Summarize the following court judgment. Appeals Nos. 589 to 590 of 1964. Appeal by special leave from the judgment and order dated October 12	 13	 1961 of the Bombay High Court in Income tax Reference No. 56 of 1956. K. N. Rajagopal Sastri	 J. B. Dadachanji	 for the appellants. A. V. Viswanatha Sastri	 R. Ganapathy Iyer	 R. H. Dhebar and R. N. Sachthey	 for the respondent. The appellant held 1000 shares in an investment company styled Home Mehta and Sons Ltd. (hereinafter called 'the Company ') which carried on the business of investing in shares in companies registered in British India and in the former Indian States. Dividends from the British Indian companies were received by the Company at its registered office at Bombay	 and dividends from the Indian States ' companies were received by the Company at its registered office at Billimora in the State of Baroda. In the calendar years 1948 and 1949 the appellant received at Billimora Rs. 65	000 and Rs. 2	10	000 respectively as dividend in respect of shares held by it in the Company. The 2nd Income tax Officer	 A I Ward	 Bombay	 upheld the claim of the appellant that its dividend income received from the Company 581 at Billimora had accrued or arisen in the Baroda State and as the income was not brought into British India	 it was exempt from liability to tax by virtue of section 14(2)(c) of the Income tax Act. The Commissioner of Income tax	 Bombay held that the income accrued or arose to the appellant in Bombay where the dividend was declared	 and was on that account liable to be assessed under the Income tax Act	 1922. The Commissioner accordingly directed the Income tax Officer to pass orders imposing tax on the dividend income received by the appellant from the Company. On appeal	 the Income tax Appellate Tribunal held that the dividend income accrued or arose at Billimora and not at Bombay	 but by reason of the definition of "taxable territories" the income which accrued at Baroda attracted liability to tax under the Income tax Act and did not qualify for rebate under paragraph 6 of the Merged States (Taxation Concessions) Order	 1949. The following questions were referred by the Tribunal under section 66(1) of the Indian Income tax Act	 1922	 to the High Court: of Bombay for its opinion "(1) Whether on the above facts and circumstances of the case the assessee is entitled to rebate equal to the difference between the British Indian rate and Baroda State rate in respect of the dividend income ? (2) Whether on the facts and circumstances of the case the dividend income accrued or arose to the assessee at Bombay ?" The High Court held	 following its earlier judgment in Mrs.	 Kusumben D. Mahadevia	 Bombay vs The Commissioner of Income tax	 Bombay City	 Bombay(1) that the Merged States (Taxation Concessions) order	 1949 did not apply to the income of a resident assessee and therefore the first question must be answered in the negative. The High Court declined to answer the second question. With special leave granted by this Court	 the appellant has appealed to this Court. Income received by the Company from its transactions in the Indian States was retained at its office in Billimora and dividend ' declared out of that income was paid to the appellant at the registered office in the State of Baroda. This dividend it is common ground was not brought into British India. To appreciate the claim that the income qualifies for rebate under paragraph 6 of the Merged States (Taxation Concessions) Order	 1949	 the (1) Income tax Ref. No. 28 of 1955 decided	 on February 20	 1956 (unreported). p. C.I`./66 7 5 82 relevant statutory developments in tax laws to effectuate the merger of the former Indian States since August 15	 1947 may be briefly set out. Under section 14(2) (r.) of the Income tax Act	 added by Act 23 of 1941 and amended by Act 22 of 1947	 it was enacted that : "The tax shall not be payable by an assessee . in respect of any income	 profits or gains accruing or arising to him within an Indian State unless such income	 profits or gains are received or deemed to be received in or are brought into British India in the previous year by or on behalf of the assessee	 or are assessable under section 12B or Section 42. " By paragraph 3 of the States ' Merger (Governors ' Provinces) Order	 1949	 it was provided that the States specified in Sch. 11 shall	 as from August 1	 1949	 be administered in all respects as if they formed part of the Provinces specified in the Schedule	 and by paragraph 4 all the laws in force in the merged States or in any part thereof immediately before August 1	 1949	 were to continue in force until repealed	 modified or amended by a competent Legislature or other competent authority. The State of Baroda was one of the States specified in the Schedule and it was to be administered as if it formed part of the Province of Bombay. The Indian Income tax Act was applied to the merged States by section 3 of the Taxation Laws (Extension to Merged States and Amendment) Act 67 of 1949 with retrospective effect from April 1	 1949	 and by section 7 corresponding laws relating to income tax in the merged States were repealed. It was provided that if immediately before the 26th day of August	 1949	 there was in force in any of the merged States any law relating to income tax	 supertax or business profits tax	 that law shall cease to have effect except for the purposes of the levy	 assessment and collection of income tax and super tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income tax Act	 1922	 as extended to that State by section 3	 or	 as the case may be	 the levy	 assessment and collection of business