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

The appellant is a company incorporated and registered under the Indian Companies Act and has its registered office at Station Road, Cambay, in the state of Bombay. It appears that on May in 1943, the Nawab Saheb of Cambay representing the State of Cambay sold for and on behalf of the State the property known "Cambay State Mills" to a private limited company- "Shree Vijaylaxmi Cotton Mills Ltd." In the Indenture of Conveyance the vendor covenanted for himself and his successor that the vendor shall not during the period of five years from the date of the conveyance and during such further period hereafter as the Cambay Durbar may, from time to time, determine, levy, impose, claim, recover from the purchaser-company and its successors and assigns any income-tax, super tax, excess-profits tax or any other tax, impost or duty on the income, profits or gains of the said Mills or business thereof in the hands of the purchaser-company, its successors and assigns.2. On an application made by the Vijaylaxmi Cotton Mills Ltd., for extension of the exemption for a further period of 15 years after expiry of the original period of 5 years the Nawab granted an extension of 11 years after the expiry of the original period of 5 years. In December 1949 the Vijaylaxmi Cotton Mills transferred its interest in the entire property of the mills to he appellant herein, Shubhlaxmi Mills Ltd. More than a year before this, on March l9, 1948, the Nawab of Cambay had signed an agreement of merger of the Cambay State in the Bombay Province. Under this agreement the merger became effective on and from June 10, 1948. On December 31, 1949, the Government of the Dominion of India enacted a law called "Taxation Laws Extension to Merged States Act". The consequence of this was that the Income-tax Act became applicable to merged States including what had formerly been the State of Cambay as from August 1, 1949. On the same date the Government also promulgated an order called the "Merged States Taxation concession Order, 1949". Cl. 15 of which provides that if any industrial factory situate in a Merged State had been granted exemption from income-tax, super tax or any tax by the Ruler of the State before August 1, 1949, it shall submit an application to the Commissioner of Income-tax which the Commissioner was directed to forward to the Central Government and the Central Government, having regard to all the circumstances, might grant such reliefs as it might think appropriate. The appellant company made an application on May 7, 1949, to the Commissioner of Income-tax, Bombay, claiming exemption from income-tax, super tax, excess profits tax and business profits tax on the basis of the Covenant made by to Cambay State in favour of its vendor Vijaylaxmi Cotton Mills. This application was, however rejected by the Government of India and this decision was communicated to the appellant company by the Commissioner of Income-tax by his letter, dated October 25, 1951. Thereafter the appellant company was assessed to income-tax for the years 1951-52. 1952-53. On June 11. 1954 the appellant applied to the High Court of Bombay for relief under Art. 226 of the Constitution against these assessment orders its contention being that it is entitled to an exemption from income-tax from the Government of India on the basis of the exemption which the Nawab of Cambay had agreed to give to its vendor the Vijaylaxmi Cotton Mills Ltd. As already indicated, this application was summarily rejected by the Bombay High Court.

Court's reasoning:
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.