# Bombay v. M fs. Amritlal

- **Citation:** [1959] 1 S.C.R. 729
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Bench:** S. R. DAS c. J, Venkatarama Aiyar, s. K. DAS, Gajendragadkar, VIVIAN BosE
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bombay-v-m-fs-amritlal-1541
- **Pages:** 23

## Headnote

Act of State-Covenant between States for merger--Rights of
subjects of the Covenanting States-Enforcement in municipal courts
of the New State-Income-tax-Concessional rates granted by the
Covenanting State-Whether binding on the New State.
The appellant company which was incorporated in 1938 in
the erstwhile State of Jind obtained certain concessions from
the Ruler of the State under an agreement dated April l, 1938,
which, inter alia, provided that the State was to be allotted
certain shares in the company without any payment and as
regards income-tax the company was to be assessed at concessional rates. On May 5, 1948, the Ruler of Jind along with the
Rulers of seven other States entered into a Covenant for the
merger of their territories into one State. Article VI of the
Covenant provided, inter alia, that the Ruler of the Covenanting State shall make over the administration of his State to the
Rajpramukh of the new State and that all duties and obligations
of the Ruler of the Covenanting State shall devolve on the New
State and shall be discharged by it. In accordance with that
Article the Rajpramukh took over the administrii.tion of Jind on
August 20, 1948, and immediately after assumption of ofiice
promulgated Ordinance No. I of S. 2005, by s. 3 of which all
laws in force in the State of Patiala were made applicable
mutatis mutandis to the territories of the New State and that all
laws in. force in the Covenanting States stood repealed. On
November 24, 1949, the Rajpramukh issued a proclamation
accepting the Constitutiorr of India and on April 13,' 1950, the'
New State became a taxable territory of the Union of India.
April 28.
•
730
SUPREME COURT REPORTS
[1959]
x958
The result of the constitutional changes was that the law relat-
-
ing to income-tax applicable to the appellant, for the period
M/s. Dalmia Dadri prior to August 20, 1948, was that of Jind, for the period August
Cement Co. Ltd.
20, 1948, to April 13, 1950, that of the Patiala Income-tax Act
v.
and after April 13, 1950, the Indian Income-tax Act; but the
The Commissioner appellant contended that the income-tax should be levied on
of Income-tax
him as provided in the agreement entered into with the Rnler of
Jind, dated April l, 1938:
•
Held, (1) that s. 3 of the Ordinance No. l of S. 2005 on its
true construction extinguished the right to tax concessions conferred on the appellant under the agreement dated April l, 1938,
and that the appellant cannot rely on that agreement after
August 20, 1948.
(2) The Covenant dated May 5, 1948, entered into by the
Rulers of the States, is in whole and in parts an act of State and
Article VI cannot be relied on by the appellant for the enforcement of the rights conferred on him under the agreement with
the Ruler of Jind as against the Rajpramukh of the new State·
Per S. R. Das C. J., Venkatarama Aiyar, S. K. D~s and
Gajendragadkar JJ.-When a treaty is entered into by sovereigns
of independent States whereunder 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 be regarded as invested with
the character of an act of State and no claim based thereon
could be eniorced in the municipal courts established by the
new sovereign unless those rights have been recognised by
him.
Secretary of State for India v. Bai Rajbai, (1915) L. R. 42 I. A.
229, V ajasingji J oravarsingji and others v. Secretary of State, (1924)
L. R. 51 I. A. 357, Secretary of State v. Sardar Rustam Khan,
(1941) L. R. 68 l. A. 109, Cook v. Sprigg, [1899] A. C. 572 and
Hoani Te Heuheu Tukino v. Aotea District Maori Land Board,
[1941] A. C. 308, relied on.
Per Bose ].-International opinion is divided about the
effect that a change of sovereignty has on rights to immoveable
property and this decision must not be used as a precedent
in a case in which rights to immoveable property are concerned.
CIVIL APPtLATE" JURISDICTION: Civi

## Text

_Characters 0–39,860 of 52,833. This is a partial read: ask again with offset=39860 for what follows._

•
S.C.R.
SUPREME COURT REPORTS
729
In the result all the questions framed in this case
ate answered in favour of the appellant. The order
passed by the High .Court is set aside and the appeal
is allowed with costs throughout.
Appeal allowed.
Cmuniissioner
of Jncome-ta:r,
Bombay
v.
M fs. Amritlal
Bhogilal & Co.
Gajendragadkar ] .
M/S. DALMIA DADRI CEMENT CO. LTD.
v.
THE COMMISSIONER O.B' INCOME-TAX
•
(and connected petition)
(S. R. DAS c. J., VENKATARAMA AIYAR, s. K. DAS,
GAJENDRAGADKAR and VIVIAN BosE JJ.)
Act of State-Covenant between States for merger--Rights of
subjects of the Covenanting States-Enforcement in municipal courts
of the New State-Income-tax-Concessional rates granted by the
Covenanting State-Whether binding on the New State.