profits tax for any chargeable accounting period ending on or before the 31st day of March	 1948	 and for any purposes connected with such levy	 assesssment or collection. By the application of Act 67 of 1949	 and the repeal of laws corresponding to those applied to the merged States by section 3	 residents in former British India and in the merged States were sought to be treated equally. But the result was a sudden imposition of high rates of taxation under the Indian Income tax Act read with the appro 583 priate Finance Acts upon the residents of the merged States. With a view to cushion the impact	 the Central Government in exercise of the powers conferred by section 60A of the Indian Income tax Act granted certain exemptions from and reductions in the rates of tax and made certain other modifications in the tax structure in its application to the merged States. By paragraph 3 (i) of the Merged States (Taxation Concessions) Order	 1949 the expression "Act" was defined as meaning the Taxation Laws (Extension to Merged States and Amendment) Act 67 of 1949. Paragraphs 4	 5	 6 and 6A of the Order as amended or added by the notification dated March 11	 1949	 provided : 4. "The provisions of paragraphs 5	 6	 9	 10 and 11 of this Order shall apply to only so much of the income	 profits and gains included in the total income of an assessee as would	 had he been resident in British India have been exempt under clause (c) of subsection (2) of section 14 of the Indian Income tax Act	 1922	 if the Act had not been passed." 5. "(1) The income	 profits and gains of an) previous year ending after the 31st day of March	 1948	 which is a previous year (i) for the merged State assessment year 1948 49	 or (ii) for the merged State assessment year 1949 50	shall be assessed under the Indian Income tax Act	 .1922	 if	 and only if	 such income	 profits and gains have not	 before the 1st day of August	 1949	 been assessed under the State law. (2) Where the income	 profits and gains referred to in sub paragraph (1) have not been assessed under the State law	 they shall be assessed under the Indian Income tax Act	 1922	 and the tax payable thereon shall be determined as hereunder (i) the tax on the amount of such income	 profits and gains included in the total income shall be computed at the Indian rate of tax; (ii) the amount of such income	 profits and gains shall be commuted under the State law aid the tax thereon computed at the merged Slate rate of tax; 584 (iii) the amount	 if any	 by which the tax computed under clause (i) exceeds the tax computed under clause (ii) shall be allowed as rebate from the first mentioned tax	 and the amount of the first mentioned tax as so reduced shall be the tax payable. (3) For the purposes of this paragraph (a) the merged State assessment year 1948 49 means the assessment year which commences on any date between the 1st April	 1948	 and the 31st December	 1948	 both dates inclusive; and (b) the merged State assessment year 1949 50 means the assessment year which commences on any date between the 2nd January	 1949	 and the 31st July	 1949	 both dates inclusive. " 6. "(1) The income	 profits and gains of any previous year ending after the 31st day of March	 1948	 which does not fall within paragraph 5 of this Order or of any previous year commencing after the previous year referred to in the said paragraph shall be assessed under the Indian Income tax Act	 1922	 but the tax payable on so much of the income as pertains to the period ending before the 1st day of August	 1949	 shall be determined as hereunder (i) the tax on so much of such income included in the total income shall be computed (a) at the Indian rate of tax and (b) at the rates of tax in force in the merged State immediately before the 1st day of August	 1949; (ii) the amount by which the tax computed under sub clause (a) of clause (i) exceeds the tax computed under sub clause (b) of clause (i) shall be allowed as rebate from the first mentioned tax	 and the amount of the first mentioned tax as so reduced shall be the tax payable. (2) Where any previous year falls partly before and partly on or after the 1st day of August	 1949	 the income	 profits and gains pertaining to the period falling before the said date shall	 unless the Income tax Officer	 having regard to any special circumstances	 otherwise 585 directs with the approval of the Inspecting Assistant Commissioner of Income tax	 be in the proportion which the period before the said date bears to the whole previous year. " 6A. "The income	 profits and gains of any previous year	 referred to in paragraph 5 or 6 of this Order	 which accrue or arise without the taxable territories to a person who is resident but who would not be resident in the taxable territories if the Act had not been passed	 shall be charged to tax in the same manner and to the same extent as specified in the said paragraph 5 or 6	 as the case may be." By the application of the Income tax Act	 1922	 to the territories of the merged States	 income received	 accrued or arisen or deemed to be received	 accrued or arisen to any person resident within the territory of the merged States became chargeable to tax under that Act. With a view to avoid hardship caused by the sudden application of high rates of taxation	 the Central Government exercised its powers under section 60A of the Indian Income tax Act and modified the tax levy so as to give certain exemptions and benefits to residents in the areas of the former Indian States. By paragraph 6 of the Merged States (Taxation Concessions) Order	 1949	 in respect of the income of any previous year ending with March 31	 1948 which