Eastern Railway vs Municipal Commissioners, Barabat Municipality

P.K. Banerjee, J.—The short point which arises in this case is whether the notice u/s 535 of the Bengal Municipal Act to the Municipality must be given in case of reference u/s 135(2) of the Indian Railways Act (IX of 1890) regarding the assessment of the Railway properties by any municipality. The Tribunal under the Act having held against the Railway, the Railway moved the present application. The fact which is relevant for the purpose of disposing of the case is as follows : The Eastern Railway has lands and buildings, situate within the limits of the Barasat Municipality, in respect of which the Railway pays tax to the Municipality as assessed from time to time. The Railway submitted return in 1961 showing the area of land to be 13 bighas which was accepted by the Municipality, but subsequently through misapprehension of facts the Railway submitted returns for the subsequent periods erroneously showing the lands measuring about 64 bighas 2 cottahs which the Municipality accepted and assessment was done accordingly. With effect from the first quarter of 1970-71 the Municipality sought to assess the lands and buildings on the basis of returns submitted showing the area of lands to be 64 bighas 2 cottahs. Before the Review Committed the Railway submitted that the area of land shown in its return dated November 24, 1969, was not correct whereupon the Railway and the Municipality held joint verification and it was found by the Surveyor Ural the urea was 11 bighas and 13 cottahs and not 64 bighas and 2 cottahs as mentioned in the return. The aforesaid discrepancy was brought to the notice of the Review Committee by written objections filed on behalf of the Railway at the time of hearing and also the Railway objected to the fixation of ground rent at Rs. 150 per bigha per annum instead of Rs. 65 per annum per bigha and thereby fixed the tax at Rs. 38,920 and the Review Committee ordered likewise. As dispute arose regarding the assessment, the Railway made a reference u/s 135 read with Section 3(2) of the Indian Railways (Local Authorities Taxation) Act XXV of 1941. Section 3 of the Act is in the following terms:

Liability of Railways to taxation by local authorities:

(1) In respect of property vested in the Central Government, being property of a Railway, a Railway administration shall be liable to pay any tax in aid of the funds of any local authority, if the Central Government, by notification in the Official Gazettee, declares it to be so liable.

(2) While a notification under Sub-section (1) is in force, the Railway administration shall be liable to pay to the local authority either the tax mentioned in the notification or in lieu thereof such sum, if any, as a person appointed in this behalf by the Central Government may have in regard to the services rendered to the Railway and all the relevant circumstances of the case, from time to time determine to be fair and reasonable. The person so appointed shall be a person who is or has been Judge of a High Court or a District Judge.

In the present case, there is no dispute that the liability has been fastened with the Railway regarding taxation by the Municipality. There is no dispute that the tax was being paid by the Petitioner to the opposite parties. The dispute is regarding the quantum of tax as fixed by the Municipality.

The District Judge who was appointed u/s 3(2) of the Act held that as no notice under the Municipal Act was given to the Municipality the proceeding could not be continued.

Mr. Bose on behalf of the Railway administration has contended that as the Tribunal is not a Court but a personal designate, no notice u/s 535 is required. It is argued by Mr. Bose that notice u/s 535 is only required when a legal proceeding in Court or in a suit is sought to be filed against the Municipality.

Mr. Chatterjee on behalf of the opposite parties contends that legal proceeding contained in Section 535 has no relation to the Court. All proceedings which are founded on a statute is a legal proceeding. Unless there is a legal proceeding in Court, Section 535 of the Act does not apply according to Mr. Chatterjee cannot be correct. Section 535 of the Bengal Municipal Act runs as follows:

Section 535. Notice of suits against Commissioners.

(1) No suit or other legal proceeding shall be brought against the Commissioners of any Municipality or any of their agents, officers or servants, or any person acting under their direction, for any act purporting to be done under this Act or any rule or by law made thereunder until the expiration of one month next after notice in writing has been delivered or left at the office of such Commissioners and also (if the suit or proceeding is intended to be brought against any officer or servant of the said Commissioners or any person acting under their direction) at the place of abode of the person against whom such suit or proceeding is intended to be brought, stating cause of action and the name and place of abode of the person who intends to bring the suit or proceeding; and unless such notice be proved, the Court shall find for the Defendant.

(2) Every such suit or proceeding shall be commenced within six months next after the accrual of the cause of action and not afterwards.

(3) When the suit or proceeding for damages, tender or amends, if any, made before the suit or proceeding is brought may, in view of or in addition to any other plea, be pleaded. If the suit or proceeding was commended after the tender or is proceeded with after payment into Court of any money in satisfaction of the Plaintiff''s claim and the Plaintiff does not recover more than the sum tendered or paid, the Defendant shall be entitled to full costs of the suit or proceeding after the tender or payment.

