Article 295(1)(b) is enforceable as an obligation of the Union where it relates to a Union subject.
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