State of West Bengal Vs. Ghusick &
Muslia Collieries Ltd.  INSC 59 (15 March 1985)
MISRA, R.B. (J) MISRA, R.B. (J) REDDY, O.
CITATION: 1985 AIR 840 1985 SCR (3) 352 1985
SCC (2) 715 1985 SCALE (1)454
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.
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
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.
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.
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,  Supp. 1 SCR 199 referred to.
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
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
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 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
"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 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) 1 SCR
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
"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
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 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.