Holding

Income from the sale of water pumped out of a mine constitutes profit from the mine and is chargeable to cess under Section 6 of the Bengal Cess Act, 1880.

Summary

The respondent, Ghusick & Muslia Collieries Ltd., pumped out percolated water from its coal mine and sold it to a neighboring glass factory, earning Rs 42,073 in 1958‑59. The State of West Bengal levied cess on this amount under Sections 6 and 72 of the Bengal Cess Act, 1880, which the company contested, claiming the water sale was not a profit from the mine. The Deputy Collector, Collector, Commissioner and Board of Revenue all upheld the cess, but the Calcutta High Court quashed it, holding that water is neither a mineral nor land within the meaning of Section 6. On appeal, the Supreme Court examined the language of Sections 6 and 72 and held that any income derived from the sale of water pumped out of a mine is a profit from the mine and therefore chargeable to cess. The Court rejected the argument that the income was merely casual and affirmed that Section 6 makes no distinction between regular and occasional profits. Consequently, the State's appeal was allowed and the High Court's order set aside.

Issues considered

Whether the sale price of water pumped out from a coal mine is included in the annual net profit from the mine under Section 6 of the Bengal Cess Act, 1880 and thus liable to cess

Legislation cited

Bengal Cess Act, 1880s. 6, s. 72

Subjects

CessProfit from mineWater saleBengal Cess ActSection 6Section 72Coal mineTaxation

Judgment

A

STATE OF WEST BENGAL •
v.
B
.
GHUSICK & MUSLIA COLLIERIES LTD.

Marcb 15, 1985.

[0. CH!NNAPPA REDDY AND R.B. MISRA, JJ.J
c · Bengal Ce~s Act 1880, Sections 6 and '72.

Coal mine - Percolated water pumped out. and' sold - Leo;y of cess °On
sale price of water - Whether legal and justified. .

Words & Phrases
D
'A'nnual net profit derived from "lines' - Meaning of- Section 6 and
72 Bengal Cess Act 1880.

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-Com-
E
pany 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 tin1e claimed exemption from the assessment of cess in respect of the
sale price of water.

F 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 cons-
tituting 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
G 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' \'. ithin the meaning of
1

H Section 6 of the Bengal Cess Act.
\Vllst BENGAL v. G. M. coll!JlRil!S (Misra, 1.)
Allowing the Appeal of the State to this Court A··

HELD : !. The Cess levied on the respondent-Company was fully
justified by Section 6 of the Bengal Cess Act 1880. [356A]

2. There is no doubt that water con1es out of the mine and that water'
has got to be pumped out from the mine to save it from being inundan~ed oi
to enable the working of the mine. But if that water is sold away for a· price B
and an income derived in that way it cannot be said that it is not a profit frvm
the mine. [356B-C]
•
3, A bare perusal of Section 6 makes it evident that the incon1e derived ...
by the sale of water pumped out from the mine is a profit from· the mine.
[356DJ
Ci
4. Section 6 doeS not make any distinction as to whether the income
is casual or a regular one. I357E)

Tata Iron ond Steel Co. Ltd. v. The Stote of Bihar, [19631 Supp. I SCR
199 referred to.
D ~·
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2265 of 1970

From the Judgment dated IO. I 0.1969 of the Calcutta High
Court.
i
I D.N. Mukherji and G.S. Chatterjee for the Appellant.

H.K. Puri for the Respondent.

The Ju~gment of the Court was delivered by

. MISRA J. The present appeal by special leave directed against F
.)._ the judgment of the Calcutta High Court dated 10th October, J969
'' involves the interpretation of SS. 6 and n 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 Burd wan. As usual with G ,.
the coalmines the percolated water which accumulates in the
colliery has to be pumped out and discharged at the surfa~e tl)
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 H C'
required such water for cooling and other purposes. The respondent
tt98;13 s.d.it.
A 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 inco.n", 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
B 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.
c
The Cess Deputy Collector of Burdwan by his order dated
November 26, i 959 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 rules fr•med there-
under, as the income was derived by the employment of machinery
and staff of the coalmine.
E
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
F 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.
.·G It took great pains to come to a c0nclusion 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,
ll diving gallaries, pumping out water and the like and some
.w!J.!it JiBNGAL v. ci. M. COLL!SR16S (Misra, J.)
of the expenses representing capital might be disallowed as .f>
working expenses of the colliery .but that does not justify
the authorities, as in this case, to impose cess on the saJe.
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
aiid American, and the history of the Cess Act to arrive at the above
coticlusioli.

We are of the opinion that the High Court has gone off tlie
track. It was not at all necessary to enter into the complicated c
cjliestion whether the water oozing out of the min.e 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 l95S-59, in so far·as relevant, ran as
follows:
D
"6. The road cess and the public works cess shall be
assessed on the annual.value of lands and, until provision
t~ the'contrary is made by Parliament, on the annual riet
profits from mines, quarries, trarnways, railways and other
immovable properties ascertained respectively as in this E
.Act prescribed."

· Se~tion 72 reads :

"On the commencement of this Act in ariy District and
thereafter before the.close of each year, the Collector cif F
the' District shall cause a notice to be served upon .the
~.~ner, chief agent; manager or ~ccupier of every mine,
quarry, tramway, railway and other ·immovable property
not' included within the provisions of Chapter II; such
notice shail be in the form in Schedule E contaii1ed, and
shall.require such owner, chief agent,' manager or occupier G·
. to lodge 'in the office of such Collector within two months
. a return·of the .net annual profits of such property, calcula-·
ted on the average of the annual net profiis thereof for the
·last three years for wbicb accounts have been made up.
Such Collector may in his discretion extend the time allo.
wed for lodging such return. H
SUPREME cdbat REPORTS t19ssl 3s.e.a
A 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 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.
B
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
c 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
D 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
E 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
F 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 extrac-
ted 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
H ----------
(I) [19631 I SCR 199.
.J
~ilSt BENGAL v. cl. i.!. coU.I~RIBS c}.lisra, h
but was used by the owner in the production of other finished pro- A
ducts and, there was· no question of the o" ner of the ore realising
profit from the mine, was repelled by this Court and it observed :

"In our opinion therefore the principle of apportionment
restiug on the disintegration of the ultimate profits reallied
by the asses~ee is implicit in a provision like that in S.6 of B
• the Act under which the profit derived from an initial
activity is brought to charge where further ae11vities 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 con-
c
tention 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 D.
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 as1essed
to cess. We see no force in this contention. Sectio_n 6 does not E
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.