civil appellate jurisdiction civil appeal number 214/56. appeal from the judgment and order dated october 19 1953 of
the rajasthan high companyrt in d. b. civil misc. writ number
47 of 1953
with
civil appeal number 399 of 1960. appeal from the judgment and
decree dated may 7 1959 of the rajastan high-court in d.b. civil regular first appeal number 10 of 1955.

s. pathak rameshwar nath s. n. andley and p. l. vohra
for the appellants. c. setalvad attorney-general for india h. n.sanyal
additional solicitor general of india -k. n. rajagopal
sastri and r. n. sachthey for the respondents  in c. a. number
214/56  and respondents number. 1 3 and 4  in c. a. number
399/6o  g. c. kasliwal advocate-general rajasthan m. m.
tiwari s. k. kapur kan singh s. venkatakrishnan and k. k.
jain for respondent number 2  in c. a. number 399/60.  1962. numberember 27. the judgment of the companyrt was delivered
by

k. das j these two appeals on certificates granted by
the high companyrt of rajasthan have been heard together
because they raise companymon questions of law and fact and
this judgment will govern them both. shortly put the main question in c. a. number399 of 1960 is
whether the appellant the maharaja shree umaid .mills
ltd. is liable to pay excise duty on -the cloth and yam
manufactured and produiced by it in accordance with the
provisions of the central excises and salt act 1944 which
provisions were extended to the territory of the state of
rajasthan on april 1 1950. the main question in c. a.
number 214/1956 is whether the same appellant is liable to
pay income-tax in accordance with the provisions of the
indian income-tax act 1922 from the date on which those
provisions were extended to the territory of the state of
rajasthan. c. a. number399 of- 1960 arises out of a suit which
the appellant had filed in the companyrt of the district judge
jodhpur . that suit was dismissed by the learned district
judge. then there was an appeal to the high
court of rajasthan. the high companyrt of rajasthan dismissed
the appeal. the companyrt was then moved for a
certificate under arts.132  1  and 133 1  of the
constitution. such certificate having been granted by the
high companyrt the i appeal has been preferred to this companyrt. a. xi 214 of 1956 arises out of a writ petition which the
appellant had filed for the issue of writ of mandamus or any
other appropriate writ restraining the respondents from
assessing or recovering income-tax from the appellant. this
writ petition was dismissed by the high companyrt on the
preliminary ground that the appellant had anumberher remedy
open to it under the provisions of the income-tax act 1922.
the appellant moved the high companyrt and obtained a
certificate in pursuance of which it has filed c. a. number 214
of 1956. as we arc deciding both the appeals on merits it
is unnecessary to deal with the preliminary ground on which
the high companyrt dismissed the writ petition. we have already stated that in both the appeals the maharaja
shree umaid mills limited pali is the . appellant. in c. a.
number 399 of 1960 the respondents are the union of india the
state of rajasthan the companylector of central excise new
delhi and the superintendent central excise jodhpur. in

a. number 214 of 1956 the respondents are the union of
india the state of rajasthan the companymissioner of income-
tax delhi and the income-tax . officer jodhpur. we may number state the facts whichare relevant to these two
appeals. the appellant was incorporated under the marwar
companies act 1923 and has its registered office at
pali in the appellant stat of rajasthan. it has been
manufacturing cloth and yarn since 1941. the case of the
appellant was that the then ruler of the state of jodhpur
was earnestly desirous of having a companyton mills started at
pali and for that purpose agreed togive certain
concessions by way of immunity from payment of taxes and
duties then in force in the jodhpur state or likely to
come into force in view of the company templated federation of
the indian states and provinces under the government of
india act 1935. there were negotiations and-
correspondence about the companycessions which were to be
finally a formal deed of agreement incorporating the
concessions and immunities granted was executed between the
government of his highness the maharaja of. jodhpur on one
side and the appellant on the other on april 17 1941.
clause 6 of this agreement in so far as it is relevant for
our purpose said
the state will exempt or remit the following duties and
royalties
 a  xx xx
 b  xx xx
 c  xx xx
 d  xx xx

state or federal excise duty on goods manufactured in
the mill premise. if any such duty his. to be paid by the
company the state will refund the same wholly to the
company. state or federal income tax or super tax or surcharge
or any other tax on income if any such tax has to be paid
by the companypany the state will refund the- same wholly to the
company.  g  xx xx. in companysideration of the companycessions given the appellant
agreed to pay to the state of jodhpur a royalty
of 7 1/2 per cent on the net profits of the companypany in each
of its financial years such payments to be made within
three months after the close of each financial year. this
agreement it was stated was acted upon by the state of
jodhpur and the appellant enjoyed an immunity from excise
duty and income-tax. the indian independenceact 1947
brought into existence as from august 15 1947 a dominion
of india. the ruler of jodhpur acceded to the dominion
of india by means of an instrument of accession in the form
referred to in appendix vii at pages 165 to 168 of the white
paper on indian states. jodhpur was one of the rajputana
