Wanchoo, J.— 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 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 instal 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 May 20, 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 upto 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 the Government.
2. This order 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 January 26, 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 April 1, 1950 by the Finance Act (25 of 1950). Further in view of Section 60-A of the Income Tax Act the Government of India promulugated the Part B States (Taxation Concessions) Order, 1950 (hereinafter 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(l)(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 of India under the Concessions Order.
This petition was heard by the High Court along with another petition Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. v. The Union of India Misc. Petition 101 of 1958 and in view of the decision of the High Court in that case, on the scope and effect of Article 295(l)(b), it held that the concession granted to the respondents by the Madhya Bharat Government which became an obligation of the Government of India entitled them to exemption from income tax for seven years and was binding on the Government of India in spite of the legislative provisions made in connection with income tax from April 1, 1950. The High Court therefore granted a writ restraining the Income Tax Officer from taking any action against the respondents in pursuance of the Income Tax Act in regard to the profits of the business of the factory at Gwalior for the period ending on June 30, 1958. Thereupon the Income Tax Officer applied for a certificate which was granted; and that is how the appeal has come up before us.
4. This appeal has been heard along with the appeals of Union of India v. Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. CAs Nos. 934 and 936 of 1963 judgment in which has just been delivered. We have in that case considered the scope and effect of the provision contained in Article 295(l)(b) of the Constitution and have held that in view of the position emerging on April 1, 1950 by the extension of the Income Tax Act to the territory of the Part B State of Madhya Bharat by the Finance Act of 1950 and in view the concessions Order, the Concessions granted by the Government of the former state of Madhya Bharat, which became the obligation of the Government of India under Article 295(l)(b), must be held to have been superseded by the legislative provisions made as from April 1, 1950 and that corporations or individuals who had any concessions before April 1, 1950 would thereafter be entitled only to such concessions as would be permissible under the Concessions Order. In the circumstances the respondents cannot rely on the agreement with the former State of Madhya Bharat, which must be deemed to have been superseded by the legislative provisions which came into force from April 1, 1950 and can only get such concessions as may be allowed to them under the Income Tax Act read with the Concessions Order. We have already pointed out that the Government of India allowed concessions for five years, which the respondents have already availed of. They are not entitled to any further concession by virtue of the agreement with the Government of Madhya Bharat. In conformity with what we have held in Union of India v. Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd CAs Nos. 934 and 936 of 1963 this appeal must succeed. We therefore allow the appeal and set aside the order of the High Court and dismiss the writ petition. In the circumstances of the case we order parties to bear their own costs throughout.