The appellant company which was incorporated in 1938 in
the erstwhile State of Jind obtained certain concessions from
the Ruler of the State under an agreement dated April l, 1938,
which, inter alia, provided that the State was to be allotted
certain shares in the company without any payment and as
regards income-tax the company was to be assessed at concessional rates. On May 5, 1948, the Ruler of Jind along with the
Rulers of seven other States entered into a Covenant for the
merger of their territories into one State. Article VI of the
Covenant provided, inter alia, that the Ruler of the Covenanting State shall make over the administration of his State to the
Rajpramukh of the new State and that all duties and obligations
of the Ruler of the Covenanting State shall devolve on the New
State and shall be discharged by it. In accordance with that
Article the Rajpramukh took over the administrii.tion of Jind on
August 20, 1948, and immediately after assumption of ofiice
promulgated Ordinance No. I of S. 2005, by s. 3 of which all
laws in force in the State of Patiala were made applicable
mutatis mutandis to the territories of the New State and that all
laws in. force in the Covenanting States stood repealed. On
November 24, 1949, the Rajpramukh issued a proclamation
accepting the Constitutiorr of India and on April 13,' 1950, the'
New State became a taxable territory of the Union of India.
April 28.
•
730
SUPREME COURT REPORTS
[1959]
x958
The result of the constitutional changes was that the law relat-
-
ing to income-tax applicable to the appellant, for the period
M/s. Dalmia Dadri prior to August 20, 1948, was that of Jind, for the period August
Cement Co. Ltd.
20, 1948, to April 13, 1950, that of the Patiala Income-tax Act
v.
and after April 13, 1950, the Indian Income-tax Act; but the
The Commissioner appellant contended that the income-tax should be levied on
of Income-tax
him as provided in the agreement entered into with the Rnler of
Jind, dated April l, 1938:
•
Held, (1) that s. 3 of the Ordinance No. l of S. 2005 on its
true construction extinguished the right to tax concessions conferred on the appellant under the agreement dated April l, 1938,
and that the appellant cannot rely on that agreement after
August 20, 1948.
(2) The Covenant dated May 5, 1948, entered into by the
Rulers of the States, is in whole and in parts an act of State and
Article VI cannot be relied on by the appellant for the enforcement of the rights conferred on him under the agreement with
the Ruler of Jind as against the Rajpramukh of the new State·
Per S. R. Das C. J., Venkatarama Aiyar, S. K. D~s and
Gajendragadkar JJ.-When a treaty is entered into by sovereigns
of independent States whereunder 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 be regarded as invested with
the character of an act of State and no claim based thereon
could be eniorced in the municipal courts established by the
new sovereign unless those rights have been recognised by
him.
Secretary of State for India v. Bai Rajbai, (1915) L. R. 42 I. A.
229, V ajasingji J oravarsingji and others v. Secretary of State, (1924)
L. R. 51 I. A. 357, Secretary of State v. Sardar Rustam Khan,
(1941) L. R. 68 l. A. 109, Cook v. Sprigg, [1899] A. C. 572 and
Hoani Te Heuheu Tukino v. Aotea District Maori Land Board,
[1941] A. C. 308, relied on.
Per Bose ].-International opinion is divided about the
effect that a change of sovereignty has on rights to immoveable
property and this decision must not be used as a precedent
in a case in which rights to immoveable property are concerned.
CIVIL APPtLATE" JURISDICTION: Civil Appeal No,
230 of 1954. Petition No. 276 of 1953.
Appeal from the judgment and order dated June 7,
1954, of the former Pepsu High Court in Civil Misc.
No. 97 of 1953. Petition under Article 32 •of the
Constitution of India for the enforcement of fundamental rights.
•
'
·•
•
s.o.~.
'
.
731
~ \ 1
G. ~. Eri:thak,
v~4a Vya~a, s. K . .[fotplfr ap.? J.B.
I958
P,aja,_cl,iar1,ji, for thy 1)-ppellant~-p~titioper~;
·
M/s. Dalmia Dadri
H. N. Sanyal, Additional Solicitor-General of India, ·cement Cd~ Ltd.
R. Ganapathi Iyer, Raj Gopal Sastri and R. II: Dliebar,
·' "v ... '·
for the respondents.
·
·
Th~ Co::im!ss~omr
t
.
.
· of·111C01ne:ta"'X
l
1958.
April 28.
The judgment of S. R. Das C. J.,
· ... '" '
Ve,ri~atarama' Aiyar, S. K. Das and Gajendraga;d.
kar ~JJ.' was delivered by Venkatarama Aijay 'J.
Bose J. delivered a separate judgment.
· "'
·
~.~~It<(.'~
"
;l
·.!
VEN:KATARAl\:lA A~YAR J.-Messrs. :Qahp.ia
paqf~
Venkatarama
Cement Co. Ltd. whjch is the appellant in.Civil Appi;al
Aiyar J.
No. 23.0of1,954 and the petitioner in :Peti_tion No. 276
of 1953, is a puJ:ilic company engaged in the !llanufacture and sale of cement at a place called pad_ri s~~uate
in w4at was once the independent State of Jind. Qp.
April I, 1938, one Shant.i ,Prasad Jain, ~ p_r,0_1pot1;1;r of
the above col)'lpany, obtained certain con.cessi011~ from
the Ruler of Jin,d under an agreement, ;Ex. 1" an~· as
it is this document ,that forms .t.he basis of ,the pr~sertt
claim of the appeJlant, it is necessa;ry to :r.efer ,to tpe
material terms thereof.