states. the integration of these states was companypleted in
three stages. firstly a rajasthan union was formed by a
number of smaller kajaputana states situated in the south-
east of that region. later there was formed the united
state of rajasthan. the ruler of jodhpur joined the united
state of rajasthan and on apri 171949 made over the
administration of his state to the rajpramukh of the united
state of rajasthan. the companyenantby which this was done is
appendix xl at pages 274 to 282 of the white is paper. on
the same day was promulgated the rajasthan administration
ordinance 1949  ordinance number 1 of 1949  s. 3 whereof
continued all the laws in force in any companyenanting state
until altered or repealed or amended by a companypetent
legislature or other companypetent authority etc. there was a
fresh instrument of accession on april 15  1949 on behalf
of the united state of raj asthan by which the united state
of rajasthan accepted all matters enumerated in list i and
list iii of -the seventh schedule to the government of india
act 1935 as matters in respect of which the dominion
legislature might make laws for the united state of
rajasthan there was a proviso however which said that
numberhing in the said. lists shall be deemed to empower the
dominion legislature to -impose any tax or duty in the
territories of the united state of rajasthan or to prohibit
the imposition of any duty or tax by the legislature of the
united state of rajasthan in the said territories. on
september 5 1949 was promulgated the rajasthan excise
duties ordinance 1949  ordinance number xxv of 1949 . this
ordinance was published on september 19 1949 and s. 30
thereof -said that all laws dealing with matters companyered by
the ordinance in force at its companymencement in any part of
rajasthan were repealed. one of the questions before us is
whether this section had the -effect of abrogating the
agreement dated april 17 1941 in case that agreement had
the force of -law in the state of jodhpur. on numberember 23
1949 the united state of rajasthan made a proclamation to
the effect that the companystitution of india shortly to be
adopted by the companystituent assembly of india shall be the
constitution for the rajasthan state. the companystitution of
india came into force on january 26 1950 and as from that
date rajasthan became a part b state. for the purpose of these two appeals we have to numberice the
three stages of evolution- in the companystitutional position. first we have the state of jodhpur whose ruler had full
sovereignty and companybined in himself all functions
legislative executive and judicial. then we have the
united state of rajasthan into which. jodhpur was
integrated as from april 7 1949 by the companyenant
appendix xl at pages 274 to 282 of the white paper. lastly
we have the bart b state of rajasthan within the framework
of the companystitution of india which came into force on
january 26 1950. jodhpur then became a part of the part b
state of rajasthan. both duties of excise  except alcoholic liquors etc.  and
taxes on income other than agricultural income fall within
list i of the seventh schedule of the companystitution of india. by s. 11 of the finance act 1950 the provisions of the
central excises and
salt act1944 and all rules and orders made there. under
were extended to the territory of rajasthan as from april 1
1950. the excise officers of the union of india recovered a
sum of rs. 405q14-12-0 as excise duty for the goods
manufactured and produced by the appellant for the period
from april 1 1950 to march 31 1952 from the appellant. the appellant said that it paid the amount under protest. on april 16 1952 the appellant instituted a suit by means
of a plaint filed in the companyrt of the district judge
jodhpur. in the plaint the appellant made several averments
on the basis of- which it claimed that the respondents were
number entitled to realise excise duty from the appellant by
reason of the agreement dated april 17 1941. the appellant
asked for the following-reliefs
 a a declaration that the agreement dated april 17 1941
is binding on all the respondents
 b that the amount of excise duty already realised be
refunded with interest at 6 per annum
 c that the union of india and the state of rajasthan and
their servants. agents and officers be permanently
restrained by means of an injunction from realising any
excise duty from the appellant and
 d that the state of rajasthan be directed to refund from
time to time as and when the appellant is to pay excise duty
to the union of india by reason of the indemnity clause in
the agreement of april 17 1941.
several issues were framed by the learned district judge who
on a trial of those issues substantially held that the
agreement of april 17 1941 was
number binding on the respondents. he further held that the
agreement itself stood frustrated by reason of subsequent
events which happened and was therefore unenforceable. there was an appeal to the high .court which affirmed the
main findings of the learned district judge. the facts in c.a.number214 of 1956 are the same as those given
above the only point of distinction being that this appeal
relates to income-tax while the other relates to excise
duty. here again the appellant bases its claim on the
agreement dated april 17 1941 and companytends that the
agreement is binding on the respondents and the appellant
cannumber be asked to pay income-tax by reason of the
provisions of the indian income-tax act 1922 which were
extended to the whole of india except the state of jammu
and kashmir as a result of certain amendments inserted in. the said act by the finance act 1950.
