TaxTMI 
TaxTMI 
1962 (11) TMI 51
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....n in C. A. No. 214 of 1956 is whether the same appellant if liable to pay income-tax in accordance with the provisions of the Indian Income tax Act, 1922 from the date on which those provisions were extended to the territory of the State of Rajasthan. C. A. Nos. 399 of 1960 arises out of a suit which the appellant had filed in the court of the District Judge, Jodhpur. That suit was dismissed by the learned District Judge. Then there was an appeal to the High Court of Rajasthan. The High court of Rajasthan dismissed the appeal. The High Court was then moved for a certificate under articles 132(1) and 133(1) of the Constitution. Such certificate having been granted by the High Court the appeal has been preferred to this court. C. A. No. 214 of 1956, arises out of a writ petition which the appellant had filed for the issue of a writ of mandamus or any other appropriate writ restraining the respondents from assessing or recovering income tax from the appellant. This writ petition was dismissed by the High Court on the preliminary ground that the appellant had another remedy open to it under the provisions of the Income-tax Act, 1922. The appellant moved the High Court and obtained a ce....
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.... the company in each of its financial years, such payments to be made within three months after the close of each financial year. This agreement, it was stated, was acted upon by the State of Jodhpur and the appellant enjoyed an immunity from excise duty and income-tax. The Indian Independence Act, 1947, brought into existence as from August 15, 1947, a Dominion of India. The Ruler of Jodhpur acceded to the Dominion of India by means of an Instrument of Accession in the form referred to in Appendix VII at pages 165 to 168 of the White Paper on Indian States. Jodhpur was one of the Rajputana States. The integration of these States was completed in three stages. Firstly, a Rajasthan Union was formed by a number of smaller Rajputana States situated in the south east of that region. Later, there was formed the United State of Rajasthan. The Ruler of Jodhpur joined the United State of Rajasthan and on pril 7, 1949, made over the administration of his State to the Rajpramukh of the United State of Rajasthan. The Covenant by which this was done is Appendix XL at pages 274 to 282 of the White Paper. On the same day was promulgated the Rajasthan Administration Ordinance, 1949 (Ordinance No.....
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....tc.) and taxes on income other than agricultural income fall within List 1 of the Seventh Schedule of the Constitution of India. By section 11 of the Finance Act, 1950, the provisions of the Central Excise and Salt Act 1944, and all rules and orders made thereunder were extended to the territory of Rajasthan as from April 1, 1950. The excise officers of the Union of India recovered a sum of Rs. 4,05,014-12-0 as excise duty for the goods manufactured and produced by the appellant for the period from April 1, 1950, to March 31, 1952, from the appellant. The appellant said that it paid the amount under protest. On April 16, 1952 the appellant instituted a suit by means of a plaint filed in the court of the District Judge, Jodhpur. In the plaint the appellant made several averments on the basis of which it claimed that the respondents were not entitled to realise excise duty from the appellant by reason of the agreement dated April 17, 1941. The appellant asked for the following reliefs : (a) a declaration that the agreement dated April 17, 1941, is binding on all the respondents; (b) that the amount of excise duty already realised by refunded with interest at 6% per annum; (c) that....
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....de by a competent authority in a covenanting State has the force of Law in that State. The agreement of April 17, 1941, it is argued, was sanctioned by the Ruler and was his order; therefore, it had the force of a special law in Jodhpur and this law continued to be in force by reason of section 3 of the Ordinance referred to above. When the Rajpramukh of the United State of Rajasthan promulgated the Rajasthan Excise Duties Ordinance, 1949 (Ordinance No. XXV of 1949), section 30 thereof did not abrogate the special law embodied in the agreement. On the coming into force of the Constitution on January 26, 1950, when Rajasthan became a Part B State, article 372 of the Constitution applied and the special law continued in force. The Finance Act, 1950, did not abrogate the special law. Therefore, the special law still continues in force and binds the respondents. This is the first lines of argument. The second line of argument proceeds on the footing that the agreement of April 17, 1941, is purely contractual in nature and is not law. Even on that footing, learned counsel for the appellant argues, the contract in question gives to rights in ne party and obligations on the other. These ....