Clause (I} of the
ag.r~!(,n,ie,nt
grants to the liQensee, Shanti Pr(tsad Jain, '.' t}_i,y sole
and exclusive monopoly .right of .manufactur,ii;i_g c1;1pypt
in ,the J,ind State '', a~<;l {Qr that P1:J..rpose .~e ,is ~.utfiorised ip GJ. (2) .to " win (ind work ~11 qua.rr,~es, strat~,,
seams .~nd be<;ls of )>:ank~r, rorey, · 1~i;t?:esto,\1e or <?,t.her
like materials". Under Cl. (7), t_he liQe.n.qy is to 111~t
for a period of 25 years wit.h option f9,r
•mccy,~~i.v:e
renewals.
01(!.μse (.10) requir:es t.:\l?>t a puJ?Jic _lim~~!(9company should pe for.m~d before July 2~, ,19??, ~o
work the conQessions, a.ni;l tP,at ~t sliop.l?· qy r:e_gi~tyi;e,d
in .the Jind St11t1J.
JJ.nder .CJ .. (JJ), tlw §_~{l>J\'l Js
.~\:J
~e
allotted .6 per cen,t. qμ_mulatiye pr:efer.enc;:i s}ia,r~s f.\l.~ly
paid up of th!l faQe v~lue of rupees 0,:μe .lac ~μ9. o,r~inar.y "shafe.sfully pfl,ii;l 1,1.J? of the tot!J.l faqe' .v.a,lμ,~ 'o.f
Rs. 50,000 w:iii!+?μt ll{ny P!J.Yrp.en..t
/V.h{l>tsq\'Jv,~r·
~-~ell
£here are provisiqp.s for the payment gf ~oy:iil,ty ,t,? ~~e
State l\lld sale of cement at Gl?,J).(le~ssio.n i'~t,~s 1t9 l~c~l
consμmers.
Ql11iuse (23) is ,y:ery fll!li~~rtail fqr !~h~ present diSpu.te, au{l is as Jqllows :
•
· •
. - 93. -
'
732
SUPREME COURT REPORTS
[1959]
z95B
"The Company shall be assessed to income-tax in
I
-1accordance with the State procedure but the rate of
M s. Da mia Dadd ·
t
h ]] ]
b f
t
] ' 't
Cement Co. Ltd. mcome- ax s a a ways e our per cen . up to a 1m1
v.
of the income of rupees five lacs and five per cent. on
The Commissioner such income as is in excess of rupees five lacs ......... "
of In'°me-tax
Clause (24) grants exemption from export, import and
other duties excepting octroi.
Clause (37) provides for
Venkatarama
Aiyar ] .
settlement of all disputes between the parties by arbitration.
In accordance with the terms set out above, the
appellant company was duly incorporated in the Jind
State, and on May 27, 1938, Shanti Prasad Jain executed in its favour a deed agreeing to transfer all" his
rights, privileges and obligations" under Ex. A.
The
appellant claims that it has become in this wise entitled
as assignee of the licensee to all the benefits . gr1J.nted
under Ex. A.
The contention was raised by the
respondent that the deed dated May 27, 1938, does not
itself purport to assign the rights under the license,
Ex. A but merely agrees to do so, and that in the
absence of a further deed transferring those rights, the
appellant could not claim the rights of assignee. But
Cl. (35) expressly provides that " the licensee shall
transfer his rights to the proposed Company on its
formation", and after the appellant was incorporated,
the State had throughout recognised it as the person
entitled to the rights and subject to the obligations
under the license and realised royalty and levied
income-tax in accordance with the provisions of Ex. A.
This objection was taken for the first time only in the
Writ Petition No. 276 of 1953 in this Court. It is
stated for tho appellant-and that is not controverted
for the respondent-that under the law of Jind State
an assignment need not be in writing, and that being
so, it is open•to us to infer such assignment from the
conduct of the parties. ·we must accordingly decide
these cases on the footing that the rights under the
license, Ex. A, dated April 1, 1938, had become vested
in the appellant by assignment.
•
. On August 15, 1947, India became independent, and
•
on the same date, the Ruler of Jind signed an Instrument of Aq,cessi11n ceding to the Government of India
•
~·
•
•
S.C.R.
SUPREME COURT REPORTS
733
power to legislate with respect to Defence, External
x95a
Affairs and Communications. On May 5, 1948, eight
-
fth R 1
fst t
. E t p
. b. l d'
J' dM/s.DalmiaDadri
Q
e
u ers o
a es m
as
unJa
me u mg m
ciment co Ltd.
'entered into a Covenant for the merger of their terriv.
tories into one State, called the Patiala and East The Commissioner
Punjab States Union. For brevity, this State will
of Income-tax
hereafter be referred to as the Patiala Union. Article
VI of the Covenant on which the appellant relies in
Venkatarama
Aiyar J.
support of its claim is as follows :
"The Ruler of each Covenanting State shall, as
soon as may be practicable, and in any event not later
than the 20th August, 1948, make over the administration of his State to the Raj Pramukh; and thereupon,
(a) all rights, authority and jurisdiction belonging to the Ruler which appertain, or are incidental to
the Qovernment of the Covenanting State shall vest in
the Union and shall hereafter be exercisable only as
provided by this Covenant or by the Constitution to
be framed thereunder ;
(b) all duties and obligations of the Ruler per-
. taining or incidental to the Government of the Covenanting State shall devolve on the Union and shall be
discharged by it ;
(c)
all the assets and liabilities of the Covenanting State " shall be the assets and liabilities of the
Union; and
(d)
the military forces, if any, of the Covenanting State shall become the military forces of the
Union."