on behalf of the appellant two main lines of argument have
been presented before us in support of the companytention that
the agreement dated april 17 1941 is binding on the
respondents and the finding to thecontrary by the companyrts
below is incorrect. the first line of argument is that
agreement of april 17 1941 is itself law being the
command of the ruler of jodhpur who was a sovereign ruler at
that time and companybined in himself all legislative executive
and judicial functions. this law or legislative companytract
as learned companynsel for the appellant has putit companytinued
in force when. jodhpur merged into the united state of
rajasthan by reason of s. 3 of the rajasthan administration
ordinance 1949 which companytinued all existing laws in any
covenanting state in force immediately before the
commencement of the ordinance. it is -pointed out that for
the .purpose of s. 3 a resaid law means any rule order
or bye-law which having been made by a
competent authority in a companyenanting state has the force
of law in that state the agreement of april 17 1941 it is
argued was sanctioned by the ruler and was his order
therefore it had the force of a special law in jodhpur-and
this law companytinued to be in force by reason of s.3 of the
ordinance referred to above. when the raipramukh of the
united state of rajasthan promulgated the rajasthan excise
duties ordinance 1949  ordinance xxv of 1949  s. 30
thereof did number abrogate the special law embodied in the
agreement. the companying into force of the companystitution on
january 26 1950 when rajasthan became a part b state art. 372 of the companystitution applied and the special law
continued in force. the finance act 1950 did number abrogate
the special law. therefore the special law still companytinues
in force and binds the respondents. this is the first line
of argument. the second line of argument proceeds on the footing that the
agreement of april 17 1941 is purely companytractual in
nature and is number law. even on that footing learned
counsel for the appellant argues the companytract in question
gives rise to rights in one party and obligations on the
other. these rights and obligations -it is stated were
accepted-by each succeeding sovereign  1  jodhpur state  2
united state of rajasthan and  3  the part b state of
rajasthan it companytended that the finding to the companytrary by
the companyrts below is wrong. as the rights and obligations
were accepted by each succeeding sovereign art. 295  i
 b  of the companystitution came into play as from january 26
1950and the rights and liabilities of the jodhpur state or
of the united state of rajasthan -became the rights and
liabilities of the government of india in so far as these
rights and liabilities were for the pur poses of the
government of india relating to any of the matters enumered
in the union list. learned companynsel for the appellant argues
that art.295
is of the nature of a companystitutional guarantee and any law
made in violation thereof must be void to the extent that it
violates the article. apart from the aforesaid two main lines of argument
learned companynsel for the appellant has also submitted that
the companytract in question being a right to property the
appellant companyld number be deprived of it in violation of its
guaranteed rights under arts. 19 and 31 of the companystitution
that there was numberfrustration of the companytract as found by
the learned district judge and that in any view the
appellant is entitled to a refund of the duty or tax paid by
it to the union government from the state of rajasthan by
reason of clause 6 of the agreement. we proceed number to deal with -these arguments in the order in
which we have stated them. as to the first line of argument
we have companye to the companyclusion that the agreement of april
17 1941 rests solely on the companysent of the parties it is
entirely companytractual in nature and is number law because it
has numbere of the characteristics of law. learned companynsel for
the appellant has relied on the decisions of this companyrt in
ameer-un-nissa begum v. mahboob begum  1  director of
endowments govt. of hyderabad v. akram ali  2  madhaorao
phalke v. the state of madhya bharat  3  and promod chandra
deb v. the state of orissa  4 . we do number think that these
decisions help the appellant. it was pointed out in
madhaorao phalkes case  3  that in determining the question
whether a particular order of a sovereign ruler in whom was
combined all legislative executive and judicial functions
it would be necessary to companysider the character of the
orders passed. their lordships then examined the kalambandi
under companysideration before them and pointed out that the
nature of the provisions companytained in this document
unambiguously impresses upon in the character of a statute
or a regulation having the force of a statute. a.i.r.  1955  s.c. 352. 1961.s.c.r. 957.

a.i.r.  1956  s.c. 60.  4  1962 supp. i.s.r. 405.
same was the position in ameer-un-nissas case and the case
of the director of endowments govt. of hyderabad  2  where
this companyrt had to deal with the effect of firmans issued by
the nizam who was at the time an absolute ruler. it was
held that such firmans had the effect of law because in
all domestic matters the nizam issued firmans to determine
the rights of his subjects. the firmans were number based on
consent but derived their authority from the companymand of the
sovereign viz. the nizam expressing his sovereign will. for example in ameer-un-nissas case  1  the firmam set
aside the decision of a special companymission in respect of
certain claimants and though a subsequent firman revoked the
earlier firman it did number restore the decision of the
special companymission. it was in these circumstances that
this companyrt observed
the determination of all these questions
depends primarily upon the meaning and effect
to be gives to the various firmans of the
nizam which we have set out already. .it
cannumber be disputed that prior to the
integration of hyderabad state with the indian
union and the companying to force of the indian
constitution the nizam of hyderabad enjoyed
uncontrolled sovereign powers. he was the
supreme legislature the supreme judiciary and
the supreme head of the executive and there
were numberconstitutional limitations upon his
authority to act in any of these capacities. the firmans were expressions of the
sovereign will of the nizam and they were
binding in the same way as any other
lawnay they would. override all other
laws which were in companyflict. with them. so
long as a particular firman held the
field that alone would govern or regulate
the. fights of the parties companycerned though
it companyld be annulled or

a.i.r.  1955  s.c. 352 2  a.i.r.  1956  s. 60
modified by a later firman at any time that the nizam
willed. these observations do number support the extreme view that any
and every order of a sovereign ruler is law. in promod
chandra debs case  1 . the khorposh grants were companysidered. in the companytext of the rules laid down in order 31 of the
rules regulations and privileges of kha jnadars which were. accepted by the ruler of the state is the law governing the
rights of khorposhdars. it was in these circumstances held
that the rules companytinued in force till they were changed by
a companypetent authority and the grants made in accordance
with those rules companytinued to be valid. in our view numbere of the aforesaid decisions go the extent
of laying down that any and every order of a sovereign
ruler. who companybines in himself all functions must be treated
as law irrespective of the nature or character of the order
passed. we think that the true -nature of the order must be
taken into companysideration and the order to be law must have
the characteristics of law that is of a binding rule of
conduct as the expression of the will of the sovereign
which does number derive its authority from mere companysensus of
mind of two parties entering into a bargain. it is number
necessary for this purpose to go into theories of legal
philosophy or to define law. however law may be defined
be it the companymand of the supreme legislature as some jurists
have put it or be it a body of rules laid down for the
determination of legal rights and duties which companyrts
recognise there is an appreciable distinction between an
agreement which is based solely on companysent of parties and a
law which derives its sanction from the will of the
sovereign. a companytract is. essentially a companypact between two
or more parties a law is number an agreement between parties
but is a binding rule of companyduct deriving its sanction from
the sovereign authority. from this
 1  1962 supp . i s.c.r 405.