Mr. Chatterjee referred to the case AIR 1946 16 (Federal Court) : Governor-General in Council v. Shiromani Sugar Mills Ltd. The Federal Court was considering Section 171 of the Companies Act, 1913, which was in the following terms:

When a winding up order has been made or a provisional liquidator has been appointed, no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court may impose.

A proceeding was initiated against the company by the income tax authorities without reference to the Court which appointed the Official Liquidator and proceeded with the income tax department adopting the procedure provided u/s 46 of the income tax Act and sent an arrear demand to the Official Liquidator with the intimation that the demand was recoverable as arrears of land revenue. The Official Liquidator made an application to the High Court under Sections 171, 228 and 233 of the Companies Act against the Governor-General in Council, through the Fourth Additional income tax cum Excess Profits Tax Officer, Cawnpore, asking for an order that the Respondent be directed to put in a formal claim to the Official Liquidator in respect of the claimed amount. In that context the Federal Court considered the expression other legal proceedings in Section 171 of the Companies Act of 1930. The Federal Court held:

That still leaves open the question whether action u/s 46, income tax Act, is covered by the phrase ''other legal proceeding''. Clearly it is not a proceeding in an ordinary Court of law. But we see no reason why in British India no ''legal proceeding'' can be taken otherwise than in an ordinary Court of law, or why a proceeding taken elsewhere than in an ordinary Court of law, provided it be taken in a manner prescribed by law and in pursuance of law or legal enactment, cannot properly be described as a ''legal proceeding''. If it be considered that the effect of the income tax authorities putting the machinery of Section 46, income tax Act, in motion for the collection of arrears of income tax is to bring into operation all the appropriate legal enactments relating to the collection of land revenue in the province concerned, it is, in our judgment, very difficult to say that they are not making a ''legal proceeding''. In fact, in this very case, had the company not been in liquidation, the Appellant would have had the choice at his option of (a) proceeding by ''suit'' in the ordinary Courts in respect of the arrears, or (b) by forwarding (under Section 46(2), income tax Act) to the Collector the requisite certificate, initiating and putting into force collection of the arrears as arrears of land revenue under and in accordance with the appropriate provisions of the U.P. I and Revenue Act (III of 1901). Surely such last mentioned action on the part of the income tax authorities would be the adoption of another legal proceeding for the collection of the arrears as opposed to the institution of a suit. The proviso to Section 46(2) empowers the Collector, if he so chooses, to exercise all the powers which a civil Court may exercise in respect of the attachment and sale of debts due to a judgment-debtor. If the income tax Officer will be taking a ''legal proceeding'' when he moves the Collector--as we think he must be held to do--to realise the tax by attachment and sale of debts due to the Assessee, it can make no difference in principle that the Collector is asked to exercise his summary powers under the Land Revenue law.

Accordingly we agree with the learned Judges of the Allahabad High Court in holding that the words ''other legal proceeding'' in Section 171. Companies Act, 1913, comprise any proceeding by the Revenue authorities u/s 46(2), income tax Act and that accordingly before forwarding the requisite certificate u/s 46(2) to the Collector, which would put the machinery for the collection of the arrears of income tax as arrears of land revenue into motion, the Appellant should have applied in the liquidation u/s 171, Companies Act, for leave of the winding up Court.

In my opinion, this principle as laid down by the Federal Court applies in all force in the present proceeding also. ''Legal proceeding'' as contained in Section 536 of the Act may not be suit in an ordinary Court of law but still it is a proceeding under the statute where the controversy between the parties are disposed of by the Tribunal in a quasi-judicial manner. This view has been taken also in the case reported in Abdul Aziz Ansari Vs. The State of Bombay, . The Bombay High Court held that

it must be remembered in this context that the expression ''legal proceeding'' is not synonymous with ''judicial proceeding''. Proceedings may be legal even if they are not judicial proceedings, if they are authorised by law : and Mr. Palkiwala, by his argument, undoubtedly requires us to equate the expression ''legal proceeding'' in Section 48, Sub-section (2)(ii) with judicial proceedings for which, in our opinion, there is no warrant in law.

In the case S.K.G. Sugar Ltd. v. Ali Hassan AIR 1957 Pat. 722 the Patna High Court took the same view following the Federal Court''s decision. I respectfully agree with the view taken by the Patna High Court and Bombay High Court and follow the principles laid down in the Federal Court and hold that the legal proceeding in Section 535 of the Act does not mean only proceeding in a suit in the ordinary Court of law but also proceeding which is contemplated under any law which decides controversy between the parties under the said proceeding.

In that view of the matter, in my opinion, the Rule must stand discharged.

There will be no order as to costs.