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PETITIONER:

DEHRI ROHTAS LIGHT RAILWAY COMPANY LIMTED

Vs.

RESPONDENT:

DISTRICT BOARD BHOJPUR AND ORS.

DATE OF JUDGMENT12/03/1992

BENCH:

FATHIMA BEEVI, M. (J)

BENCH:

FATHIMA BEEVI, M. (J)

AGRAWAL, S.C. (J)

CITATION:

1992 SCR (2) 155 1992 SCC (2) 598

JT 1992 (3) 573 1992 SCALE (1)637

ACT:

Bengal Cess Act, 1880 :

Sections 5 and 6-Cess-Payment of-Unregistered agreement

entered into-Demands made ignoring such agreement-Legality

of.

Constitution of India, 1950 :

Article 226-Writ-Remedies claimed-Party otherwise

entitled to the remedy-Whether disentitled on the sole

ground of laches and delay.

HEADNOTE:

The appellant was engaged in the business of running a

light railway and was liable to pay cess under Section 5 of

the Bengal Cess Act, 1880.

By way of an unregistered agreement entered into

between the appellant and the respondent it was agreed that

the appellant would pay a fixed sum of Rs. 10,000 p.a.

towards cess irrespective of the profit or loss made by the

appellant-company. Accordingly the appellant was paying

cess from 1953-54 till 1966-67.

In 1967 the respondent intimated the appellant that

the State was not bound by the unregistered agreement and

raised a demand of Rs.9,86,809.33 towards arrears of cess.

The appellant instituted a suit before the sub-Judge to;

enforce the said unregistered agreement and to restrain the

respondents from making any demand in excess of the agreed

sum or Rs.10,000 p.a. On the suit being dismissed, the

appellant preferred and appeal before the High Court. The

appeal was also dismissed. The first of the present

appeals, is against the abovesaid judgement of the High

Court.

Meanwhile, demand for arrears of cess for the years

1967-68 to 1971-72 was raised against the appellant. In a

Writ Petition filed before the High Court the appellant

challenged the demand. The High Court quashed the demand.

Thereupon the appellant filed another Writ Petition

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for quashing the demand notices for the years 1953-54 to

1966-67. The High Court dismissed the Writ Petition, and

the other appeal has been filed against the said order.

The appellant contended that the net profits of the

company was referable partly to its ownership of immovable

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property and partly to its ownership of movable properties,

and only that portion of net profit derived from the use of

the immovable property was liable to cess.

The respondent contended that since the appellant did

not challenge the demands raised for the earlier years in

the first Writ Petition, but only in the subsequent Writ

Petition filed after an inordinate delay of several years,

its claim was rightly rejected.

Disposing of the appeals, this Court,

HELD :1. It is true that the appellant could have, when

instituting the suit, agitated the question of legality of

the demands and claimed relief in respect of the earlier

years while challenging the demand for the subsequent years

in the Writ Petition. But the failure to do so by itself in

the circumstances of the case does not disentitle the

appellant from the remedies open under the law. The demand

is per se not based on the net profits of the immovable

property, but on the income of the business and is,

therefore, without authority. The appellant has offered

explanation for not raising the question of legality in

the earlier proceedings. The authorities have proceeded

under a mistake of law as to the nature of the claim. The

appellant did not include the earlier demand in the Writ

Petition because the suit to enforce the agreement limiting

the liability was pending in appeal, but the appellant did

attempt to raise the question in the appeal itself.

However, the Court declined to entertain the additional

ground as it was beyond the scope of the suit. Thereafter,

the Writ Petition was filed explaining all the

circumstances. The High Court considered the delay as

inordinate. The High Court failed to appreciate all

material facts particularly the fact that the demand was

illegal as already declared by it in the earlier case.