accrued or arose to persons who were residents in the territories of the merged States	 benefit of the same rate of income tax to which it was subject in the merged State was granted by providing that the difference between tax computed at the Indian rate and the State rate shall be allowed as rebate. In respect of income of residents in the merged States arising outside the taxable territories	 a similar rebate was to be given (paragraph 6A). The result was that income of residents of the merged States became chargeable to tax under the Indian Income tax Act	 but it was to continue to get for a limited period benefit of the lower rates of tax operative under the law in force in the States before merger. This concession or benefit was to apply by the express provisions contained in paragraph 4 only to so much of the income	 profits and gains included in the total income of an assessee as would	 had he been resident in the taxable territories	 have been exempt under cl. (c) of sub section (2) of section 14 of the Indian Income tax Act	 1922	 if the Act had not been passed. Counsel for the appellants claims that paragraph 4 applies to income of all assessees resident within British India as defined 586 in section 2(3A) at the relevant time	 and not merely to residents in the territories of the merged States. It is contended that by paragraph 4 it was intended not only to give the benefit of the State rate of taxation to residents of the former Indian States which were merged with the Provinces under the States Merger (Governors ' Provinces) Order	 1949	 but also to preserve the benefit which was conferred by section 14(2) (c) of the Income tax Act to residents of the territories of British India before August 15	 1.947 in respect of income arising or accruing to them within the teffitory of the merged States. It is said that by the application of Act 67 of 1949 all residents in the taxable territory became liable to pay tax at Indian rates	 but with a view to maintain the status quo ante	 it was intended by the Taxation Concessions Order	 1949 to restore the State rates of taxation to residents in the former Indian States	 and also to continue the exemption in respect of the income of the former British Indian residents arising or accruing in the territory of the merged States within the limits prescribed by section 14(2) (c). But paragraph 4 of the Taxation Concessions Order	 1949	 is not susceptible of any such interpretation. Paragraph 4 of the Order	 and sections 3	 4	 4A	 4B and section 14(2) (c) of the Income tax Act must be read together. The Indian States specified in the Schedule to the States Merger Order on their merger with the Provinces of British India ceased to be separate entitles and became part of British India	 and by the application of Act 67 of 1949 the Indian Income tax Act was applied to the territories comprised within British India. Section 14(2)(c) undoubtedly remained in force even after the merger of the Indian States effected by the States Merger Order	 but its operation was restricted. After the merger of the States	 income arising or accruing within the territory of such merged State	 could not be deemed to be income arising or accruing within an Indian State	 for the State had ceased to exist	 and the income was for the purpose of section 4 of the Income tax Act income arising or accruing to a person resident within the taxable territories. There is nothing in paragraph 4 of the Concessions Order which seeks to grant exemption from liability to tax in respect of income which prior to merger of the States was not liable to tax by virtue of section 14 (2) (c)	 but has since the application of the Income tax Act become so liable. The claim that paragraph 4 applies to income of residents of former British India which was exempt from taxation under section 14(2) (c) is belied by the plain words of the Order. Para graph 4 does not substantively grant any exemption : it merely designates income to which the provisions of the Order granting 587 exemption will apply. It applies to income which would	 if Act 67 of 1949 had not been passed	 have been regarded as accruing or arising in an Indian State	 and the assessee would in respect of that income had he been a resident of the taxable territory before merger	 have been exempt under section 14(2) (c). The use of the expression "had he been a resident ' implies that the benefit is not to enure to persons who were before the merger entitled to the exemption under section 14(2) (c). The Order provides that paragraphs 5	 6	 9	 10 and 11 apply to a slice of income and not to the entire income of an assessee	 and by the express terms	 it is that slice of the income	 as would	 had the assessee been resident in the taxable territories	 have been exempt under cl. (c) of sub section (2) of section 14 of the Indian Incometax Act	 if the Taxation Laws Act	 1949	 had not been passed. In terms the concession is not given to residents of the territories of British India	 and the context does not warrant an implication to the contrary. It is true that by this interpretation of paragraph 4	 British Indian residents are denied the benefit of the exemption under section 14(2) (c) in respect of income arising or accruing in the territories of the former merged States. But that denial is the result of merger of the States into British India. The operation of section 14 (2) (c) had become restricted by the modification of the definition of British India. Since that amendment	 income accruing or arising after the merger in Indian States outside British India alone would be exempt under section 14 (2) (c) There is nothing