1. This is an appeal against the decree passed by the Civil Judge, Senior Division, at Nadiad, decreeing against the Petlad Town Municipality, a municipality governed by the Bombay District Municipal Act III of 1901, a sum of Rs. 13,397-9-9 and proportionate costs of the suit and future interest from the date of the suit till satisfaction.
2. The facts which give rise to this appeal may be briefly stated. The town of Petlad was originally within the jurisdiction of the former Baroda State. The Keshav Mills Co. Ltd. is a limited liability company which was registered under the Companies Act of the Baroda State, and owns a factory in the town of Petlad for manufacture of cotton textile and yarn. For its manufacturing business the company had to import machinery, raw materials and other goods from outside the limits of the municipality, and had to export the manufactured goods. The company applied to the former Baroda State Government for remission in the matter of levy of taxes such as income-tax, excess profit tax, and octroi and the terminal taxes. From time to time remissions were given to the company. Finally in the year 1946 the Baroda State Government granted remissions which were to enure for a period of 15 years in the matter of recovery of taxes including the octroi duty and the terminal tax levied by the Petlad Municipality. The Baroda State Government from time to time directed the municipality, in exercise of its authority under Section 59(Tha) of the Baroda State Municipal Act of Samvat year 1962, to give remission to the company in the levy of octroi duty and the terminal tax. The municipality, in exercise of its powers under Section 46 of that Act, framed rules in conformity with the directions given by the State authorities. By Act XII of 1949 the Baroda Act of S.Y. 1962 was repealed, arid a new Act called the A Class Municipalities Act was unacted and under that Act also the State Government reserved to itself the power to grant remission in the matter of recovery of municipal taxes and to issue directions in that behalf to the municipalities concerned. Provision was also made for framing rules by the municipalities for granting remissions in the levy of taxes, and the notifications issued under the Act of S.Y. 1962 were directed to be continued in operation as if they were made under Act XII of 1949. On July 30, 1949, the Baroda State (Application of Laws) Order, 1949, was issued under the Extra Provincial Jurisdiction Act, 1947. By that Order, the Bombay District Municipal Act III of 1901 was applied to the area of the former Baroda State: and by the operation of that Order the Baroda Act XII of 1949 stood repealed. The provisions of the Baroda State (Application of Laws) Order, 1949, were repealed and re-enacted by Bombay Act IV of 1950 called the Bombay Merged States (Laws) Act, 1950, and by Schedule 1 to that Act Bombay Act III of 1901 was extended to the area of the former Baroda State with the addition of Section 180A which was added thereto by an amendment to the Act. It appears that the Petlad Municipality gave remissions consistently with the directions issued by the Baroda State Government under Baroda Act 1 of S.Y. 1962 in the matter of levy of the terminal tax payable by the company. After the Baroda State merged with the Indian Union and Bombay Act III of 1901 was made applicable to that area, disputes arose as to the liability of the municipality to refund a percentage of the tax collected by it. It may be observed that the scheme for giving remission adopted by the municipality under the rules framed by it was that in the first instance the entire amount of tax payable was collected from the company and at the end of the year the municipality made up accounts and refunded the excess amount collected consistently with the remission or concession declared by the State authorities. As the municipality after the merger of the Baroda Stale did not refund the excess amount of terminal tax collected by it, by letter, dated February 3, 1950, the company called upon the Chief Officer of the municipality to refund Rs. 3,445-4-0 due by the municipality for the period between August 1, 1948, and July 31, 1949. To this letter a reply was sent by the municipality on March 15, 1950, informing the company that the request made for refund of the terminal tax was placed before the General Body of the municipality and it was resolved that the tax be refunded. The resolution which was moved and the amendment thereto were set out in the letter. The company was also intimated that it was decided to refund to the 'industries' amounts as may be decided by the Sub-Committee, but it was 'specially so resolved' that the opinion of the Legal Remembrancer be obtained and the amount may be refunded to the 'industries' on condition that if the final decision in the matter was against the 'industries' the 'industries' will repay to the municipality the amounts refunded It appears that thereafter the excess tax collected for the years 1946-47 and 1947-48 was refunded to the company.
