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PETITIONER: STATE OF WEST BENGAL

       Vs.

RESPONDENT: GHUSICK & MUSLIA COLLIERIES LTD.

DATE OF JUDGMENT15/03/1985

BENCH: MISRA, R.B. (J) BENCH: MISRA, R.B. (J) REDDY, O. CHINNAPPA (J)

CITATION:  1985 AIR  840            1985 SCR  (3) 352  1985 SCC  (2) 715        1985 SCALE  (1)454

ACT:      Bengal Cess Act 1880, Sections 6 and 72.      Coal mine-Percolated  water pumped out and sold-Levy of cess on sale price of water - Whether legal and justified.      Words & Phrases      ’Annual net  profit  derived  from  mines’-Meaning  of- Section 6 and 72 Bengal Cess Act 1880.

HEADNOTE:         The  percolated  water  of  the  coal  mine  of  the respondent-Company was pumped out and sold by the Company to a neighbouring  glass factory  which required such water for cooling and  other purposes. The respondent-Company had been selling such  percolated water  for several  years  and  was paying cess thereon under the Bengal Cess Act, 1880. However for the  year 1958.  59 when  the cess  authorities assessed cess on  this income,  the respondent  for  the  first  time claimed exemption  from the assessment of cess in respect of the sale price of water.       The Cess Deputy Collector however disallowed the claim of exemption treating the amount in respect of sale price of water as one of the items constituting the annual net profit derived from the mine.      In appeal  by  the  respondent-Company,  the  Collector found  that   the  cess  levied  was  not  contrary  to  the provisions  of  the  Act.  The  Commissioner  dismissed  the revision petition,  taking the  view that the water which is pumped out  to save  the colliery from drowning is sold at a vast profit  and therefore  it comes within the ambit of the term ’gross  earnings’ and  as such  was  liable  to  cess.A further  revision   to  the   Board  of  Revenue,  was  also dismissed.      However, the  respondent’s writ  petition to  the  High Court was  allowed, and  the order levying cess was quashed, holding that  the water discharged from the mine was neither a ’mineral’ and also nor ’land within the meaning of Section 6 of the Bengal Cess Act. 353      Allowing the Appeal of the State to this Court A ^      HELD: 1.  The Cess  levied on the respondent-Company is fully justified  by Section  6 of  the Bengal Cess Act 1880.

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[356A]      2. There  is no  doubt that water comes out of the mine and that  water has  got to  be pumped  out from the mine to save it from being inundated or to enable the working of the mine. But  if that  water is  sold away  for a  price and an income derived  in that way it cannot be said that it is not a profit from the mine. [356B-C]      3.A bare perusal of Section 6 makes it evident that the income derived by the sale of water pumped out from the mine is a profit from the mine.                                                       [356D]      4. Section  6 does  not  make  any  distinction  as  to whether the income is casual or a regular one. [357E]      Tata Iron  and Steel  Co. Ltd.  v. The  State of Bihar, [1963] Supp. 1 SCR 199 referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2265 of 1970      From the Judgment dated 10.10.1969 of the Calcutta High Court.      D.N. Mukherji and G.S; Chatterjee for the Appellant.      H.K. Puri for the Respondent.      The Judgment of the Court was delivered by        MISRA J. The present appeal by special leave directed against the  judgment of  the Calcutta High Court dated 10th October, 1969 involves the interpretation of ss. 6 and 72 of the Bengal  Cess Act,  1880   and arises  in  the  following circumstances.      The respondent-company  is  the  owner  of  a  colliery situate  at  Ghusick,  Kalapahari  within  the  district  of Burdwan. As  usual with  C’’ the  coalmines  the  percolated water which accumulates in the colliery has to be pumped out and discharged  at the  surface to prevent inundation of the colliery and  for proper working of the mine. The percolated water of  the mine  of the respondent company was pumped out and sold by the company to a neighbouring glass factory, the Hindustan Pilkington  Glass works  Limited,  which  required such water for cooling and other purposes The respondent 354 company by  such sale of water received for the year 1958-59 a sum  of Rs  42,073.00, which  amount was  entered in their profit and loss account as miscellaneous income, besides the sum of  Rs. 5,82,000.00  shown as  the sale price of coal of the said  colliery. The  respondent company had been selling such precolated  water in  the earlier years also and paying cess there on. When the cess  Authorities  assessed cess  on this income under the Bengal Cess Act,  1880 for  the year 1958-59 the respondent for the first time  claimed exemption from the assessment of cess in respect  of  the  sale  price  of  water  amounting  to  Rs. 42,073,00,  although   the  respondent  never  claimed  such exemption in  respect of  such sale proceeds of water in the previous years.      The Cess Deputy Collector of Burdwan by his order dated November 26,1959  disallowed the claim of exemption treating the  said   sum  of  Rs.  42,073.00  as  one  of  the  items constituting the  annual net profit derived from the mine in the process  of extracting  coal and  by using the company’s instruments equipments and staff.      The respondent  company took  up the  matter in  appeal before the  Collector of  Burdwan, who  found that  the cess levied was not contrary to the provisions of the Act and the