Article X provides that a Constituent Assembly should
be formed as early as practicable, and that it should
frame a Constitution for the State, and that until
the Constitution is so framed, the Rajpramukh is to
have power to make and promulgate Ordinances for
the peace and good government of the UMion.
Under
Art. XVI, the Union "guarantees either the continuance in service of the permanent members of the
public services of each of the Covenanting States on
oondit.ipns which will be not less advantageous than
those on which they were serving on the 1st February,
1948, or the payment of reasonable compensation or· •
retirement or proportionate pension." .
·734
SUPREME· COURT 'REPORTS
[1959]
x958
In accordance with Art. VI of the Covenant, the
-.
. Rajpramukh of the Patiala Union took over the ·adM~s. Dal1~• ~;:"·ministration of Jind on August 20, 1948, and immedieme"~. o.
· ately after assumption of office, he promulgated the
The Commissioner ·Patiala and East Punjab States Union Administr .. tion
of Income·tax tOrdinance No. I of S .. 2005. Section 3 of the Ordi-
,nance, which is material for the present discussion, is
Venkatarama
as follows :
Aiyar ].
"As soon as the administration of any covenanting State has been taken over by the Raj Pramukh as
aforesaid all Laws, ·Ordinances; Acts, ·Rules, Regulations, Notifications, Hidayate Firman,i-Shahi, having
force of law in Patiala State on the date of commence.
ment of this Ordinance shall apply mutatis mutandis
to the territories of the said State and with e~ect from
that-date all laws in force in such'Covenanting.State
immediately before that date shall be repealed:
Provided that proceedings of any nature what.
soever pending on such date in the courts or offices of
any such Covenanting State shall, •notwithstanding
anything contained in this Ordinance or any other
Ordinance be disposed of in accord!llnce with the laws
governing such proceedings in force for the time being
in any such Covenanting State."
This -Ordinance came into force on August 20, 1948.
On February 5, 1949, it was repealed and replaced
by Ordinance No. XVI of S. 2006, s. 3(a) whereof
being in the same terms as s. 3 of Ordinance No. I of
s. 2005.
Article X( I) of the Covenant provided, as has been
mentioned, for the framing of a Constitution for ·the
Union in the manner .provided therein. That, however
did not materialise, and on November 24, 1949, the
Rajpramukh issued a proclamation accepting the
Indian Cons~itution as that of the Patiala Union, and
thus, the Union became a Part B State under the
Constitution. On A,pril 13, 1950, the Patiala Union
accepted the Federal Financial Integration Scheme,
and became a taxable territory of the Union of India
and the Indian Finance Act, 1950, became applicable
·to it from April 13, 1950. The position, therefore, is
•
that as re~ards.Jiability to be assessed to income-tax
..
c
•
•
•
•
rs.:C.R.
SUP!EVEME 80URT WEPORTS
7·35
'which is whalt we are concerned with in these proceedr958
•in:~s, the la"'. applicable to the ap:j:>e~Iant for the peridd MJs. Dalmia D&liri
prior to August 20, 1948, was the rncmp.e-tax law of Cement ca Hd.
Jind, 'for the .period August 20, '1948, to April 13, 1950,
v.
the Pati01la Income-"tax Act, E. 2001, which ·came ·ii1t<'> The Commissioner
force under Oro.inance No. I of s. 2005 'and after
of Income-tax
April 13, 1950, the Indian Income-tax Act.
V enkataratfill
Ci:Vil Appeal No. 230 of 1954 arises 'out of proceedAiyar J.
4ngs 'for assessment of income-tax for the year 1949-
.J.'950.
By -its order dated November 11, 1952, th'e
Ap!pellate Tribunal has found that the taxable profits
of the appellant for the yeaT of account which is tne
calendar year 1948 was ·Rs. 1,94,265, and that finding
is not no'w in dispute. The substantial poin"t now in
c0ntroversy is as to the rate at which tax should ·be
levied on that :amount, whether it should be what is
enWC:ted -in 'the Patiaia Income-tax Act as contend~d.
for the respondent, or what is provided in Cl. (23) Of
the ·agreement, Ex. A, as claimed by the 'appellant. On
this question, the Appellate Tdbuna'l held that the
Patiala Union which was a new State that had come
into existence as a result of the Covenant was not
bound by the agreements entered into previously by
tne rulers of the Covenanting States, that the appellant could. claim the benefit of that agreement only if
the new State chose to recognise it, that there had
been, in fact, no such recognition, and that, in consequeace, the tax was leviable as prescribed in the
Pa'tiala Inco'me-tax Act, S. 200L Oh the application
of the appellant, the Tribunal referred under s. 66(1)
9f the Indian Income-tax Act, the following question
for the opinion of the High Court :
" Whether the asseessee's profits and gains earned
in the calendar year 1948 were assessable for S. 2006
(1949"50) at the rates in force according t9 the Patiala
Income"Tax Act of S. 2001 read with section 3 of !the
Patiala & East Punjab States Union Administration
Ordinance (No. I of S. 2005), as repealed and re-enacted in section 3 of the Patiala & East Punjab States
Union beneral Provisions (Administration) Ordinance
(No. XVI of 2006), or in accordance with Olli.use (23)· •
of the agreement of April, Hl\38 above ;referred to."