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....unctions it would be necessary to consider the character of the orders passed. Their Lordships then examined the Kalambandi under consideration before them and pointed out that "the nature of the provisions contained in this document unambiguously impresses upon it the character of a statute or a regulation having the force of a state." Same was the position in Ameer-un-nissa's case and the case of the Director of Endowments, Government of Hyderabad A.I.R. (1956) S. 60 where this court had to deal with the effect of Firmans issued by the Nizam who was at the time an absolute ruler. It was held that such Firmans had the effect of law because in all domestic matters, the Nizam issued Firmans to determine the rights of his subjects. The Firmans were not based on consent, but derived their authority from the command of the sovereign, viz., the Nizam, expressing his sovereign will. For example, in Ameer-un-nissa's case A.I.R. (1955) S.C. 352 the Firman set aside the decision of a Special Commission in respect of certain claimants and though a subsequent Firman revoked the earlier Firman, it did not restore the decision of the Special Commission. It was in these circumstances that this c....
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....f legal rights and duties which courts recognise", there is an appreciable distinction between an agreement which is based solely on consent of parties and a law which derives its sanction from the will of the sovereign. A contract is essentially a compact between two or more parties; a law is not an agreement between parties but is a binding rule of conduct deriving its sanction from the sovereign authority. From this point of view, there is a valid distinction between a particular agreement between two or more parties even if one of the parties is the sovereign ruler, and the law relating generally to agreements. The former rests on consensus of mind, and the latter expresses the will of the sovereign. If one bears in mind this distinction, it seems clear enough that the agreement of April 17, 1941, even though sanctioned by the ruler and purporting to be on his behalf, rests really on consent. We have been taken through the correspondence which resulted in the agreement and our attention was particularly drawn to a letter dated April 22, 1938, in which ruler was stated to have sanctioned the terms and concessions decided upon by his ministers in their meeting of February 25, 193....
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....which gave an assurance to amend the law in future. He contended that an assurance to amend the law in future cannot to treated as present law. There is, we think, much force in this contention. When these difficulties were pointed out to learned counsel for the appellant, he suggested that we should separate the various clauses of the agreement and treat only those clauses as law which gave the appellant a present right. We do not see how we can dissect the agreement in the manner suggested and treat as law one part of a clause and treat the rest as an agreement only. We should notice here that clause 6 of the agreement does not refer to excise duty or income-tax to be imposed by the Union of India. As a matter of fact, nobody envisage in 1941 the constitutional developments which took place in 1947-1950, and when the parties talked of federal excise duty and federal income-tax, they had in mind the scheme of federation envisage by the Government of India Act, 1935 - which scheme never came into operation. It is difficult to see how the agreement in any view of the matter can be treated as law in respect of a tax or duty imposed by the Union Government when there is no mention of....
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....ll that a "legislative contract" means. In the cases before us there is no "legislative contract". In view of our conclusion that the agreement of April 17, 1941, is not law, it is perhaps unnecessary to decide the further question as to whether section 3 of the Rajasthan Ordinance, 1949 (Ordinance 1 of 1949) continued it or whether section 30 of the Rajasthan Excise Duties Ordinance, 1949 (Ordinance XXV of 1949) repealed it. We may merely say that with regard to the effect of section 30 learned counsel for the appellant relied on the principle that the presumption is that a subsequent enactment of a purely general character is not intended to interfere with an earlier special provision for a particular case unless it appears from a consideration of the general enactment that the intention of the legislature was to establish a rule of universal application in which case the special provision must give way to the general (see paragraph 711, page 467 of volume 36, Halsbury's Laws of England, third edition (1790) 100 E. R. 862, and Williams v. Pritchard and Eddington v. Borman (1790) 100 E. R. 863). On behalf of the respondents it was submitted that section 30 of the Rajasthan Excis....