[160H; 161A-D]

2. The principle on which the relief to the part on the

grounds of laches or delay is denied is that the right which

have accrued to others by reason of the delay in filing the

petition should not be allowed to be disturbed unless is

reasonable explanation for the delay. The real

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test to determine delay in such cases is that the petitioner

should come to the writ court before a parallel right is

created and that the lapse of time is not attributable to

any laches or negligence. The test is not to physical

running of time. Where the circumstances justifying the

conduct exists, the illegality which is manifest cannot be

sustained on the sole ground of laches. [161E-H; 162A]

Trilok Chand v. H.B. Munshi, [1969] 2 SCR 824,

distinguished.

3. In the instant case, the demands made for the years

1953-54 to 1966-67 on the basis of the assessment on the net

profits of the undertaking is clearly unsustainable. The

Cess Authorities have to make the assessment taking into

account only the net profits of the immovable properties

used for the purpose of the business by the company and the

assessments have to be modified accordingly. [162B-C]

4. In view of the undertaking given by the appellant it

was directed that on reassessment if the amount paid by the

appellant for these years is in excess of the amount thus

assessed the District Board shall not be liable to make any

refund of the excess and if the cess computed is in excess

of the amount already paid, the liability to pay such excess

shall be on the appellant. [162E-F]

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JUDGMENT:

CIVIL APPELLATE JURIDICTION : Civil Appeal No. 3250 of

1983.

From the Judgment and Order dated 6.1.1981 of the Patna

High Court in C.W.J.C. No. 1266 of 1980.

WITH

Civil Appeal No. 3249 of 1983.

S.K. Sinha for the Appellant.

M.L. Verma and B.B. Singh for the Respondents.

The Judgement of the Court was delivered by

FATHIMA BEEVI, J. The appellant M/s. Dehri Rohtas Light

Railway Company Limited carried on business of running a

light railway between Dehri-on-Sone to Tiura Pipradhih in

the district of Rohtas , Bihar.

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The railway line for the said light railway was laid over 67

kilometers. The area covered was 413.55 acres owned and/or

used by the company as a lessee. The appellant was liable

to pay cess to the District Board under section 5 of the

Bengal Cess Act IX of 1880.

An unregistered agreement was entered into between the

appellant and the District Board of Shahabad, (now Bhojpur)

on 7.8.1953. Thereby it was agreed that the company will pay

a fixed sum of Rs.10,000 per annum towards cess in respect

of the railway under the Bengal Cess Act IX of 1880

irrespective of the profits or losses made by the company in

its railway business . The company paid the cess as per

the agreement dated 7.8.1953 for the the period from 1953-54

to 1966-1967.

On 27.10.1967, the Collector made a demand of

Rs.9.86,809.33 paise from the appellant intimating therein

that State was not bound by the unregistered agreement

dated 7.8.1953. The company instituted suit No.60 of 1968

before the court of Third additional Sub Judge, Sasaram, to

enforce the agreement and to restrain the respondents from

making any demand in excess of Rs.10,000 per annum. The

suit was dismissed by the judgment dated 13.9.1971. The

first appeal No.1242 of 1971 filed before the High Court

against that decision was also dismissed by the judgment

dated 23.5.1980. Civil Appeal No.3249 of 1983 is directed

against this judgment of High Court.

In the meantime the demand for the cess was raised

against the company for the years 1967-1968 to 1971-1972.

This demand was challenged by the company before the High

Court by filing writ petition No.1372 of 1974. The High

Court by judgment dated 30.3.1979 quashed the notice of

demand with direction as to how the Cess is to be assessed

under section 6 read with section 5 of the Bengal Cess Act

1880. Based on this judgment reported in 1979 Bihar Bar

Council Journal 428, the appellant filed C.W.J.C. No.1266 of

1980 under Article 226 of the Constitution before the Patna

High Court for quashing the demand notice for the period

1953-54 to 1966-67. The High Court by judgment dated

6.1.1981 dismissed the writ petition in limine. Civil

Appeal No.3250 of 1983 is directed against the judgment of

the High Court Dated 6.1.1981.

The Bengal Cess Act was applicable to the State of

Bihar and under section 5 of the said Act all immovable

properties were liable to a local cess. The local cess was

to be assessed under section 6 on the annual value

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of lands and, until provision to the contrary is made by the

parliament on the annual net profits from mines and quarries

and from tramways, railways and other immovable property.