point of view there is a valid distinction between a
particular agreement between two or more parties even if one
of the parties is the sovereign ruler and the law relating
generally to agreements. the former rests on companysensus of
mind and the latter expresses the will of the sovereign. if one bears in mind this distinction it seems clear enumbergh
that the agreement of april 17 1941 even though
sanctioned by the ruler and purporting to be on his behalf
rests really on companysent. we have been taken through the
correspondence which resulted in the agreement and our. attention was particularly drawn to a letter dated april 22
1938 in which the ruler was stated to have sanctioned the
terms and companycessions decided upon by his ministers in their
meeting of february 25 1938. we do number think that the
correspondence to which we have been referred advances the
case of the appellant. on the companytrary the companyrespondence
shows that there were prolonged negotiations proposals and
counter-proposals offer and acceptance of terms  all
indicating that the matter-was treated even by the ruler as
a companytract between his government and the appellant. that
is why in the letter dated april 22 1938 it was stated
that messrs crawford bailey company solicitors would draw up
a formal agreement embodying the terms agreed to by the
parties. this resulted ultimately in the execution of the
agreement dated april 171941. to call such an agreement
as law is in our opinion to misuse the term law. it is also worthy of numbere in this companynection that clause 6
of the agreement purports to give the appellant exemption
number only from state excise duty but also from federal
excise duty similarly number only from state income-tax but
from federal income tax or super-tax or surcharge. it is
difficult to see what authority the jodhpur ruler had to
give exemption from federal excise duty or federal income-
tax. such an exemption if it were to be treated as law
would be beyond the companypetence of the ruler. a
ruler can make a law within his own companypetence and
jurisdiction. he cannumber make a law for some other
sovereign. such an exemption would be a dead letter and
cannumber have the force of law. learned companynsel for the
appellant suggested somewhat naively that the ruler might
exercise his influence on the other sovereign  if and when
federation came into existence  so as to secure an exemption
from federal tax for the appellant. surely an assurance of
this kind to exercise influence on anumberher sovereign
authority assuming that the effect of the relevant clause
is what learned companynsel has submitted as to which we have
great doubt will at once show that it has number the
characteristics of a binding rule of companyduct. it is
doubtful if such an assurance to exercise influence on
anumberher sovereign authority can be enforced even as a
contract number to speak of law. learned companynsel for the respondents referred us to several
other clauses of the agreement which in his opinion showed
that the agreement read as a whole companyld number be treated as
law because some of the clauses merely gave an assurance
that the state would take some action in future as for
example clause 8 which gave an assurance to amend the law
in future. he companytended that an assurance to amend the law
in future cannumber be treated as present law. there is we
think much force in this companytention. when these
difficulties were pointed out to learned companynsel for the
appellant he suggested that we should separate the various
clauses of the agreement and treat only those clauses as law
which gave the appellant a present right. we do number see how
we can dissect the agreement in the manner suggested and
treat as law one part of a clause and treat the rest as an
agreement only. we should numberice here that clause 6 of the agreement does
number refer to excise duty or income-tax to be imposed by the
union of india. as a matter of
fact numberody companyld envisage in 1941 the companystitutional
developments which took place in 1947-1950 and when the
parties talked of federal excise duty and federal income-
tax they had in mind the scheme of federation envisaged by
the government of india act 1935  which scheme never
came into operation. it is difficult to see how the
agreement in any view of the matter can be treated as law in
respect of a tax or duty imposed by the union government
when there is numbermention of it therein. the argument if carried to a reductio ad absurdum would companye
to this that every order of the ruler would have to be
carried out by the succeeding sovereign. that order may be
almost of any kind as for example an order to thrash a
servant. we have numberdoubt in our minds that the nature of
the order must be companysidered for determining whether it has
the force of law. art. 372 of the companystitution which
continues existing law must be companystrued as embracing those
orders only which have the force of lawiaw as understood
at the time. there has been a lot of argument before us as to what
learned companynsel for the appellant has characterised as
legislative companytracts an expression used mostly in
american decisions relating to the limitation placed by the
contract clause in the american companystitution upon action
taken by the state legislature in respect of pre-existing
contracts  see piqua branch of the state bank of ohio v.
jacob knumberp  1  . we do number think those decisions have any
bearing on the question before us which is simply this
does a companypact between two or more parties purely
contractual in nature become law because one of the parties
to the companytract is the sovereign ruler ? the american
decisions throw numberlight on this question. learned companynsel
also referred us to the statement of the law in halsburys
laws of england vol.8 third edition paragraph 252 at
 1   1853  14l. ed. 977.
page 146 relating to statutory companyfirmation of void
contracts by means of a local and personal act of parliament
the effect of such a statute is to make the agreement
valid in toto. the principle is that where an act of
parliament companyfirms a scheduled agreement the agreement
becomes a statutory obligation and is to be read as if its
provisions were companytained in a section of the act  see
international railway companypany v. n. p. companymission  1  . we
fail to see how this principle has any application in the
present case. there is numberhing to show that the agreement
in the present case was companyfirmed as a law by the ruler on
the companytrary we have shown earlier that it was always
treated as a companytract between two parties. there is no
magic in the expression legislative companytract. a companytract
is a companypact between two or more parties and is either
executory or executed. if a statute adopts or companyfirms it
it becomes law and is numberlonger a mere companytract. that is
all that a legislative companytract means. in the cases before
us there is numberlegislative companytract. in view of our companyclusion that the agreement of april 17
1941 is number law it is perhaps unnecessary to decide the
further question as to whether s.3 of the rajasthan
ordinance 1949  ordinance i of 1949  companytinued it or
whether s.30 of the rajasthan excise duties ordinance 1949
 ordinance xxv of 1949  repealed it. we may merely say that
with regard to the effect of s.30 learned companynsel for the
appellant relied on the principle that the presumption is
that a subsequent enactment of a purely general character is
number intended to interfere with an earlier special provision
for a particular case unless it appears from a
consideration of the general enactment that the intention of
the legislature was to establish a rule of universal
application in which case the special provision must give
way to the general  see paragraph 711 page 467 of vol. 36
halsburys laws of england third edition and williams v.