736
SUPREME 'COURT REPORTS·
[1959]
r9ss
By their juagment dated- June 7; 1954, the learned
Ml D-1-. Dad .Judges of the High Court answered the question
c:-,,,e;,";;'; Lld." against the appellant, but grante'd a certificate under
v'
s. 66(A)(2) of. the 'Indian Incqme-tax· Act; and that
·The Commission" is ·how Civil Appeal-No. 230 of 1954 comes before us.
of Income-lax
Meantime, proceedings :were taken •by the Income.
tax authorities for ·assessment of tax 'for year's subv enkatorama
AiyOY j.
Sequent to 1949-1950, • ahd the dispute aigaih related
to the question whether-the aniciunt of tax should be
detetmined'. in accordance \vith Cl. (23) of ·}μx. ,A or· the
provisions of the .Indian· I11come-tax ·Act, 1922.
The Income-tax Officer, Rohtak; rejected the conten•
tion of the appellant thatrit-was liable to.pay tax: only
in accordance with Ex. A and passed orders determin:
ing the tax under the provisions of the Indian Incometax Act for the year 1950-1951 on April 28, ·19&2; for
1951-1952 on May 12, 1952, and for 1952-1953 on
Ma:rch 17, 1953.
Appeals. against these orders have
been preferred by the appellant, and they are stated
to be pehding before the Appellate Assistant Comniissioner. ··On the allegation that the.tax as imposed in
the orders aforesaid is unauthorised, and that :it constitutes an unlawful .interference with its .rights·t<i
carry on business guaranteed .under Art. l9(l)(g); tlie
appel'lant has filed Petition No: 276 of' 1953 for an
appropriate writ directing the respondents to .levy tax
in-accordance wibh the agreement, Ex. A, dated April
11"1938. In support of tbis petition, in.additioll'to the
contentions raised in Civil Appeal No. 230 of .1954 the
petitioner also urges that even if the' Union of India. is
entit:led to repudiate the agreement dated April 1,
1938, it has not, in fact, done sq, and that it has, on
the other hap.d, recognised it as good' and is therefore
not entitled now to go back upoh it, a~d that the levy
of tax· in accordance -with· the provisions of 'the'
Indian Income-tax 1\_ct is' accordingly illegal. As
the contentions raised in. the appeal and in the
petition· are substantially identical, -they were heard
together.
'
,
'
Before us, .the validity of the assessment of mcome-
• 'tax for. 'the year 1949-1950 I was challenged by Mr1
Pathak on .the :[ollowiug grounds:
•
...
•
S.C.R.
SUPREME OGJURT REPORTS
737
(l)' Ordinance No1 .I of S. 2005 under .which the
x958
Patiala Income-tax A~t Act is sought to be applied to Ml
-.. .
•
h
11
d
,
.
.
1.
s. Valm1a Dadrs
t e appe ant oes pot, on its tI:ue construct10I1, annu
C•menl co. Ltd.-
the rights granted under Ex. A.
v!
(2) If the Ordinance in question is to be construed n, Commissioner
a& having that effect, -then it is in contravention of
of Incom•-tax
Art. VI of the COV'enant, and is therefore unconstitu-·
tional and void:
V.nkatarama
(3) Even apart frorn·the Covenant, the agreement,
Ex. A, is binding on the. Pa.tiaia Union and the im- _
pugned: Ordinancids bad as infringing·it; .and
.,
· (4) ·the Patiala Union had, in fact, recognised the
rights granted under Ex. A and it is therefore binding on· it,. as if it were a contract entered into by
itself: "
( 1) • On the first question, the argument of Mr.
Pathak is this : The Ruler of Jind was an absolute
monarch, and hi& word was law. The agreement,
Ex. A, must therefore be -held to be a special 'law· conferring right& on the licensee. Section 3 of Ordinance
No. I of S. 2005 is a· general provision extending all
law.a of the State of Patiala to the territories of the
Covenanting States. 'The rule ·of construction is well
established that general statutes should be interpreted
so as not to interfere with rights created under· special_
laws. Section 3 of the Ordinance' should therefore be
construed as ·not intended to affect the rights conferred
under Ex. A. Reliance is place<;]. on the statement of
the law in Maxwell's Interpretation of Statutes, 10th
Edn., pp.. 176 and 180, and on the observations in
Blackpool -Corporation v. Starr Estate Co. ('). , Now the
rule of construction expressed 0ip. the maxim gen:eralia
specialibus non derogant is well settled, and we shall
also assume in favour of the appellant that the agreement, Ex. A, is a special law in the natur~of a private
Act passed by the British Parliament, and that ac.cordingly s. 3 of the Ordinance should not be ·construed,
unless the contrary appears expressly or by necessarj
implication, as· repealing the· provisions of Ex. A. But
ultimately, ·the question is what does the language of
the ena·ctment mean i Section 3 is quite expl!cit, and · •
(1) (192~] 1 A. C.'27, 34.
Aiyar ].
738
SUPREME COURT REPORTS
(1959)
z95B
it provides that from the date of the comm.enceiμent
D-1-. D d . of the Ordinance
~· all laws in force in such OovenantMg,,,,;1 ";;': L~" ing States immediately before that date shall be
·
v.
repealed ", and the proviso further enacts that pending
Tb• .Commission" proceedings are to be disposed of in accordance· ~ith
of Jp,ome-tax
laws in force for the time being in the .Covenanting
States. In the face of this language which is.ckar ii.nd
Venkatarama
unqualified, it is idle to contend that Ordinance N.o. I
Aiyar f.
of S. 2005 sayes the rights of the appellapt to the t.ax
c.onc.essions under .CL (23) of Ex. A.
