Dixit, C.J.

By this application under Article 226 of the Constitution of India, the petitioner Company prays for the issue of an appropriate writ or direction restraining the opponents from making any assessment under the Indian Income Tax Act and from levying or collecting Income Tax from the Company for a period of twelve years from June 1949 in respect of income of the Weaving Division and for a period of twelve years from February 1954 in respect of the income of the Staple Fibre Section of the petitioner-Company.

The events leading to the supplicant's claim for exemption from taxation are that in order to promote the industrial development of the former Gwalior State and to facilitate the establishment of certain industries in the State, the Maharaja of Gwalior on the recommendation of his Minister for Industries, Commerce and Communications, made an order on 18-1-1947 exempting from any form of taxation for a period of twelve years the income of certain industries and factories which M/s. Birla Bros., Ltd., Gwalior, intended to establish in Gwalior State. Consequent to this order of the Ruler, an agreement was entered into between the Gwalior Government and M/s. Birla Bros., Ltd., on 7-4-1947 for the grant of certain facilities, concessions and exemption from taxation in connection with the establishment and starting of certain industries mentioned in the agreement. One of the industries specified was the rayon silk manufacturing factory which included production of rayon or other synthetic fibres, yarns, and knitting, weaving and processing of such fibres and yarns. By Clause (3) of the agreement the Gwalior Government undertook

"To exempt, the above mentioned industries and/or any concern or concerns promoted or started or to be hereinafter promoted or started for the establishment of all or any of the above mentioned industries, from the payment of all taxes and/or duties, in any form or nature whatsoever, on their incomes, profits, gains or business, levied or to be hereinafter levied in the Gwalior State, or any part thereof, for a period of twelve years reckoned from the date on which the factory or factories of the above mentioned industries has or have started working or starts or start working."

After the conclusion of this agreement, the petitioner-Company was promoted and started by M/s. Birla Bros., Ltd., for manufacturing staple fibre and for the manufacture of cloth with artificial silk yarn and staple fibre yarn. The Weaving Section for the manufacture of cloth from artificial Silk Yarn was started in June 1949. The staple fibre section of the factory commenced production On or about 18-2-1954.

When the agreement was concluded, the position of the State of Gwalior was of a State under the British suzerainty. That position was altered by the Indian Independence Act, 1947, which came into force on 15-8-1947. With the coming into force of this Act, the British paramountcy over the Indian States lapsed and the State of Gwalior, like other Indian States, was released from its obligations to the British Crown. Section 1 of the Act of 1947 set up as from 15-8-1947, two independent dominions to be known as India and Pakistan. The Government of India Act, 1935, was modified under the provisions of the Act of 1947 and the orders issued u/s 9 of the Act.

The Act of 1935, as so modified, provided by Section 5 that the Dominion of India established under the provisions of 1947 Act shall comprise of the Governors' Provinces, Chief Commissioners' Provinces, the Indian States as might accede to the Dominion u/s 6, and any other areas that may, with the consent of the Dominion, be included in it. In pursuance of this section, the Ruler of Gwalior executed on 15-8-1947 an instrument of Accession.

It is well known that after 15-8-1947, the process of consolidation of the Indian States in sizeable administrative units and their democratsation went on with vigorous and rapid strides, and on 22-4-1948, the Rulers of Gwalior,