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In accordance with Art. VI of the Covenant, the Rajpramukh of the Patiala Union took over the administration of Jind on August 20, 1948, and immediately after assumption of office, he promulgated the Patiala and East Punjab States Union Administration Ordinance No. 1 of S. 2005. Section 3 of the Ordinance, which is material for the present discussion, is as follows:

" As soon as the administration of any covenanting State has been taken over by the Raj Pramukh as aforesaid all Laws, Ordinances, Acts, Rules, Regulations, Notifications, Hidayate Firman-i-Shahi, having force of law in Patiala State on the date of commencement of this Ordinance shall apply mutatis mutandis to the territories of the said State and with effect from that date all laws in force in such Covenanting State immediately before that date shall be repealed:

that there had been, in fact, no such recognition, and that, in consequence, the tax was leviable as prescribed in the Patiala Income-tax Act, S. 2001. On the application of the appellant, the Tribunal referred under s. 66(1) of the Indian Income-tax Act, the following question for the opinion of the High Court:

" Whether the asseessee's profits and gains earned in the calendar year 1948 were assessable for S. 2006 (1949-50) at the rates in force according to the Patiala Income-Tax Act of S. 2001 read with section 3 of the Patiala & East Punjab States Union Administration Ordinance (No. 1 of S. 2005), as repealed and re-enacted in section 3 of the Patiala & East Punjab States Union General Provisions (Administration) Ordinance (No. XVI of 2006), or in accordance with clause (23) of the agreement of April, 1938 above referred to,"

The result of the authorities then is that when a treaty is entered into by sovereigns of independent States whereunder sovereignty in territories passes from one to the other, clauses therein providing for the recognition by the new sovereign of the existing rights of the residents of those territories must be regarded as invested with the character of an act of state and no claim based thereon could be enforced in a court of law. It must follow from this that the Covenant in question entered into by the rulers of the Covenanting States is in its entirety an act of state, and that Art. VI therein cannot operate to confer on the appellant any right as against the Patiala Union. This conclusion becomes all the more impregnable when it is remembered that the Covenant was signed by the rulers on May 5, 1948, whereas the new state came into being only on August 20, 1948. In the decisions cited above, the sovereign against whom the obligations created by the treaty were sought to be enforced was the very sovereign who entered into that treaty or his successor. But here, the ruler of the Patiala Union against whom Art. VI is sought to be enforced was not a party to the Covenant at all, because that State had not come into existence on that date. The person who signed the Covenant was the ruler of the State of Patiala which was one of the Covenanting States, but that State as well as the seven other States which entered into the Covenant stood all of them dissolved on August 20, 1948, when the new Patiala Union came into being. The new State could not and did not enter into any covenant before August 20, 1948, and therefore, in strictness, it cannot be (1) (1924) L.R. 511. A. 357, 360.

(4)Lastly, we have to deal with the contention of Mr. Pathak that the Patiala Union had affirmed the agreement, Ex. A, that, in consequence, it was bound by it as if it had itself entered into it, and that the liability of the appellant to income-tax should therefore be determined in accordance with Cl. (23) thereof. This contention would be irrefragable if the Patiala Union had, as a fact, affirmed the agreement. But has that been established ? It has been already observed that the rights of the appellant under Ex. A would become enforceable only if the new State had accorded recognition to them, and what is requisite, therefore, is a declaration or conduct of the Patiala Union subsequent to its formation which could be regarded as amounting to affirmation of Ex. A. Of that, there is no evidence whatsoever. On the other hand, the first act of the Rajpramukh after assumption of office by him was the promulgation of Ordinance No. 1 of S. 2005, the effect of which was to sweep away the rights of the appellant under Cl. (23) of Ex. A. It was argued that Art. VI of the Covenant would at least be valuable evidence from which affirmance of those rights could be inferred. That is so ; but that inference must relate to act or conduct of the new State, and that can only be after its formation on August 20, 1948. If there were any acts of the new State which were equivocal in character, it would have been possible to hold in the light of Art. VI of the Covenant that its intention was to affirm the concessions in Cl. (23) of Ex. A. But the act of the new. sovereign immediately after he became in titulo was the application of the Patiala State laws including the Patiala Income-tax Act to the territories of Jind involving negation of those rights. It was said that the levy of income-tax for 1948- 1949 was made in accordance with Ex. A, but that relates to a period anterior to the formation of the new State and is within the saving enacted in the proviso to s. 3 of the Ordinance. The appellant has failed to substantiate his plea that there has been affirmance of Cl. (23) of Ex. A by the Patiala State Union, and this point also must be found against it.