(2) It is ne)(t c.ontended by Mr. Path1J,k .th1;tt if Or,din1J,nce No. I of S. 2005 is to be consj;rue.d as extingui~h
ing the right to concessions conferred under Ex. A,
then it must b.e held to be unconstitutional al).d vqid.
This contention is based on Art. VI (b) of the Covenant, which provides that the obligations of thepil\"rs
pertaining to or incidental to government of the .Covenanting State shall cleyolve on the Union l).nd b.e discharged by it. It is argued that the Ruler of J,ind
had for good and valuable consideratio:n UI).dertaken
certain obligations uncle,r Cl. (23) of Ex. A with reference to taxation which is a governmental funcUon,
that he had himself scr.up.ulously ho:noured them so
long as he .was a Ruler, and then passed ,them on
under.Art. VI (b) to the new State creattld under the
Covenant, that the Rajpramukh who was a party to
the .CovenaL<t .and claimed under it .was bound .by th1;tt
obligation, .that his power to enact laws is subject
under Art. VI (a) .to .the obligations mentioned in
Art. VL(:b), and .that .t.he impugned Jaw Js, if .it is ,to he
construed as having .the effect of .abrogating those
obligatiops, uUra vires 1his power~ .under .the ,Covenant
and is, in .consequence, ,void. In !!Jls.we.r ,to ,this, .t.h,e
resP.ondent contends tqat the .. Govtlnant .e!lt.ll.r!:d into
by the !.uler~ is an act cir State .and that aey .v.iol;;itio.n
oJ ;its .ter.ms cannot form the subjec_t of ai:_i-y .actioJl in
the municipal coui;ts, .that .the .obligat.ions .mentf<?tted
ig Art. tYJ (b) .reft.rr .not ,to liabi~ities under agreem~n ts
for w.hich ",there was .sp.ecial ,Pro.vis,io,n ,in A~~· Vl ( c)
but to obligations of the character contemplated ,by
, · the l,nsttqment of Accession, and that, in 11ny event.,
the rights .granped to the licensl')e m1der ~· ~ were
l
•
•
S.C.R.
SUPREME COURT REPORTS
739
terminable by the Ruler of Jind at will, and that, in
r958
consequence, if the obligation under Cl. (23) devolved
-
on t~e Raj Pramukh under Art. VI (b)_it did. so. subject Mgm~=:~;: ~~~,;
to his rights under Art. VI (a) to termmate it if he so
v.
willed, and that, therefore, the impugned law did not The Commissioner
violate Art. VI (b).
of Income-tax
The question that arises for our decision is whether
the Covenant was an act of State. On that, there can
Venkatarama
b
I
d
Aiyar ].
e no two opinions.
t was a treaty entere
into by
rulers of independent States, by which they gave up
their sovereignty over their respective territories, and
vested it in the ruler of a new State. The expression
" act of State " is, it is scarcely necessary to say, not
limited to hostile action between rulers resulting in the
occupation of territories. It includes all acquisitions
of ter.ritory by a sovereign State for the first time,
whether it be by conquest or cession. Vide Vajesingji
Joravar Singji and others v. Secretary of State (1) and
Thakur Amar Singji v. State of Rajasthan (2).
And
on principle, it makes no difference as to the nature of
the act, whether it is acquisition of new territory by
an existing State or as in the present case, formation
of a new State out of territories belonging to quonrJ,am
States. In either case, there is establishment of new
sovereignty over the territory in question, and that is
an act of State.
Mr. Pathak did not contest the position that the
Covenant in so far as it provided for the extinction of
the sovereignty of the rulers of the Covenanting States
and the establishment of a new State is an act of State.
But he contended that it was much more than that,
that it was also in the nature of a Constitution for the
n'ew State in the sense that it is a law under which all
the authorities of the new State including the Raj Pramukh had to act. In support of this contention he
referred to Art. X, which provided for the convening
of a Constituent Assembly for the framing of the Constitution, and argued that the Articles of the Covenant
which .~rovided for the administration of the State by
the Rajpramukh were in the nature of an interim
(I) (r924) L. R. SI I. A. '.l57. 360.
(2) [1955] 2 S.C.R. 303, 335.
94
•
740
SUPREME COURT REPORTS
[1959]
I958
Constitution. He also relied on Art. XVI, which
-.
. guaranteed the rights of the permanent mem hers of
M /s. Dalmw Dadri the public services in the Covenanting States to conc,.,,,,, Co. Ltd. t'
·
·
d
t
d d th t th"
Id
v.
muance m service, an con en e
a
is cou
not
1 he commission" be regarded as an act of State but only as a law
of Income-tax
relating to the administration of the new State.
In
this view of the Covenant, he argued, Art. VI must be
Venkatarama
held to be a constitutional provision enacted for the
Aiyar j.
.
f
·
. h
h
protection o private rig ts, t at it was, in consequence, binding on the ruler of the new State, and
that the municipal courts were competent to grant
appropriate reliefs for the breach thereof.
This argument proceeds, in our view, on a misconception as to what is an act of state and what is a law
of the State conferring rights on the subject, or, as the
learned counsel for the appellant termed it, Constitution of the State. When the sovereign of a Statemeaning by that expression, the authority in which
the 'Sovereignty of the State is vested, enacts a law
which creates, declares or recognises rights in the subjects, any infraction of those rights would be actionable in the courts of that State even when that infraction is by the State acting through its officers. It
would be no defence to that action that the act complained of is an act of state, because as between the
sovereign and his subjects there is no such thing as an
act of state, and it is incumbent on his officers to show
that their action which is under challenge is within
the authority conferred on them by law.