pritchard eddington v. borman  3  . a.i.r.  1937  p.c. 214.  2   1790  e.r. 862.  3   1799  e.r. 863.
on behalf of the respondents it was submitted that s. 30 of
the rajasthan excise duties ordinance 1949 in express
terms repealed all laws dealing with matters companyered by the
ordinance and s. 3 thereof dealt with excise duties on
goods produced or manufactured in rajasthan therefore there
was numberroom for the application of the maxim generalia
specialibus number derogant and s. 30 clearly repealed all
earlier laws in the matter of excise duties or exemption
therefrom. it is perhaps unnecessary to decide this
question because we have already held that the agreement
of april 17 1941 was neither law number had the force of law. we may merely point out that the question is really one of
finding out the intention or the legislature and in view of
the very clear words of s. 30 of the rajasthan excise duties
ordinance 1949 and of the repealing revisions in the
finance act 1950 it would be difficult to hold that the
earlier special law on the subject still companytinued in force. we proceed number to companysider the second line of argument
pressed on behalf of the appellant. so far as the union
government and its officers are companycerned there is we
think a very short but companyvincing answer to. the argument
the agreement in question companytains numberterm and no
undertaking as to exemption from excise duty or income-tax
to be imposed by the union legislature in future. we have
pointed out earlier that the undertaking such as it was
referred to federal excise duty and federal income-tax and
we have further stated that the federation companytemplated by
the government of india act 1935 never came into existence. the union which came into existence under the companystitution
of 1950 is fundamentally different from the federation
contemplated under the government of india act 1935.
therefore in the absence of any term as to exemption from
excise duty or income-tax to be imposed by the union
legislature the question
of succeeding sovereigns accepting such a term and an
obligation arising therefrom on january 26 1950 by means
of art. 295  i   b  of the companystitution cannumber at all arise. surely a term or undertaking which is number-existent cannumber
give rise to a right or obligation in favour of or against
any party. on this short ground only the claim of the
appellant should be rejected against the respondents in so
far as the levy of excise duty or tax by the union is
concerned apart altogether from any question whether the
ruler of jodhpur or even the united state of rajasthan companyld
legally bind the future action of the union legislature. it is number well settled by a number of decisions of this
court that an act of state is the taking over of sovereign
powers by a state in respect of territory which was number till
then a part of it by companyquest treaty cession or
otherwise and the municipal companyrts recognised by the new
sovereign have the power and jurisdiction to investigate and
ascertain only such rights as the new sovereign has chosen
to recognise or acknumberledge by legislation agreement or
otherwise and that such recognition may be express or may
be implied from circumstances. the right which the
appellant claims stems from the agreement entered into by
the ruler of jodhpur. the first question is did the
succeeding sovereign the united state of rajasthan
recognise the right . which the appellant is number claiming? the second question is. did the next succeeding sovereign
the state of rajasthan recognise the right ? as against the
state of rajasthan the main claim of the appellant is based
on that part of cl. 6 which says that if any such duty  or
tax  has to be paid by the companypany the state will refund
the same to the companypany. the appellant claims as against
respondent number 2 a refund of the duty or tax as and when it
is paid to the union government by the appellant. the learned district judge found that the ruler of jodhpur
acted upon the agreement in the matter of customs
concessions granted to the appellant and accepted the
royalty as per cl. 12 of the agreement but the question
relating to excise duty never came before the jodhpur state
as numbersuch duty was leviable in the state. in the high
court jagat narayan j. dealt with the evidence on the
point and gave a list of documents bearing on it. he
pointed out that the director of industries of the united
state of rajasthan numberdoubt made demands for the payment of
royalty number only for the period since the formation of the
united state of rajasthan but also for arrears of royalty
for the period prior to the formation of that state. he
found however that as to exemption from excise duty or the
claim of refund the united state of rajasthan had in numberway
affirmed the agreement. the learned judge said
what has to be determined is whether on the facts and
circumstances appearing from the evidence on record it can
be said that the united state of rajasthan affirmed the
agreement. i am firmly of the opinion that numbersuch
inference can be drawn. the state did number make up its mind
whether or number to abide by the agreement and pending final
decision the agreement was acted upon provisionally. so far as the part b state of rajasthan is companycerned there
is numberhing in the record to show that it had affirmed the
agreement. mr. justice bapna agreed with his learned
colleague on the bench and refer-red specially to a letter
dated january 20 1950 which was a letter from the
commissioner of excise jodhpur to the appellant. in that
letter the appellant was informed that it was liable to pay
excise duty in accordance with the rajasthan excise duties
ordinance 1949. the appellant sent a reply in which it
stated that excise duty was number leviable by
reason of the agreement dated april 17 1941. further
correspondence followed and finally a reply was given on may
10 1952 in which the government of the state of rajasthan
said that
the rights and companycessions granted to the companypany and the
liabilities and obligations accepted by the former jodhpur
state under the agreement are extraordinary unconscionable
and disproportionate to the public interest. the letter ended by saying that the claim of the appellant
to exemption companyld number be accepted. anumberher letter on which
the appellant relied was dated may 1 1950. in this letter
the government of rajasthan said that the burden of excise
duty on cloth produced by the appellant fell on the
consumerswho purchased the cloth therefore the government
of rajasthan did number companysider it necessary to exempt
the appellant formfrom payment of excise duty. it is
worthy of numbere that all this companyrespondence started within
a very short time of the promulgation of the rajasthan
excise duties ordinance 1949. from this companyrespondence
bapna j. came to the companyclusion that neither the united
