Case: Shri Shubhlaxmi Mills Ltd Vs. Union Of India &amp; Anr

the appellant company has purchased the property does not affect the question. The real question is whether after the accession of the Cambay State to the Dominion of India, somebody having a contractual right which could be enforced against the Cambay State was entitled to enforce it against the Government of India in the Indian Courts. There is an exhaustive review of the authorities pertinent on this question in this Courts decision in Dalmia Dadri Cement Co., Ltd. v. Commr. of Income-tax, 1959 SCR 729 : (AIR 1958 SC 816 ). It is unnecessary to discuss these authorities again. We may only refer to the succinct statement of the Law by Lord Dunedin in Vajesingji Joravarsinghji v. Secy. of State for India, 51 Ind App 357 at p. 360: (AIR 1924 PC 216 at p. 217) :"When a territory is acquired by a sovereign state for the first time that is an Act of state. It matters not how the acquisition has been brought about. It may be by conquest, it may be by cession following on treaty, it may be by occupation of territory hitherto unoccupied by a recognized ruler. In all cases the result is the same. Any inhabitant of the territory can make good in the municipal Courts established by the new sovereign only such rights as that sovereign has, through his officers, recognised. Such rights as he had-under the rule of predecessors avail him nothing. Nay, more even if in a treaty of cession it is stipulated that certain inhabitants should enjoy certain rights, that does not give a title to those inhabitants to enforce these stipulations in the municipal Courts. The right to enforce remains only with the high contracting parties"On a consideration of the authorities the law was stated thus in the Dadri Cement case, 1959 SCR 729 : (AIR 1958 SC 816 ), by Venkatarama Aiyar. J. on behalf of the Court:"The result of the authorities then is that when a treaty is entered into by sovereigns of independent states "hereunder sovereignty in territories passes from one to the other; clauses therein providing for the recognition by the new sovereign of the existing rights of the residents of those territories must he regarded as invested with the character of an act of state and no claim based thereon could be enforced in a Court of law."4. The appellant company was, therefore, not entitled to have any relief from the Courts in India on the basis of the covenants in spite of the fact that the merger agreement included-by a communication from the Government of India to the Nawab, dated September 10, 1948-a clause in these terms:-"No order passed or action taken by you before the date of making over the administration to the Dominion Government will be questioned unless the order was passed or action taken after the 1st April 1948, and is considered by the Government of India to be palpably unjust or unreasonable. The decision of the Government of India in this respect will be final."5. Before us a point was sought to be taken on behalf of the appellant that the Dominion of India did in fact recognize the right of the Vijaylaxmi Cotton Mills to exemption from income-tax and so the right can he enforced. It is to be noticed that in the application before the High Court no such case of recognition was set up. Paragraph 6 of the Petition to which the learned counsel drew our attention says "The petitioners say that ever since the grant of the said exemption from 1943 onwards the said Shree Vijaylaxmi Cotton Mills enjoyed the said exemption and the said cambay State carried out its obligations". It is urged that by these words the appellant wanted to say that the Government of India also gave the Vijaylaxmi Cotton Mills an exemption from taxation on the basis of the covenant. The words used in Para. 6 are, however, not capable of this interpretation. We think it proper to add that even assuming that a claim for recognition of the right to exemption on the basis of the covenant had been made, the appellant has placed no material before the Court in support of such a claim. All that the learned counsel could say in support of this claim of recognition was that for the period from August 1, 1949, when the Dominion Government became entitled to levy income-tax on the Vijaylaxmi Cotton Mills upto December 16, 1949, when the Vijaylaxmi Cotton Mills transferred its interest, to the appellant company the Dominion of India or thereafter the Union of India has in fact made no assessment. The omission to assess tax for a short period like this could, however, not possibly be considered as amounting to the recognition of a right to exemption. It. is worth remembering in this connection that in S. 15 of the Taxation Concession Order, made on December 31, 1949, it was made clear that the Government of India would allow or disallow any exemptions granted by an acceding State, only as it thought fit. It is true that recognition need not be in any particular form. It was pointed by this Court in Virendra Singh v. State of Uttar Pradesh, (1955) 1 SCR 415 : (AIR 1954 SCR 447), that recognition of such rights as they exist at the date of cession "can be given either by legislation or by proclamation and it can even be inferred from the mode of dealing".... This is of little assistance to the appellant, which relies wholly on the fact of non-assessment of the Vijaylaxmi Cotton Mills for the period from August 1, 1949 to December 16, 1949, and not on anything else. It is apparently in view of this state of things that no case of recognition by the Dominion of India or the Union of India of the right to exemption was made in the petition before the High Court. In our opinion the High Court rightly dismissed the petition.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]It is to be noticed that in the application before the High Court no such case of recognition was setwords used in Para. 6 are, however, not capable of this interpretation. We think it proper to add that even assuming that a claim for recognition of the right to exemption on the basis of the covenant had been made, the appellant has placed no material before the Court in support of such aomission to assess tax for a short period like this could, however, not possibly be considered as amounting to the recognition of a right to exemption. It. is worth remembering in this connection that in S. 15 of the Taxation Concession Order, made on December 31, 1949, it was made clear that the Government of India would allow or disallow any exemptions granted by an acceding State, only as it thought fit. It is true that recognition need not be in any particular form. It was pointed by this Court in Virendra Singh v. State of Uttar Pradesh, (1955) 1 SCR 415  : (AIR 1954 SCR 447), that recognition of such rights as they exist at the date of cession "can be given either by legislation or by proclamation and it can even be inferred from the mode of dealing".... This is of little assistance to the appellant, which relies wholly on the fact of non-assessment of the Vijaylaxmi Cotton Mills for the period from August 1, 1949 to December 16, 1949, and not on anything else. It is apparently in view of this state of things that no case of recognition by the Dominion of India or the Union of India of the right to exemption was made in the petition before the High Court. In our opinion the High Court rightly dismissed the petition.