Altogether
different considerations arise when the act of the sovereign has reference not to the rights of his subjects b1,1t
to acquisition of territories belonging to another
sovereign.
That is a mat.ter between independent
sovereigns, and any dispute arising therefrom must be
settled by recourse not to municipal law of either
States but ti'> diplomatic action, and that failing, to
force. That is an act of state pure and simple, and
that is its character until the process of acquisition is
completed by conquest or cession. Now, the status of
the residents of the territories which are thus aequired
is that uμtil acquisition is completed as aforesaid they
• ·are the subjects of the ex-sovereign of those territories
•
S.C.R.
SUPREME COURT REPORTS
741
and thereafter they become the subjects of the new
r958
sovereign. It is also well established that in the new
-
t
h
"d
d
. h
h
h M/s. Dalmia Dadri
s~ -up t ese res1 ents
o not carry w1t
t em t e Cement Co. Ltd.
rights which they possessed as subjects of the ex-sovev.
reign, and that as subjects of the new sovereign, they The Commissioner
have only such rights as are granted or recognised by
of Income-tax
him.
Vide Secretary of State for India v. Bai Rajb • (1) V
•
S
Venkatarama
ai
,
a;esingoi Joravar Sinn-ii and others v.
ecreJ
J
11J
Aiyar ].
tary of State (2), Secretary of State v. Sardar Rustam
Khan (3) and Asrar Ahmed
v. Durgah Committee,
Ajmer (4). In law, therefore, the process of acquisition
of new territories is one .continuous act of state terminating on the assumption of sovereign powers de jure
over them by the new sovereign and it is only thereafter that rights accrue to the residents of those territories.as subjects of that sovereign. In other words,
as regards the residents of territories which come
under the dominion of a new sovereign, the right of
citizenship commences when the act of state terminates and the two therefore cannot co-exist.
It follows from this that no act done or declaration
made by the new sovereign prior to his assumption of
sovereign powers over acquired territories can quoad
the residents of those territories be regarded as having
the character of a law conferring on them rights such
as could be agitated in his courts. In accordance with
this principle, it has been held over and over again
that clauses in a treaty entered into by independent
rulers providing for the recognition of the rights of the
subjects of the ex-sovereign are incapable of enforcement in the courts of the new sovereign. In Gook v.
Sprigg (5), the facts were that the ruler of Pondoland
in Africa had granted certain concessions in favour of
the appellants and subsequently ceded those territories
to the British Government. The latter ha¥ing declined
to recognise those concessions, the appellants sued for
a declaration of their rights thereunder, and the question was whether they had a right of action in respect
of what was an act of State. One of the contentions
•
(1) (1915) L.R. 42 I.A. 229.
(2) (1924) L.R. 51 I.A. 357, 360.
(3) (1941) L.R. 68 I.A. 109.
'
(4) A.LR. 1947 P.C. I. •
(5) [1899] A.C. 572, 578.
•
742
SUPREME COURT REPORTS
[1959]
z958
urged on their behalf was that the ruler of Pondoland
-.
. had at the time of cession of his territories expressed
M2. Da:';;'" ~;:''his desire to the British Government that the concesemen v. o.
· sions in favour of the appellants should be recognised
The commissioner and that, in consequence, the appellants had the
of Income-ta•
right to enforce them against the new Government.
In rejecting this contention, the Lord Chancellor
Venkatarama
observed:
Aiyar ] .
•
"The taking possession by Her Majesty, whether
by cession or by any other means by which sovereignty
can be acquired, was an act of state and treating
Sigcau as an independent sovereign-which the appellants are compelled to do in deriving title from him. It
is a well-established principle of law that the transactions of independent States between each other are
governed by other laws than those which municipal
courts administer."
•
"It is no answer to say that by the ordinary
principles of international law private property is
respected by the sovereign which accepts the cession
and assumes the duties and legal obligations of the
former sovereign with respect to such private property
within the ceded territory. All that can be properly
meant by such a proposition is that according to the
well-understood rules of international law a change of
sovereignty by cession ought not to affect private
property, but no municipal tribunal has authority to
enforce su.ch an obligation. And if there is either an
express or a well-understood bargain between the
ceding potentate and the Government to which the
cession is made that private property shall be respected, that is only a bargain which can be enforced by
sovereign against the sovereign in the ordinary course
of diplomatic pressure."
·
In Vajesingji Joravarsingji and others v. Secretary
of State for India('), the dispute related to the title of
the appellants to certain lands situated in the Panch
Mahals. This area formed at one time part of the
dominion of the Scindias of Gwalior, and it was ceded
to the British Government by treaty on Decemt>er 12,
J.860.
Clauses (2) and (3) of the treaty provided for
(r) (r9z4) L.R. 5.' I.A. 357, 360 .
.
..
•
S.O.R.
SUPREME COURT REPORTS
743
the recognition by the new sovereign of rights of the
r958
residents under existing leases, jagirs and the like. M 1 D 1 . D a .
