Sikri, J. - (1.) These appeals by special leave are directed against the judgment of the High Court of Madhya Pradesh in a reference made to it by the Income-tax Appellate Tribunal, under S. 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act. The Tribunal referred the following to the High Court: "Whether, on the facts of the case and having regard to the provisions of paragraph 2 of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, and Cl. 8 of the Agreement made on 20th September, 1938 between the assessee and the State or Bhopal, the correct basis for computing the written down value of the depreciable assets as at 1st November, 1948 is the one which is adopted by the Income-tax Officer or the one adopted by the Appellant Assistant Commissioner -
(2.) The relevant facts are these. The respondent. M/s. Straw Products Ltd., Bhopal, hereinafter called the assessee, is a public limited company. It was incorporated in the erstwhile State of Bhopal in 1939 and was given the certificate of commencement of business on May 30, 1939. On September 20, 1938, the assessee entered into an agreement with the Government of Bhopal. Under the agreement the assessee obtained certain concessions and facilities The assessee not only got exclusive licence to manufacture card-board articles of all kinds but also got land on lease on favourable terms. It was also exempted from payment of customs and other duties payable to the municipality. Clause 8 of the agreement is relevant for the purpose of these appeals and is in the following terms: "8. Subject to and so far as the State shall not become or become obliged by any Instrument of Accession or Supplementary Instrument under the Government of India Act, 1935, in respect of any Federal Taxation, it is hereby agreed as follows: (a) During the period of 10 years from the date on which the said Company takes over the land for its business purposes the said Company shall not be liable to pay any sum by way of taxation to the State.
(3.) It is common ground that this Agreement was acted upon and for a period of 10 years the assessee was not called upon to submit any returns of income and no assessment was made on the assessee under the Bhopal Income-tax Act. This period of ten years expired on October 31, 1948. On August 1, 1949, Bhopal merged in India and was formed into a Chief Commissioner's Province.;