Merged States tax concession confined to intended class of income; British Indian resident denied rebate on dividend income.

Paragraph 4 of the Merged States (Taxation Concessions) Order, 1949, was construed with section 14(2)(c) of the Income-tax Act, 1922, the States' Merger (Governors' Provinces) Order, 1949, and the Taxation Laws (Extension to Merged States and Amendment) Act, 1949. The concession was confined to income that would have been exempt under section 14(2)(c) if the merger legislation had not intervened, and only within the class of persons and income covered by the order. British Indian residents already outside that intended class could not claim the exemption for dividend income arising in a merged State. The assessee therefore was not entitled to the claimed rebate.

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Issues: Whether the assessee was entitled to rebate under paragraph 6 of the Merged States (Taxation Concessions) Order, 1949, in respect of dividend income received in a merged State.

Analysis: Paragraph 4 of the Merged States (Taxation Concessions) Order, 1949, was read with section 14(2)(c) of the Income-tax Act, 1922, the States' Merger (Governors' Provinces) Order, 1949, and the Taxation Laws (Extension to Merged States and Amendment) Act, 1949. The concession scheme was held to apply only to that class of income which, had the assessee been resident in the taxable territories, would have been exempt under section 14(2)(c) if the merger legislation had not intervened. The language of paragraph 4 did not extend the concession to residents of British India who were already outside the intended class, and the fiction created by the order was confined to persons and income specifically covered by its terms. The court rejected the broader construction that would preserve, for British Indian residents, the pre-merger exemption in respect of income arising in merged States.

Conclusion: The assessee was not entitled to the claimed rebate and the answer to the first question was against the assessee.

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