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....ven the United State of Rajasthan could legally bind the feature action of the Union Legislature. It is now well settled by a number of decisions of this court that an act of State is the taking over of sovereign powers by a State in respect of territory which was not till then a part of it, by conquest, treaty, cession or otherwise, and the municipal courts recognised by the new sovereign have the power and jurisdiction to investigate and ascerta in only such rights as the new sovereign has chosen to recognise or acknowledge by legislation, agreement or otherwise; and that such a recognition may be express or any be implied from circumstances. The right which the appellant claims stems from the agreement entered into by the Ruler of Jodhpur. The first question is, did the succeeding sovereign, the United State of Rajasthan, recognise the right which the appellant is now claiming ? The second question is, did the next succeeding sovereign, the State of Rajasthan, recognise the right ? As among the State of Rajasthan the main claim of the appellant is based in that part of clause 6 which says that if any such duty (or tax) has to be paid by the company, the State will refund the sa....
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....ic interest." The letter ended by saying that the claim of the appellant to exemption could not be accepted. Another letter on which the appellant relied was dated May 1, 1950. In this letter the Government of Rajasthan said that the burden of the excise duty on cloth produced by the appellant fell on the consumers who purchased the cloth; therefore the Government of Rajasthan did not consider it necessary to exempt the appellant from payment of excise duty. It is worthy of note that all this correspondence started within a very short time of the promulgation of the Rajasthan Excise Duties Ordinance, 1949. From this correspondence Bapna J. came to the conclusion that neither the United State of Rajasthan nor the State of Rajasthan affirmed the agreement. We see no reasons to take a different view of the correspondence to which our attention has been drawn. What then is the position ? If the new sovereign, namely, the United State of Rajasthan or the Part B State of Rajasthan, did not affirm the agreement so far as exemption from the excise duty or income-tax was concerned, the appellant is clearly out of court. Learned counsel for the appellant has relied article 295(1)(b) of the ....
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.... a correct interpretation of article 295 of the Constitution. But before going into the question of interpretation of article 295 it may be pointed out that if the United State of Rajasthan did not affirm the agreement, then the appellant had no enforceable right against either the United State of Rajasthan or the Part B State of Rajasthan. Under article 295(1)(b) there must be a right or liability on an Indian State corresponding to a State specified in Part B of the First Schedule which can become the right or liability of the Government of India, etc., If the right itself did not exist before the commencement of the Constitution and could not be enforced against any Government, the question of its vesting in another Government Under article 295(1)(b) can hardly arise. The scheme of article 295 appears to be this. It relates to succession to property, assets, rights, liabilities and obligations. Clause (a) states that from the commencement of the Constitution all property and assets which immediately before such commencement were vested in an Indian State corresponding to a State specified in Part B of the First Schedule shall vest in the Union, if the purposes for which such pr....
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....greement entered into in that behalf by the Government of India and the Government of the State. Such an agreement was entered into between the President of India and the Rajpramukh of Rajasthan on February 25, 1950. It is necessary to explain how this agreement came into existence. A committee known as the Indian States Finances Enquiry Committee was appointed by a resolution of the Government of India dated October 22, 1948, to examine and report upon, among other things the present structure of public finance in Indian States and the desirability and feasibility of integrating Federal finance in Indian States. This committee submitted its report on October 22, 1949. The agreement between the President of India and the Rajpramukh of Rajasthan said : "The recommendations of the Indian States Finance Enquiry Committee, 1948-49 (hereafter referred to as the Committee) contained in Part I of its Report read with Chapter I, II and III of Part II of its Report, in so far as they apply to the State of Rajasthan (hereafter referred to as the State) together with the recommendations contained in Chapter VIII, part II of the report, are accepted by the parties hereto, subject to the follo....