in the Concessions Order which suggests that it was intended to ensure continuance of the exemption under section 14(2) (c) to residents of British India as it was before merger	 as if the merger had not taken place. The use of the expression "had he been resident in the taxable territories" introduces a fiction : it grants the benefit of section 14(2) (c)	 though on the express terms it is not available	 to a person who was not before the merger covered thereby	 and in respect of income which would have been	 if the Merger Act had not been passed	 exempt from taxation in his hands	 if he had been resident in British India. In our view	 Chagla	 C.J.	 was right in observing in Mrs. Kusumben D. Mahadevia 's case(1) that : "A person resident in a Merged State	 whose income accrued to him there	 could not possibly claim exemption under Section 14 (2) (c). Such an exemption could "only be claimed by a person resident in the taxable territories. In order to give this particular (1) Income tex Ref. No. 28 of 1955 decided on February 20	 1956 (unreported). 588 concession to a resident in a merged State this paragraph was enacted	 and the particular language which we find in this paragraph was used. " In the view we have taken on the first question	 it is unnecessary to record an answer on the second question. The appeals therefore fail and are dismissed with costs. Appeals dismissed.

By the Taxation Laws (Extension to Merged States and Amendment) Act of 1949 the Income tax Act. 1922 was applied to the territories of the former Indian States which were merged with the former British Indian Provinces under the States Merger (Governors ' Provinces) Order. By such application	 the income received	 accrued or arisen or deemed to be received	 accrued or arisen to any person resident within the territory of the merged State became chargeable to income tax. With a view to avoid hardship to residents of former Indian States	 caused by the sudden application of the high rates of taxation	 the Central Government issued the Merged States (Taxation Concessions) Order of 1949 under a. 60A of the Income tax Act. Under Paragraphs 6 and 6A of Us Order income of residents of the merged States became charageable to tax under the Indian Income tax Act	 but the income of any previous year ending after 31st March 1948 was to continue to get for a limited Period the benefit of lower rates of tax operative under the law in force in the States before merger. This concession was to apply	 under paragraph 4 of the Order	 only to so much of the income	 profits and gains included in the total income of an assessee as would	 had he been resident in the taxable territories	 have been exempt under section 14(2)(c) of the Income tax Act if the Taxation Laws Extension Act had not bee passed	 that is	 in respect of income arising or accuring to him :within territory of the merged State. In the Calendar years 1948 and 1949	 the assessee	 who was resident and ordinarily resident within British India in 1948	 received certaining as dividend in the State of Baroda which was one of the merged States. The Income tax Officer upheld its claim that the dividend income had accrued or arisen in the Baroda State and as the income was not brought into British India	 it was exempt from liablility to tax under section 14(2)(c) of the Income tax Act. The Appellate Tribunal held that the dividend income arose in Baroda State	 but by reason of the definition of "taxable territories" in section 2(14A) of the Income tax Act	 the income attracted liability to tax and did not qualify for the rebate equal to the difference between the British Indian rate and the Baroda State rate in respect of the dividend income	 under paragraph 6 of the Taxation Concessions Order. The High Court also	 on a reference	 held that the assessee was not entitled to the rebate. In appeal to this Court	 the assessee contended that by the application of the Taxation Laws Extension Act	 all residents in the taxable territory become liable to pay tax at the Indian rates	 but with a view to maintain the status quo ante	 it was intended by the Taxation Concessions Order	 to restore the State rates of taxation to residents in the former Indian States	 and also to continue the exemption in respect of the income of the former British India residents	 arising or accruing 5 80 in the territory of the merged States within the limits prescribed by section 14(2) (c). HELD : in terms the concession is not given to residents of the territories of British India	 and the context does not warrant an implication to the contrary. [587 C D] There is nothing in paragraph 4 of the Concessions Order which seeks to grant exemption from liability to tax in respect of income which prior to merger of the States was not liable to tax by virtue of section 14(2) (c)	 but has	 since the application of the Income tax Act	 become so liable. The paragraph applies to income. which would	 if the Taxation Laws Extension Act had not been passed	 have been regarded as accuring or arising in an Indian State	 and the assessee would in respect of that income	 had he been a resident of the taxable territory before merger	 have been exempt under section 14(2)(c). It is true that by this interpretation of paragraph 4 British Indian residents are denied the benefit of the exemption under section 14(2)(c) in respect of income arising or accruing in the territories of the merged State. But the use of the expression "had he been resident in the taxable territories" implies that the benefit is not to tenure to persons who were before the merger entitled to the exemption under section 14(2)(c). [587 A B	 D]