Holding

Delay does not preclude relief where the demand is illegal; cess must be assessed only on the net profit of immovable property, and the earlier demands are to be recomputed accordingly.

Summary

Dehri Rohtas Light Railway Co. had an unregistered agreement with the District Board to pay a fixed Rs 10,000 per annum as cess under the Bengal Cess Act, 1880, which it honoured from 1953‑54 to 1966‑67. In 1967 the Board demanded arrears of Rs 9,86,809.33 based on the net profits of the whole railway business, not merely the immovable property, and the company’s suit to enforce the agreement and restrain the demand was dismissed. The company later succeeded in a writ petition quashing demands for 1967‑71 on the ground that cess must be assessed on the net profit of immovable property. A subsequent writ petition seeking the same relief for the earlier years was dismissed by the High Court as inordinate delay. The Supreme Court held that the delay did not bar relief because the demand was illegal, clarified that cess under sections 5 and 6 of the Bengal Cess Act is payable only on the net profit of immovable property, and directed recomputation of the cess for 1953‑66 with the appellant bearing any shortfall and the Board not required to refund any excess.

Issues considered

Whether the appellant is barred by laches or delay from obtaining relief against the earlier cess demands.
Whether the cess demands for 1953‑66 based on the net profit of the entire railway undertaking are lawful under the Bengal Cess Act, 1880.
Whether an unregistered agreement limiting cess liability can be enforced.

Legislation cited

Bengal Cess Act, 1880s. 5, s. 6
Constitution of Indias. Article 22, s. Article 226, s. Article 265

Subjects

cessunregistered agreementlachesdelaynet profit of immovable propertyassessment of taxBengal Cess ActArticle 226Article 22Article 265writ petition

Judgment

DEHRI ROHTAS LIGHT RAILWAY COMPANY LIMITED A
v.
DISTRICT BOARD BHOJPUR AND ORS.

MARCH 12, 1992

[M. FATHIMA BEEVI AND S.C. AGRAWAL, JJ.] B

Bengal Cess Act, 1880 :

Sections 5 and 6-Cess-Payment of-Unregistered agreement entered
int~Demands made ignoring such agreement-Legality of. C

Constitution of India, 1950:

Article 22fr-Writ-:Remedies claimed-Party otherwise entitled to the
remedy-Whether disentitled on the sole ground of !aches and delay.

The appellant was engaged in the business of running a light railway D
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 appel-
lant and tlie 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 E
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 w:,as
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 F
before the sub-Judge to enforce the said unregistered agreement and to
restrain the respondents from making any demand in excess of the agre~d
sum of Rs.10,000 p.a. On the suit being dismissed, the appellant preferred
an appeal before the High Court. The appeal was also dismissed. The first

- of the present appeals, is against the abovesaid judgment of the High
Court.
G

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 H
155
156 SUPREME COURT REPORTS [1992] 2 S.C.R.

A 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 flied
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
B 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
c 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
D the suit, agitated the question of l~gality 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
E 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
F 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
G particularly the fact that the demand was'illegal as already declared by it
in the earlier case. [160H; 161A-DJ ---
2. The principle on which the relief to the party on the grounds of
l~ches or delay is denied is that the rights which have a_ccrued to others
by reason of the delay in filing the petition should not be. allowed to be 1
H disturbed unless there is reasonable explanation for the delay. The real
DEHRI ROHTAS v. DISTRICT BOARD [FATHIMA BEEVI, J.] 157

test to determine delay in such cases is that the petitioner should come to A
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. [161 E-H; 162A]
B
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 assess- C
ment 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 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 D
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]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3250 of E
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 F

Civil Appeal No. 3249 of 1983.

S.K. Sinha for the Appellant.

M.L. Verma and B.B. Singh for the Respondents. G
The Judgment of the Court was delivered by

FATHIMA BEEVI, J. The appellant M/s. Dehri Rohtas Light Rail-
way Company Limited carried on business of running a light railway
between Dehri-on-Sone to Tiura Pipradhih in the district of Rohtas, Bihar. H
158 SUPREME COURT REPORTS [1992] 2 S.C.R.

A 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
B 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 Y
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
C for 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 >.I'
unregistered agreement dated 7.8.1953. The company instituted suit No.60
of 1968 before the court of Third Additional Sub Judge, Sasaram, to
D 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
E judgment of the 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 chal-
lenged 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
F 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 notices for the period
G 1953"-54 to 1966-1967. The High Court by judgment dated 6.1.1981 dis-
missed 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
-r
H cess. The local cess was to be assessed under section 6 on the annual value
DEHRI ROHTAS v. DISTRICT BOARD [FATHIMA BEEVI, J.] 159

of lands and, until provisions to the contrary is made by the Parliament on A
the annual net profits from mines and quarries and from tramways, railways
and other immovable property. Accordingly, the cess payable by the com-
pany 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 B
y-- 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, C
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 D
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 E
_____.;(
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 the writ petition on the ground that the said demands for F
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 notices accepted the ground.

The question, therefore, arising in these appeals is whether the G
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-mat-
ter 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 agi:_c,!ernent H
160 SUPREME COURT REPORTS (1992) 2 S.C.R.

A 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,
B 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 judgment of the High Court that the writ petition
cannot be entertained after inordinate delay.

c 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
D paymenr 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
E to cess. If that be the correct view the present demand con-
tained in Annexures 3 to 7 is not sustainable. Of course, it
would be open to the authorities to re-assess the cess ip the
light of the legal position as explained, and after determining
as to what portion of the net income is referable to its owner-
ship of immovable property."
F
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
G 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
H the appellant could have even when instituting the suit agitated the ques-
DEHRI ROHTAS v. DISTR.ICT BOARD [FATHIMA BEEVI, J.) 161

~ tion of legality of the demands and claimed relief in respect of the earlier A
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 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, B
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 pefrion
--.y 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
c
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 D
it in the earlier case.

'.I'he 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.
E
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 !aches or 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 F
that the petitioner should come to the writ court before a parallel right is
1
,..It.._
created and that the lapse of time is not attributable to any !aches or
negligence. The test is not to physical running of time. Where the cir-
cumstances justifying the conduct exists, the illegality which is manifest
cannot be sustained on the sole ground of !aches. The decision in Trilok G
Chand (supra) relied on is distinguishable on the facts of the present case.
The levy if based on the net profits of the railway undertaking was beyond
the authority and the illegal nature of the same has been questioned though
r belatedly in the pending proceedings after the pronouncement of the High
H
162 SUPREMJ;, COURT REPORTS [1992] 2 S.C.R.

A 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 p'etition in limine and refusing-to grant the relief sought for. We
however agree that the &.uit h~ been rightly dismissed.
B Since the entire matter is before us, we do not consider that it is y
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
C 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 com-
pany and the assessments have to the modified accordingly. It was sub-
mitted 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
D 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 sub-
mit_ted 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.
E 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 bur-
dening the District Board with the liability to pay the same in terms of the
agreement. When such undertaklng is given by the company it is only just,
fair and proper that the claim of the company is entertained and the Cess
F
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
G 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
H decision in writ petition No.1372 of 1974. If the amount paid
DEHRI ROHTAS v. DISTRICT BOARD [FATHIMA BEEVI, J.] 163

by the company for these years is in excess of the amount thus A
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."

y- In the circumstances of the case, the parties are directed to bear their B
respective costs.

G.N. Appeals disposed of.