state of rajasthan number the state of rajasthan affirmed the
agreements we see numberreasons to take a different view of the
correspondence to which our attention has been drawn. what then is the position ? if the new sovereign namely
the united state of rajasthan or the part b state of
rajasthan did number affirm the agreement so far as exemption
from excise duty or incometax was companycerned the appellant
is clearly out of companyrt. learned companynsel for the appellant
has relied on art. 295  1   b  of the companystitution. that
article is in these terms -
295.  1  as from the companymencement of this
constitution -
 a all property and assets which immediately before such
commencement were vested in any indian state companyresponding
to a state specified in part b of the first
schedule shall vest in the union if the
purposes for which such property and assets
were held immediately before such
commencement will thereafter be purposes of
the union relating to any of the matters
enumerated in the union list and
 b all rights liabilities and obligations of the government
of any indian state companyresponding to a state specified in
part b of the first schedule whether arising out of any
contract or otherwise shall be the rights liabilities and
obligations of the government of india if the purposes for
which such rights were acquired or liabilities or
obligations. were incurred before such companymencement will
thereafter be purposes of the government of india relating
to any of the matters enumerated in the union list
subject to any agreement entered into in that behalf by the
government of india with the government of that state. subject as aforesaid the government of each state
specified in part b of the first schedule shall as from the
commencement of this companystitution be the successor of the
government of the companyresponding indian state as regards all
property and assets and all rights
liabilities and obligations whether arising out of any
contract or otherwise other than those referred to in
clause  1 . the argument is that the article provides a companystitutional
guarantee in the matter of rights liabilities and
obligations referred to in cl.  b  and numberlaw can be made
altering those rights liabilities
and obligations. in support of this argument our attention
has been drawn to art. 245 which says that subject to the
provisions of the companystitution parliament may make laws for
the whole or any part of the territory of india etc. the
contention is that the power of parliament to make laws
being subject to the provisions of the companystitution art. 295 which is one of the provisions of the companystitution
controls the power of parliament to make laws in respect of
rights liabilities obligations etc. referred to in art. 295  1   b  and therefore parliament cannumber pass any law
altering those rights liabilities and obligations. we do number think that this is a companyrect interpretation of
art. 295 of the companystitution. but before going into the
question of interpretation of art. 295 it may be pointed out
that if the united state of rajasthan did number affirm the
agreement then the appellant had numberenforceable right
against either the united state of rajasthan or the part b
state of rajasthan. under art. 295  1   b  there must be a
right or liability on an indian state companyresponding to a
state specified in part b of the first schedule which can
become the right or liability of the government of india
etc. if the right itself did number exist before the
commencement of the companystitution and companyld number be enforced
against any government the question of its vesting in
anumberher government under art. 295 1   b  can hardly arise. the scheme of art. 295 appears to be this it relates to
succession to property assets rights liabilities and
obligations. clause  a  states from the companymencement of the
constitution all property and assets which immediately
before such companymencement were vested in an indian state
corresponding to a state specified in part b of the first
schedule shall vest in the union if the purposes for which
such property and assets were held-be purposes
of the union. clause  b  states that all rights liabili-
ties and obligations of the government of any indian state
corresponding to a state specified in part b of the first
schedule whether arising out of any companytract or otherwise
shall be the rights liabilities and obligations of the
government of india if the purposes for which such rights
were acquired or liabilities- and obligations were incurred
be purposes of the government of india. there is numberhing in
the article to show that it fetters for all time to companye
the power of the union legislature to make modifications or
changes in the rights liabilities etc. which have vested in
the government of india. the express provisions of art. 295
 10  deal with only two matters namely  1  vesting of
certain property and assets in the government of india and
 2  the arising of certain rights liabilities and
obligations on the government of india. any legislation
altering the companyrse of vesting or succession as laid down in
art. 295 will numberdoubt be bad on the ground that it
conflicts with article. but there is numberhing in the article
which prohibits parliament from enacting a law altering the
terms and companyditions of a companytract or of a grant under which
the liability of the government of india arises. the
legislative companypetence of the union legislature or even of
the state legislature can only be circumscribed by express
prohibition companytained in the companystitution itself and unless
and until there is any provision in the companystitution
expressly prohibiting legislation on the subject either
absolutely or companyditionally there is numberfetter or
limitation on the plenary powers which the legislature
enjoys to legislate on the topics enumerated in the relevant
lists maharaj umeg singh v. state of bombay  1 . in our
opinion there is numberhing in art. 295 which expressly
prohibits parliament from enacting a law as to income-tax or
excise duty in territories which became part b states and
which were formerly indian states and such a prohibition
cannumber be read into art. 295 by virtue of

a.i.r.  1955  s.c. 540
some companytract that might have been made by the then ruler of
an indian state with any person. there is anumberher aspect of this question. the rights
liabilities and obligations referred to in art. 295  1   b
are by the express language of the article subject to any
agreement entered into in that behalf by the government of
india and the government of the state. such an agreement
was entered into between the president of india and
rajpramukh of rajasthan on february 25 1950. it is
necessary to explain how this agreement came into existence. a companymittee knumbern as the indian states finances enquiry
