12 March 1992
Supreme Court


Case number: Appeal Civil 3250 of 1983








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                                                    156 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



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                                                       157 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]



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.                                                    158 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                                                        159 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.



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                                                        160 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



        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.



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                                                        163          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.                                                        164