Case Note & Summary
The dispute concerned the availability of a tax rebate under the Merged States (Taxation Concessions) Order, 1949 to an assessee resident in former British India in respect of income accruing in a merged Indian State. The appellant, Russa H. Mehta Trust, was a private trust resident and ordinarily resident within British India in 1948. It held 1000 shares in Home Mehta and Sons Ltd., a company which invested in shares of companies registered in British India and former Indian States. Dividends from 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, which was not brought into British India. The Income-tax Officer initially accepted the claim that the dividend income accrued in Baroda and was exempt under Section 14(2)(c) of the Income-tax Act, 1922. The Commissioner of Income-tax, Bombay, reversed this, directing that the income was liable to tax. The Income-tax Appellate Tribunal held that the dividend income accrued at Billimora and not Bombay, but by reason of the definition of taxable territories, the income attracted tax and did not qualify for rebate under paragraph 6 of the Merged States (Taxation Concessions) Order, 1949. The Tribunal referred two questions to the Bombay High Court: (1) whether the assessee was entitled to rebate equal to the difference between British Indian and Baroda State rates; and (2) whether the dividend income accrued or arose at Bombay. The High Court, following an earlier unreported decision, held that the Concessions Order did not apply to the income of a resident assessee and answered the first question in the negative, declining to answer the second. On appeal by special leave, the Supreme Court examined the statutory background. Prior to merger, Section 14(2)(c) exempted income arising in an Indian State unless brought into British India. After the States Merger (Governors’ Provinces) Order, 1949 and the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, the Income-tax Act was extended to merged territories. To mitigate hardship, the Central Government issued the Merged States (Taxation Concessions) Order, 1949 under Section 60A. Paragraph 6 provided for continuation of lower State rates for a limited period, but paragraph 4 confined the concession to income which would have been exempt under Section 14(2)(c) had the assessee been resident in the taxable territories. The Court held that the phrase 'had he been resident in the taxable territories' excluded persons who were residents of British India before merger, such as the appellant. Thus, the concession was not available to the assessee. The appeals were dismissed.
Headnote
A) Income Tax - Interpretation of Merged States (Taxation Concessions) Order, 1949 - Rebate for Resident of British India - Paragraph 4 and Paragraph 6 of Merged States (Taxation Concessions) Order, 1949; Section 14(2)(c) of Income-tax Act, 1922 - Assessee, resident and ordinarily resident in British India, received dividend income at Billimora in Baroda State and claimed rebate under paragraph 6 - Supreme Court interpreted paragraph 4 as applying only to income which would have been exempt under Section 14(2)(c) if the assessee had been resident in taxable territories before merger, as indicated by the phrase 'had he been resident in the taxable territories' - Held that the concession is not given to residents of territories of British India and the context does not warrant an implication to the contrary (Paras [587 C-D], [587 A-B, D]).
Issue of Consideration
Whether a resident and ordinarily resident of former British India is entitled to rebate under paragraph 6 of Merged States (Taxation Concessions) Order, 1949 on dividend income accruing or arising in a merged State, given the exemption under Section 14(2)(c) of Income-tax Act, 1922
Final Decision
Appeals dismissed. Assessee was not entitled to rebate under paragraph 6 of Merged States (Taxation Concessions) Order, 1949; first question answered in negative. Supreme Court affirmed High Court's decision denying rebate; second question remained unanswered.
Law Points
- Legal points not extracted
- Paragraph 4 of Merged States (Taxation Concessions) Order
- 1949 limits rebate to persons who would have been exempt under Section 14(2)(c) of Income-tax Act
- 1922 if resident in taxable territories before merger
- phrase 'had he been resident in the taxable territories' excludes British Indian residents
- concession not extended to residents of territories of British India
Case Details
Civil Appeals Nos. 589 to 590 of 1964
Shah, J.C., Subbarao, K., Sikri, S.M.
Citation not available, 1966 AIR 866, 1966 SCR (2) 579
K. N. Rajagopal Sastri, J. B. Dadachanji, A. V. Viswanatha Sastri, R. Ganapathy Iyer, R. H. Dhebar, R. N. Sachthey
Russa H. Mehta Trust, Bombay
Commissioner of Income-tax, Bombay City I
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Nature of Litigation
Appeal by special leave against High Court judgment in income tax reference; dispute over rebate eligibility under Merged States (Taxation Concessions) Order, 1949 for dividend income accruing in a merged State to a British Indian resident.
Remedy Sought
Assessee sought rebate equal to difference between British Indian rate and Baroda State rate on dividend income of Rs.65,000 and Rs.2,10,000 for calendar years 1948 and 1949.
Filing Reason
Assessee claimed exemption under Section 14(2)(c) of Income-tax Act, 1922 as dividend income accrued in Baroda State and was not brought into British India; Income-tax Officer initially accepted but Commissioner directed assessment, leading to denial of rebate by Tribunal and High Court.
Previous Decisions
Income-tax Officer upheld exemption; Commissioner of Income-tax directed tax liability; Income-tax Appellate Tribunal held income accrued at Billimora but denied rebate under paragraph 6 due to definition of taxable territories; Bombay High Court answered first question against assessee and declined second question.
Issues
Whether a resident and ordinarily resident of former British India is entitled to rebate under paragraph 6 of Merged States (Taxation Concessions) Order, 1949 on dividend income accruing or arising in a merged State, given the exemption under Section 14(2)(c) of Income-tax Act, 1922
Submissions/Arguments
Assessee contended that by the application of the Taxation Laws Extension Act, all residents in the taxable territory became liable to pay tax at Indian rates, but the Taxation Concessions Order intended to restore State rates of taxation to residents of former Indian States and also to continue the exemption in respect of income of former British India residents arising or accruing in territory of merged States within limits prescribed by Section 14(2)(c).
Revenue contended that paragraph 4 of the Concessions Order expressly limited the concession to income which would have been exempt under Section 14(2)(c) had the assessee been resident in the taxable territories, and therefore the benefit was not available to persons who were residents of British India before merger.
Ratio Decidendi
Paragraph 4 of Merged States (Taxation Concessions) Order, 1949 grants concession only to income which would have been exempt under Section 14(2)(c) of Income-tax Act, 1922 if the assessee had been resident in taxable territories before merger; the phrase 'had he been resident in the taxable territories' implies that persons who were residents of British India before merger are not entitled to benefit. A resident of British India whose income arises in a merged State is not entitled to rebate under paragraph 6.
Judgment Excerpts
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.
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 s. 14(2) (c), but has, since the application of the Income-tax Act, become so liable.
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 s. 14(2)(c).
Procedural History
Assessee received dividend income in Baroda State for calendar years 1948 and 1949. Income-tax Officer initially accepted exemption under Section 14(2)(c). Commissioner of Income-tax directed assessment. Income-tax Appellate Tribunal held income accrued at Billimora but denied rebate under paragraph 6 of Concessions Order. Tribunal referred two questions to Bombay High Court under Section 66(1). High Court answered first question in negative and declined second. Appellant obtained special leave from Supreme Court.
Acts & Sections
- Income-tax Act, 1922: Section 2(14A), Section 4A, Section 4B, Section 14(2)(c), Section 60A, Section 66(1)
- Taxation Laws (Extension to Merged States and Amendment) Act, 1949:
- Merged States (Taxation Concessions) Order, 1949: Paragraph 4, Paragraph 6, Paragraph 6A
- States Merger (Governors’ Provinces) Order, 1949: Paragraph 3, Paragraph 4