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Accordingly, the cess payable by the company in respect of

its immovable properties on which its railways are

constructed and operated is to be assessed on the net

profits arising out of the said immovable properties and not

on the net profits of the entire business of running the

railways which the company derived from its railway

undertaking.

The Additional Collector made the demand for the sum of

Rs.9,86,809.33 paise as alleged due on account of cess in

respect of the land of the company for the years 1953-54 to

1966-1967 by various notices, although full payment of the

rent and cess as agreed upon was made for the relevant

period. Demands are not made on the net profits derived

from the said lands used by the company for its railways,

but are based on the net profits of the entire business of

the railway undertaking. The company has filed returns

showing the net profits not of the said lands but of its

railway business as a whole on the basis of which the

aforesaid cess demands had been made.

The company filed the suit challenging the demand for

the years 1953-54 to 1966-1967 on the basis of the agreement

dated 7.8.1953 for restraining the respondents from making

any demands in excess of Rs.10,000/-. The suit was

dismissed on the sole ground that the State of Bihar did not

consent to the agreement between the company and the

District Board.

The demands for the subsequent years 1967-1968 to 1971-

1972 were challenged in writ petition on the ground that the

said demands for cess were based on the net profits of the

entire railway undertaking of the company and not on the

basis of net profits of the lands used for the said railway

undertaking. The High Court in allowing the writ petition

and quashing the said notice accepted the ground.

The question, therefore, arising in these appeals is

whether the appellant is entitled to the same relief in

respect of the demands for the earlier years. Since the

demands for the earlier years were the subject-matter of the

challenge in the suit which was pending, the company had not

sought relief of quashing the said demands in the writ

petition filed earlier. The Challenge in the suit as stated

was only on the basis of the agreement

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and not on the ground of illegality. The company did not

include the demands for the earlier years in the first writ

petition. It is, therefore, contended for the respondents

that the second writ petition filed after a long lapse of

several years had been rightly dismissed by the High Court.

It is also contended that the demands could not be quashed

in the civil suit on the ground now urged. The learned

counsel for the respondents, therefore, submitted that these

appeals should fail. He also placed reliance on the

decision of this Court in Trilok Chand v. H.B. Munshi,

[1969] 2 SCR 824, in support of the judgement of the High

Court that the writ petition cannot be entertained after

inordinate delay.

The appellant's learned counsel referred to the earlier

decision of the High Court wherein the Court observed

thus :-

"...net profits from the railways must in the

context of the Act, be given a restricted meaning

and it is the net profit from immovable properties

of the railways which is liable to the payment of

the local cess. Thus the net profit of the company

is referable partly to its ownership of immovable

property and partly to its ownership of movable

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properties. It is only that portion of net profit

which is derived from the use of the immovable

property of the petitioner Company which is liable

to cess. If that be the correct view the present

demand contained in Annexures 3 to 7 is not

sustainable. Of course, it would be open to the

authorities to re-assess the cess in the light of

the legal position as explained, and after

determining as to what portion of the net income is

referable to its ownership of immovable property."

It is accordingly settled that the statutory basis of

chargeability under the Cess Act is the immovable property

of the company. the appellant's learned counsel maintained

that the jurisdiction of the Cess Authorities is, therefore,

confined to levy of cess only on the net profits of the

company derived from the immovable properties and any

different stand would be hit by Article 265 of the

Constitution of India.