The complaint of the appellants was that in 1907 the c:;,,.:/"c':. L;/•
British Government had proposed to lease the lands
v.
to them on terms which infringed their proprietary The Commissioner
rights, and that this was in violation of the rights
of Income-ta"
which had been guaranteed under Cls. (2) and (3) of
V enkatarama
the treaty, and was, in consequence, bad. The answer
Aiyar J.
of the Government was that the treaty in question
was an act of state and conferred no rights on the
~
appellants. In upholding this contention, Lord Dune-
"
din observed :
" 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
follow°ing on treaty, it may be by occupation of territory
hitherto unoccupied by a recognised ruler. In all cases
the result is the same. Any inhi;tbitant 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, recognized. 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."
.,.,
In Hoani Te Heuheu Tukino v. Aotea District Maori
•
Land Board (1 ), the question arose with reference to
the Treaty of Waitangi entered into by the British
Government with the native chiefs of New Zealand in
1840. Under cl. (I) of the Treaty, there was a complete cession by the chiefs of all their rights and
powers of sovereignty. Clause (2) guaranteed to the
chiefs, the tribes and the respective families and individuals certain rights in lands, forests and fisheries. In
1935, the Legislature of New Zealand enacted a
law, th~ provisions of which were impugned as ultra
vires on the ground that they infrigned the rights.
(1) [1941] A.C. 308 .
•
744
SUPREME COURT REPORTS
[1959)
z958
protected by cl. (2) of the Treaty of Waitangi. In
Ml
D 1 . D a .holding that the rights under the Treaty furnished no
c:;,,,;, ~:Lt~." ground for action in the civil courts, Viscount Simon
v.
L. C. referred to the decision in Vajesingji J oravar
The Commissioner Singji and others v. Secretary of State (1) and observed :
of Income-ta•
"So far as the appellant invokes the assistance of
the court, it is clear that he cannot rest his claim on
Venka<arama
the Treaty of Waitangi, and that he must refer the
Aiyar ].
court to some statutory recognition of the right claimed
by him."
The result of the authorities then is that when a
treaty is entered into by sovereigns of independent
States whereunder 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 be
regarded as invested with the character of an act of
state and no claim based thereon could be enforced in
a court of law. It mμst follow from this that the
Covenant in question entered into by the rulers of the
Covenanting States is in its entirety an act of state,
and that Art. VI therein cannot operate to confer on
the appellant any right as against the Patiala Union.
This conclusion becomes all the more impregnable
when it is remembered that the Covenant was signed
by the rulers on May 5, 11148, whereas the new state
came into being only on August 20, 1948. In the
decisions cited above, the sovereign against whom the
obligations created by the treaty were sought to be
enforced was the very sovereign who entered into that
treaty or his successor.
But here, the ruler of the
Patiala Union against whom Art. VI is sought to be
enforced was not a party to the Covenant at all,
because that State had not come into existence on that
date.
The JAerson who signed the Covenant was the
ruler of the State of Patiala which was one of the
Covenanting States, but that State as well as the seven
other States which entered into the Covenant stood all
of them dissolved on August 20, 1948, when the new
Patiala Union came into being. The new State could
·not and did not enter into any covenant before August
•
20, 1948, and therefore, in strictness, it cannot be
(1) (192~) L.R: 51 I. A. 357, 360.
S.C.R.
SUPREME COURT REPORTS
745
held to be bound by Art. VI, to which it was not a
'958
party· .
.
.
l
M /s. Da/mia Dadri
Considerable emphasis was laid for the appe lant Cement co. Ltd.
on Art. XVI of the Covenant under which the Union
v.
guaranteed the continuance of the service of permanent The Commissioner
members of public services, and· this was relied on as
01 Income-ta:r
showing that the rights of the subjects of the quondam
V enkatarama
States were intended to be protected. This argument
Aiyar J.
is sufficiently answered by what we have already
observed, namely, that a clause in a treaty between
""
high contracting parties does I'iot confer any right on
"
the subjects which could be made the subject-matter
of action in the courts, and that the Patiala Union is
not bound by it, because it was not a party to the
Covenant. It should, however, be mentioned that
after the formation of the new State on August 20,
1948, "the first legislative act of the sovereign was the
promulgation of Ordinance No. I of S. 2005, and s. 4
thereof expressly recognises the rights of the perma-
..
nent members of public services. That undoubtedly
is a law enacted by the sovereign conferring rights on
his subjects and enforceable in a court of law, but at
the same time the enactment of such a law serves to
emphasise that the Articles have not in themselves
the force of law and were not intended to create or
recognise rights. In this connection, reference should
also be made to cl. XVI of the Ordinance which
enacts that "the provisions of art.icles XV and XVII
of the Covenant relating to the bar of certain suits and
.,.
proceedings shall have the force of law."
•
In support of his contention that Art. VI of the
Covenant is to be regarded as a Constitutional provision, counsel for the appellant relied on certain
passages in the judgment of this Court in Thakur
Amar Singhji v. State of Rajasthan (1) at JJP· 313 and
315 wherein a similar covenant entered into by the
rulers of Rajasthan was described as a Constitution.
Apart from the use of the word" Constitution", we
find nothing in these passages which has any bearing
on the ".(loint now under consideration. There, the
question was as regards the vires of a law en1tcted by· •
(r) (1955] 2 S.C.R. 303 .
746
SUPREME COURT REPORTS
[1959]
z95B
the Rajpramukh of Rajasthan, and that depended on
M
-;---: D
. whether he was the authority in whom the legislative
~: ... ~=,~~ L;:" authority of the State was vested within Art.