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Under this head of the argument, learned counsel emphasised that the establishment of a new State of Madhya Bharat in 1948 and the State thereafter becoming a territory of the Republic of India were Acts of State; and that Article 295(1)(b) of the Constitution was a provision dealing not simply with mere transference of devolution of the rights, liabilities and obligations of the Government of any Indian State, corresponding to a State specified in Part B, to the Government of India, but that it also made the rights, liabilities and obligations devolving as the, rights, liabilities and obligations of the Government of India so as to bind that Government with the devolved rights, liabilities and obligations.

He then argued that the said Article could not be read as restricting in any way the legislative power under Article 295 by the terms of any grant or contract devolving under the provision. It was pointed out that the wording of Article 295(1)(h) was similar to that of Article 295(1)(b) and, therefore, it must receive the same construction as was put by the Supreme Court on Article 294 (1Kb) in (S) AIR 1955 SC 540 (supra). Learned Advocate-General further argued that if, as was conceded on behalf of the petitioner, Article 295 did not fetter legislative power, then it was unreal to say that the Income-tax Act, Section 13 of the Finance Act, 1950, and paragraph 16 of the Part B States (Taxation Concessions) Order, 1950, were unconstitutional and void as they were in contravention of any obligation devolved under Article 295(1)(b); that there was no infringement of any fundamental right in the valid imposition, assessment or collection of a tax; and that being so, the principle laid down in (S) AIR 1955 SC 123 (supra) that a statute, though within the legislative competence of a Legislature, could still be declared unconstitutional and void by reason of abridgement of fundamental rights had no applicability.

If the expression "shall be the rights, liabilities and obligations" has the implication of a clear positive instruction that the obligations devolving shall be fulfilled, it would be irrelevant to consider the difficulties of fulfilling them or to get over them by saying that there is no specific mention of them, in the clause. The rights, liabilities and obligations of the Indian States devolving under Article 295(1)(b) being numerous and of a varied nature and kind, clearly it was impossible to enumerate them specifically in Clause (b) for the purpose of making them binding on the Government of India. The absence, therefore, of a specific mention in Clause (b) of a particular obligation, or obligations, cannot be taken as indicative of the fact that Clause (b) of Article 295(1) did not intend to make any transferred obligation binding on the Government of India.

It is difficult to see how a special statutory provision granting exemption from taxation and a general statute imposing taxation cannot stand together. The learned Chief Justice relied on AIR 1930 PC 209 (supra). But that decision, as already stated, is distinguishable by the fact that in that case the assessee's claim for exemption was rejected because there was nothing in the Regulations granting him immunity from taxation.

23. To sum up, our conclusions are: (i) that the order dated the 18th January 1947 of the Ruler of Gwalior State exempting the petitioner from taxation had the effect of law and the agreement executed on the 7th April 1947 cast an obligation on the Gwalior Government to exempt the petitioner from taxation; (ii) that by virtue of Sections 3 and 4 of the Madhya Bharat Act No. I of 1948 the petitioner's right to get the exemption received legislative recognition and the State of Madhya Bharat was bound to discharge the obligation undertaken by the Ruler 1 of the Gwalior State which devolved on it; (iii) that it was this obligation of the Madhya Bharat Government to fulfil the obligation undertaken by the Ruler of Gwalior State of granting exemption to the applicant that devolved on the Government of India under Article 295(1)(b) and became a constitutional obligation of the Government; and (iv) that on a true construction of the relevant provisions of the Income-tax Act, Section 13 of the Finance Act of 1950, and paragraph 16 of the Taxation Concessions Order, 1950, they do not repeal the specific exemption granted to the petitioner by special "statutory provisions", and that, therefore, the petitioner's claim for exemption from taxation is well-founded.