- (1.) This is an appeal on a certificate granted by the High court of Madhya Pradesh. The respondents filed a petition under article 226 of the Constitution praying for the issue of a writ or order in the nature of prohibition and/or mandamus directing the Income-tax Officer and the State of Madhya Pradesh from levying or collecting income-tax and/or any other tax from them for the financial years 1956-57. 1957-58, and, thereafter, up to June, 1958. with respect to income from the business of their Biscuit and Confectionery Factory at Gwalior and for certain other consequential reliefs. The case of respondents was that they intended to install a factory for the manufacture of biscuits and confectionary at Bombay, but the government of Madhya Bharat was anxious that the factory should be started at Gwalior and, therefore, passed an order on 20.05.1949, granting certain concessions to the respondents if their factory was set up in Gwalior. These concessions were: (1) No customs duty would be levied on the import of building and other material required for the construction of the factory, all machinery and its parts required in connection with the factory and raw materials, packing and other material required for the factory, and on the export of finished products of the factory. (2) No tax on the profits of the factory would be levied for a period of seven years from the date the factory starts working. (3) There would be no restriction on export from Madhya Bharat of the products of the concern. (4) Within two years from the date of the government order, the respondents would install and work an up-to-date biscuit factory in Gwalior of a capacity of 8 tons and a confectionary factory of 5 tons per day of 8 hours and invest a total capital on machinery and buildings of approximately Rs. 15 lakhs. (5) The respondents would start construction of the buildings and take all necessary steps in regard to the project expeditiously from the date of sanction and show reasonable progress in regard to construction within one year. (6) The concessions mentioned in clauses 1, 2 and 3 above would not be transferable to any other party without the sanction of government.
(2.) This older was passed before the Constitution of India came into force. But as the Constitution was likely to be applied to the State of Madhya Bharat, the respondents wrote to the government of Madhya Bharat that though there was no income-tax at the time in Madhya Bharat, it was likely that income-tax would be introduced after the Constitution came into force. The respondents, therefore, wanted to know if exemption from income-tax would be available to them for the whole period of seven years. In reply to this the respondents were told by the government of Madhya Bharat that their concession would continue for the whole period. On the faith of this undertaking, the respondents said that they built their factory at Gwalior and that the factory started working in June, 1951 On 26.01.1950, the Constitution of India came into force and the former State of Madhya Bharat became the Part B State of Madhya Bharat thereunder. The Indian Income-tax Act was extended to the territory of the Part B State of Madhya Bharat from 1.04.1950, by the Finance Act (XXV of 1950). Further in view of sec.60A of the Income-tax Act the government of India promulgated the Part B States (Taxation Concession) Order, 1950 (here in after referred to as the Concessions Order) in December, 1950 and clause 16 thereof provided for concessions to industrial undertakings. The respondents thereupon applied under that clause for exemption as a matter of abundant caution, though they were entitled to exemption by virtue of the agreement with the former State of Madhya Bharat. They were, however, granted exemption only for five years from 1952-53 to 1956-57 and they were further informed that though the exemption was granted, their income from the factory in Madhya Bharat would be liable to inclusion in their total income. When the concession granted by the government of India expired, the Income-tax Officer proceeded to assess the respondents to income-tax. Consequently, the respondents filed the writ petition in the High court claiming the reliefs already set out. They based their claim on the agreement with the former State of Madhya Bharat and contended that in view of article 295(1)(b) the obligation arising out of that agreement devolved on the Government of India which was bound to fulfil that obligation.
(3.) The petition was opposed on behalf of the government of India by the Income-tax Officer, who was made party to it, and his case was that the respondents were not entitled to any further exemption beyond what had been granted to them by the government India under Concessions Orders.;