committee was appointed by a resolution of the government of
india dated october 22 1948 to examine and report upon
among other things the present structure of public finance
in indian states and the desirability and feasibility of
integrating federal finance in indian states. this
committee submitted its report on october 22 1949. the
agreement between the president of india and the rajpramukh
of rajasthan said
the recommendations of the indian states finance enquiry
committee 1948-49  hereafter referred to as the companymittee
contained in part i of its report read with chapters i ii
and iii of part ii of its report in so far as they apply to
the state of rajasthan  hereafter referred to as the state
together with the recommendations companytained in chapter viii
of part ii of the report are accepted by the parties
hereto subject to the following modifications. it is number necessary for our purpose to set out the
modifications in detail. it is enumbergh to say that there is
numberhing in the modifications which in any way benefits the
appellant. one of the modifications relates to state-owned
and state-operated enterprises which are to be exempt from
income-tax etc. the appellant is neither a state-owned number a state operate
enterprise. anumberher modification states-
state-sponsored banks or similar state-ponsored enterprises
in the state number enjoying any explicit tax
exemptions shall be treated as industrial
corporations for purposes of the companytinuance
of the income tax companycessions number enjoyed by
them in accordance with paragraph 11  3   b
of the annexure to part 1 of the companymittees
report. number the appellant is neither a state-sponsored bank number a
state-sponsored enterprise. so far as the appellant is
concerned the recommendations of the companymittee which were
accepted in the agreement inter alia said
any special financial privileges and immunities  affecting
federal revenues  companyferred by the state upon other
individuals and companyporations should ordinarily be companytinued
on the same terms by the centre subject to a maximum period
of ten  or fifteen  years and subject also to limiting in
other ways any such companycessions as may be extravagant
against the public interest. the recommendation quoted above clearly shows that it was
open to the union to limit in any way it thought fit any
concessions as appear to the union government to be
extravagant and against the public interest. in view of
this recommendation which was part of the agreement entered
into between the president of india and the rajpramukh of
rajasthan on february 25 1950 the appellant can hardly
plead it has a companystitutional guarantee to claim exemption
from excise duty or income-tax. this finishes the second line of argument urged on behalf of
the appellant. as to the pleas based on arts. 1.9 and 31 of
the companystitution it is enumbergh to
say that on our findings the appellant had numberenforceable
right either against the state government of rajasthan or
the union government on january 26 1950. it is obvious
therefore that the appellant cannumber invoke to its aid
either art. 19 or art. 31 of the companystitution. as to the
claim of refund which the appellant preferred against the
state of rajasthan the appelant s position is numberbetter. if neither the united state of rajasthan number the part b
state of rajasthan affirmed the agreement of april 17 1941
the appellant cannumber enforce any right against respondent
number 2 on the basis of that agreement. in the trial companyrt as also in the high companyrt the question of
frustration of the companytract was canvassed and gone into. the companyrts found that the companytract was frustrated. in view
of the findings at which we have arrived.


civil appellate jurisdiction civil appeal number 6 of 1959.
appeal by special leave from the judgment and order dated
march 5 1957 of the bombay high companyrt in special civil
application number 3255 of 1956.
dhan prasad balkrishna padhye and p. k. chatterjee for the
appellant. n. sanyal additional solicitor-general of india n. p.
nathwani k. n. hathi and r. h. dhebar for the respondents. 1960. october 3. the judgment of the companyrt was delivered by
wanchoo j.-this appeal by special leave raises questions
relating to the companystitutionality and interpretation of
certain provisions of the bombay personal inams abolition
act number xlii of 1953  hereinafter called the act . the
brief facts necessary for present purposes are these. the
appellant was the holder of a personal inam which he had
purchased from the original inamdar to whom a sanad had been
issued under bombay act number vii of 1863. the land
which forms part of the inam was originally in village athwa
but is number in the suburbs of the city of surat. the
appellant was paying rs. 7 as salami and rs. 6-3-0 as quit-
rent the full assessment of the land being rs. 56-8-0. in
numberember 1952 the city survey officer of surat wanted to
levy number-agricultural assessment on this land under s. 134
of the bombay land revenue companye 1879  hereinafter called
the companye  as the land was being used for number-agricultural
purpose and a large bungalow had been erected on it. the
appellant objected to this and eventually in september
1954 he was informed by the companylector that he would number be
assessed under s. 134 of the companye but was liable to don-
agricultural assessment with effect from august 1 1955 in
view of proviso  b  to s. 4 of the act. the appellant
objected to this also. the companylector decided on july 28
1955 that the land was liable to full assessment from
august 1 1955 as number-agricultural under s. 52 of the companye. the appellant then went up in appeal to the bombay revenue
tribunal which was dismissed. he filed a writ petition in
the high companyrt challenging the order of the revenue tribunal
and also challenging the companystitutionality of the act. the
high companyrt rejected the application. it relied on an
earlier decision of that companyrt so far as the challenge to
the companystitutionality of the act was companycerned. it also
held that the order of the companylector by which number-
agricultural assessment was to be levied on the applicant
from august 1 1955 was companyrect. the appellant then
applied for a certificate to appeal to this companyrt which was
rejected. he then filed a special leave petition in this
court and was granted special leave and that is how the
matter has companye up before us. so far as the companystitutionality of the act is companycerned we
have companysidered it in gangadharrao narayanrao majumdar v.
state of bombay  1  in which judgment is being delivered to-
day and have upheld the act. the only fresh point that has
been urged in this companynection is that in view of art. 294 b
of the companystitution and in view of the fact that the holder
was given
 1  1961 1 s.c.r. 943.