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rules freedom  there under, as the income was derived by the employment of machinery and staff of the coalmine.      The respondent  feeling aggrieved  went up  in revision before the  Commissioner of  Burdwan Division  but that also met the  same fate.  The Commissioner took the view that the water which is pumped out to save the colliery from drowning is then  sold at vast profit and, therefore, it comes within the ambit  of the  term ’gross  earnings’ and  as  such  was liable to  cess. The  respondent went up in further revision before the Board of Revenue but the second revision was also dismissed. Undaunted  by these  failures the respondent took up the  matter before  the High  Court under Art. 226 of the Constitution which was eventually allowed by the High Court. It took  great pains  to come to a conclusion that the water discharged from  the mine was not a mineral- It was also not land within  the meaning  of s.6  of the Bengal Cess Act. On these findings the High Court observed:      "The tenant  of a  mineral, particularly of a coalmine,      is normally under the vanishing expenses of sinking new      pits, diving  gallaries, pumping out water and the like      and some 355      of  the   expenses  representing   capital   might   be      disallowed as working expenses of the colliery but that      does not  justify the  authorities, as in this case, to      imposes on the sale price of water.. and the sale price      of such  commodity does not form part of the annual net      profit from the mine." B      The High  Court referred  to a  large number  of cases, English and  American, and  the history  of the  Cess Act to arrive at the above conclusion.      We are  of the opinion that the High Court has gone off the track.  It was  not at  all necessary  to enter into the complicated question  whether the  water oozing  out of  the mine was  a mineral.  In the  present case  we are concerned only with  the interpretation  of ss. 6 and 72 of the Bengal Cess Act.  Section 6  at the material time, that is, for the year 1958-59. in so far as relevant, ran as follows:      "6. The  road cess  and the  public works cess shall be      assessed on  the  annual  value  of  lands  and,  until      provision to the contrary is made by Parliament, on the      annual net  profits  from  mines,  quarries,  tramways,      railway sand  other  immovable  properties  ascertained      respectively as in this Act prescribed."      Section 72 reads:      "On the  commencement of  this Act  in any District and      thereafter before the close of each year, the Collector      of the  District shall cause a notice to be served upon      the owner,  chief agent,  manager or  occupier of every      mine, quarry,  tramway,  railway  and  other  immovable      property not  included within the provisions of Chapter      II; such  notice shall  be  in  the  form  in  Schedule      contained, and  shall require  such owner, chief agent,      manager or  occupier .  to lodge  in the office of such      Collector within  two months a return of the net annual      profits of  such property, calculated on the average of      the annual net profits thereof for the last three years      for which  accounts have  been made  up. Such Collector      may in  his discretion  extend  the  time  allowed  for      lodging such return. 356      The key  words in  these two sections on which the fate of this case hinges, are "on the annual net profits from the mines." The  precise question  for consideration  is whether the sale  price of  water pumped out and discharged from the

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mine could  be included  in the  annual net profits from the mine. If  so, the  cess levied on the respondent company was fully justified by s.6.      The contention  on behalf  of the respondent company is that the  sale price  of the  water discharged from the mine cannot be  taken to  be a  profit from  the mine. We find it difficult to  accept the  contention. There is no doubt that water comes  out of  the mine  and that  water has got to be pumped out  from the mine to save it from being inundated or to enable the working of the mine. But if that water is sold away for  a price and an income derived in that way, why can it not  be said  to be a profit from the mine ? The exercise by the High Court in referring to a large number of cases of England and America are not of much relevance on the problem before us.A  bare perusal  of the  section makes  it evident that the income derived by the sale of water pumped out from the mine is a profit from the mine.      Reliance was  placed on Tata Iron and Steel Co. Ltd. v. The State  of Bihar(1).  In that  case the appellant company was the  owner of  certain mines  in  Bihar  from  where  it extracted iron ore  which  it utilised  in its factory at Jamshedpur for making iron and  steel. Under  ss. 5  and 6 of the Bengal Cess Act, 1880, as amended in Bihar, all immovable property situate in any part  of State  of Bihar  was liable to payment of local cess, which  in the  case of mines was to be assessed on the annual net  profits from them. For the assessment year 1954- 56 the  company was assessed by the Cess Deputy Collector on the basis  that it had made a profit of Rs. 4.7.0 per ton of iron ore  extracted. The  appellant claimed  that it was not liable to  the levy of cess under the Act because it did not sell any ore as such and could not, therefore, be treated as having made  ’any profit’  from the mines within the meaning of s.6 of the Act.      The question  for consideration  was whether  a  person could in law be said to have derived profit from a mine when the ore extracted is not sold by him as such but is utilised by him  for the  purpose of manufacturing a finished product which he sells. The contention of the appellant company that the ore extracted was not sold as such (1) [1963]1 SCR 199. 357 but was  used by  the  owner  in  the  production  of  other finished pro-  ducts and, there was no question of the owner of the  ore realising  profit from the mine, was repelled by this Court and it observed:      "In   our    opinion   therefore   the   principle   of      apportionment resting  on  the  disintegration  of  the      ultimate profits  realised by  the assessee is implicit      in a  provision like that in S.6 of the Act under which      the profit  derived from an initial activity is brought      to charge where further activities are undertaken by an      assessee with reference to the ore won ‘and a profit is      realised by the sale of the end product."      The principle laid down in this case fully supports the contention of  the appellant  in the instant case. The facts of the  present case go a step further inasmuch as the water pumped out  from the  mine was  separately sold  for a price and, therefore, obviously it is covered by the provisions of s.6, read  with s.72 of the Act. The contention on behalf of the State has considerable force and must be accepted.      The counsel  for  the  respondent  on  the  other  hand contended that the income by sale of water was only a casual income and not a regular permanent income and, therefore, it could not  be assessed  to cess.  We see  no force  in  this

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contention. Section  6 does  not make  any distinction as to whether the  income is  casual or a regular one. All that we are concerned with is whether the income derived by the sale of water  pumped out from the mine is included in the profit from the  mine or  not. We have not the slightest doubt that the income  derived by  sale of  water pumped  out from  the coalmine constitutes a profit derived from the mine. F      For the  foregoing discussion  the appeal must succeed. It is accordingly allowed and the judgment of the High Court is set aside. There shall, however, be no order as to costs. N.V.K.                                        Appeal allowed 358