The question thus for consideration is whether the

appellant should be deprived of the relief on account of the

laches and delay. It is true that the appellant could have

even when instituting the suit agitated the question

161

of legality of the demands and claimed relief in respect of

the earlier years while challenging the demand for the

subsequent years in the writ petition. But the failure to

do so by itself in the circumstances of the case, in our

opinion, does not disentile the appellant from the remedies

open under the law. The demand is per se not based on the

net profits of the immovable property, but on the income of

the business and is, therefore, without authority. The

appellant has offered explanation for not raising the

question of legality in the earlier proceedings. It appears

that the authorities proceeded under a mistake of law as to

the nature of the claim. The appellant did not include the

earlier demand in the writ petition because the suit to

enforce the agreement limiting the liability was pending in

appeal but the appellant did attempt to raise the question

in the appeal itself. However, the Court declined to

entertain the additional ground as it was beyond the scope

of the suit. Thereafter, the present writ petition was

filed explaining all the circumstances. The High Court

considered the delay as inordinate. In our view, the High

Court failed to appreciate all material facts particularly

the fact that the demand is illegal as already declared by

it in the earlier case.

The rule which says that the Court may not inquire into

belated and stale claim is not a rule of law but a rule of

practice based on sound and proper exercise of discretion.

Each case must depend upon its own facts. It will all

depend on what the breach of the fundamental right and the

remedy claimed are and how the delay arose. The principle

on which the relief to the party on the grounds of laches or

delay is denied is that the rights which have accrued to

others by reason of the delay is denied is that the rights

which have accrued to others by reason of the delay in

filing the petition should not be allowed to be disturbed

unless there is reasonable explanation for the delay. The

real test to determine delay in such cases is that the

petitioner should come to the writ court before a parallel

right is created and that the lapse of time is not

attributable to any laches or negligence. The test is not

to physical running of time. Where the circumstances

justifying the conduct exists, the illegality which is

manifest cannot be sustained on the sole ground of laches.

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The decision in Trilok Chand (supra) relied on is

distinguishable on the facts of the present case. The levy

is based on the net profits of the railway undertaking was

beyond the authority and the illegal nature of the same has

been questioned though belatedly in the pending proceedings

after the pronouncement of the High

162

Court in the matter relating to the subsequent years. That

being the case, the claim of the appellant cannot be turned

down on the sole ground of delay. We are of the opinion

that the High Court was wrong in dismissing the writ

petition in limine and refusing to grant the relief sought

for. We however agree that suit has been rightly dismissed.

Since the entire matter is before us, we do not

consider that it is necessary to remit back the case to the

High Court for fresh disposal. In the light of the earlier

decision, it has to be held that the demands made for the

years 1953-1954 to 1966-1967 on the basis of the assessment

on a net profits of the undertaking is clearly

unsustainable. The Cess Authorities have to make the

assessment taking into account only the net profits of the

immovable properties used for the purposes of the business

by the company and the assessments have to the modified

accordingly. It was submitted on behalf of the respondent

that the District Board has received the cess at the rate of

Rs.10,000 per annum and, if on revised assessment, the

liability is reduced then the burden will be cast on the

District Board to refund the excess and that is one of the

reasons why the claim of the company cannot be entertained

at this distance of time. It was also submitted that under

the terms of the agreement, the excess over Rs.10,000 is to

be paid by the District Board and that would be an

additional burden. It is fairly conceded on behalf of the

appellant that on the basis of the revised assessment the

company undertakes not to claim any refund from the District

Board and would pay the excess over Rs.10,000 without

burdening the District Board with the liability to pay the

same in terms of the agreement. When such undertaking is

given by the company it is only just, fair and proper that

the claim of the company is entertained and the Cess

Authority is directed to recompute the cess payable for the

years in question holding the demand already made as

illegal.

In view of the above discussion while dismissing Civil

Appeal No.3249 of 1983 arising from the suit and disposing

of Civil Appeal No.3250 of 1983, we allow the Writ Petition

No.1266 of 1980 and make the following directions:-

"The appellant company is liable to pay for the

years 1953-1954 to 1966-1967 the cess as recomputed

in the light of the decision in writ petition

No.1372 of 1974. If the amount paid

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by the company for these years is in excess of the

amount thus assessed, the District Board shall not

be liable to a make any refund of the excess. If

the cess recomputed exceeds the amount already

paid, the liability to pay such excess shall be on

the appellant company."

In the circumstances of the case, the parties are

directed to bear their respective costs.

G.N. Appeals disposed of.

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