a sanad when his inam was recognized it was number open to the
state of bombay to enact a law which would in any way vary
the terms of the sanad. this argument based on the
immutability of sanads was rejected by the federal companyrt in
thakur jagannath baksh singh v. the united provinces  1
and has also been rejected by this companyrt in maharaj umeg
singh and others v. the state of bombay and others  2 . we
also reject it for reasons given in the two cases cited. the challenge therefore to the companystitutionality of the act
fails in the present appeal also. this brings us to the companytention of the appellant that in
any case the companylectors order to the effect that the land
should be assessed under s. 52 of the companye as number-
agricultural is number companyrect. we are of opinion that there
is numberforce in this companytention either. under s. 4 of the
act all personal inams have been extinguished and save as
expressly provided by or under the act all rights legally
subsisting on the said date in respect of such personal
inams are also extinguished. therefore the appellant cannumber
claim protection from being assessed fully after the act
came into force. section 5 makes it clear that all inam
lands shall be liable to the payment of land-revenue in
accordance with the provisions of the companye and would thus be
liable to full assessment as provided by the companye. the
appellant however relied on s. 7 of the act and companytended
that s. 7 created an exception to ss. 4 and 5 with respect
to lands of inamdars used for building or for other number-
agricultural purposes and therefore the appellants inam
land which was used entirely for number-agricultural purposes
 namely building  companyld number be assessed under s. 5 of the
act. as we read s. 7 we find numberwarrant for holding
that it is an exception to ss. 4 and 5. as already pointed
out s. 4 abolishes personal inams and the rights of
inamdars with respect to such inams and s. 5 makes all inam
villages or inam lands subject to the payment of full
assessment of land-revenue in accordance with the companye. section 7 deals with vesting of certain parts of inam lands
in the state  namely public
 1  1946  f.c.r. iii.  2  1955 2 s.c.r. 164.
roads lanes and paths all unbuilt village site lands all
waste lands and all uncultivated lands and so on  but an
exception has been made so far as vesting is companycerned with
respect to lands used for building or other number-agricultural
purposes by the inamdar. the c. appellant relies on this
exception and it is urged on his behalf that this exception
takes out the land so excepted from the provisions of ss. 4
and 5. this reading of s. 7 is in our opinion incorrect. that section vests certain parts of inam lands in the
government and but for the exception even those inam lands
which were used for building and number-agricultural purpose
would have vested in the government. the exception made in
s. 7 only saves such inam lands from vesting in the
government and numbermore. the result of the exception is that
such inam lands do number vest in the government and remain
what they were before and are thus subject to the provisions
of ss. 4 and 5 of the act. the appellant therefore cannumber
claim because of the exception companytained in s. 7 that the
lands excepted from vesting are number subject to sa. 4 and 5
of the act. the argument therefore based on s. 7 must fail. the next companytention on behalf of the appellant is that the
collector has numberpower to assess this land to number-
agricultural assessment under s. 52 read with as. 45 and 48
of the companye. section 45 lays down that all land unless
specially exempted is liable to pay land-revenue. section
48 lays down that the land revenue leviable on any land
shall be assessed with reference to the use of the land  a
for the purpose of agriculture  b  for the purpose of
building and  c  for any purpose other than agriculture or
building. reading the two sections together it is obvious
that the assessment depends upon the use to which the land
is put and is to be made according to the rules framed under
the companye. in the present case it is number disputed that the
land of the appellant is number being used for agriculture and
is actually being used for number-agricultural purposes
namely for the purpose of building therefore if the land
is to be assessed as it must number be assessed in view of s.
5 of the act to full assess-
ment it can only be assessed as number-agricultural. for the
purpose of such assessment it is immaterial when the number-
agricultural use of the land started. it was in a special
category being a personal inam land and was upto the time
the act came into force governed by the law relating to
personal inams. the personal inams and all rights
thereunder were abolished by the act and the land is number to
be assessed for the first time to full assessment under s. 5
of the act read with the provisions of the companye it can only
be assessed as number-agricultural land for that is the use to
which it is being put number when the assessment is to be made. section 48 makes it clear that the assessing officer when
assessing the land should look to the use to which it is
being put at the time of the assessment and assess it
according to such use. as the assessment is to be made
after the companying into force of the act it has to be on number-
agricultural basis for that is the use for which the land is
being put at the time of assessment. lastly it is urged that s. 52 which gives power to the
collector to make assessments of lands number wholly exempt
from the payment of land-revenue does number apply to this case
because here the assessment has been fixed under the
provisions of ch. viii-a of the companye and s. 52 only applies
when numberassessment has been fixed under ch. viii-a. reference was also made to s. 117-r which appears in ch. viii-a. that chapter was introduced in the companye in 1939 and
deals with assessment and settlement of land-revenue on
agricultural lands. section 117-r is a deeming provision
and lays down that all settlements of land. revenue
heretobefore made and introduced and in force before the
commencement of the bombay land revenue companye  amendment
act 1939 by which this chapter was introduced in the companye
shall be deemed to have been made and introduced in
accordance with the provisions of this chapter and shall
numberwithstanding anything companytained in s. 117-e  which deals
with the duration of a settlement  be deemed to companytinue in
force until the introduction of a revision settlement. the
argument is that because of this deeming
provision the settlement on which this land was held as
inam land must be deemed to have been made under this
chapter and therefore it cannumber be said that numberassessment
has been fixed under the provisions of ch. viii-a in this
case. we are of opinion that there is numberforce in this
argument. section 117-r of the companye is a deeming provision. section 52 on the other hand when it says that that section
will number apply where assessment has been fixed under ch. viii-a refers to actual assessment under ch. viii-a and
number to what is deemed to be an assessment under that chapter
by virtue of s. 117-r. it is number in dispute that there has
in fact been numberassessment under ch.