3. On November 7, 1950, a letter was addressed by the company to the Chief Officer of the municipality stating that terminal tax for the period between August 1, 1949, and July 31, 1950, amounting to Rs. 9,265-9-0 was paid and according to the resolution of the Department of Commerce and Industries an amount of Rs. 3,706-4-0 being 40 per cent, of the tax paid by the company was refundable, and a request was then made for payment of that amount. That request was repeated by letter, dated August 4, 1951, and also by letters dated August 13 and 23, 1951. A resolution was passed by the municipality on September 29, 1951, whereby it was resolved to refund to the mills and factories the amounts remitted to them from the terminal tax both for the period prior to the date on which the Baroda State merged with the Indian Union and for the period subsequent to the merger. It appears that on October 16, 1951, a voucher was made out for refund of the taxes for the years 1948-49 and 1949-50 and even cheques were drawn on October 22, 1951, in that behalf but were not delivered to the company. Thereafter by letter, exh. 95, dated October 2, 1951, the company demanded refund of Rs. 1,906-1-0 being 40 per cent, of the terminal tax paid for the period between August 1, 1950, and March 31, 1951. This request was repeated by letters, exhs. 103, 104 and 105, respectively dated October 6, October 25, and December 12, 1951. By letter, exh. 96, dated August 25, 1952, the company again demanded refund of Rs. 3,323-1-0 being 45 per cent, of the total amount of terminal tax paid for the period between April 1, 1951, and March 31, 1952. By letter, exh. 977 dated December 17, 1952, a demand was made for refund of Rs. 1,946-4-0 being 45 per cent, of the terminal tax paid for the period between April 1, 1952, and October 21, 1952. This request was not complied with by the municipality. It may be observed that the company restricted its claim for refund of the terminal tax Up to October 21, 1952, because by a notification issued by the Government of Bombay, dated October 22, 1952, the remissions which were directed by the former Baroda State Government to be given were cancelled. By letter, dated December 26, 1952, the company again wrote to the municipality stating that the terminal tax: for the period between August 1, 1948, and July 31, 1950, in spite of the General Board Resolution had not been refunded. The company informed the municipality that it 'was being put in difficulty and monetary loss' on account of the default of the municipality in complying with the resolution and the orders passed by the Government. A reminder was sent on January 9, 1953. By letter, dated January 24, 1953, the company was informed by the municipality that the 'matter was under consideration of the municipality and 'clarification' will be made thereon. Thereafter on February 1, 1953, the municipality resolved that if the Government of the State of Bombay gave to the municipality as 'help' an amount equal to the amount refundable to the industries, then the said amount should be 'paid off to the industries.' It was further resolved to take steps to get 'help' immediately from the Government and to send the bills for the amount of refund for every year to the Government together with the demand. The Government of Bombay declined to comply with the request made by the municipality. The company after serving a notice commenced suit No. 24 of 1953 on July 30, 1953, against the municipality for a decree for Rs. 14,324-14-0 and Rs. 1,072-8-0 as interest as damages. It was the company's case that it was entitled to receive from the municipality Rs. 3,445-4-0 for the period between August 1, 1948 and July 31, 1949, Rs. 3,706-4-0 for the period between August 1, 1949 and July 31, 1950, Rs. 1,906-1-0 for the period between August 1, 1950 and March 31, 1951, Rs, 3,321-1-0 for the period between April 1, 1951 and March 31, 1952, and Rs. 1,946-4-0 for the period between April 1, 1952 and October 21, 1952, aggregating in all to Rs. 14,324-14-0, by virtue of the orders passed by the former Baroda State Government and the rules framed by the municipality in the matter of refund of terminal taxes and the provisions of Section 180A added to the Bombay District Municipal Act III of 1901 when the Bombay Merged States (Laws) Act was enacted. It was submitted by the company that the cause of action arose in favour of the company for the first time when the municipality by resolution, dated February 1, 1953, resolved that the amount will be paid to the company only in the event of the Government of Bombay paying the sum to the municipality.
4. The claim of the company was resisted by the municipality on diverse grounds. It was contended that the State of Bombay was a necessary party to the suit, that no concession in respect of terminal taxes was granted by the former Baroda State, that in any event the municipality was not bound to grant remissions according to the orders relied upon by the company, that the concessions in any event became ineffective on July 30, 1949, when the Baroda State (Application of Laws) Order was enacted and the concessions could not be continued under Section 180A of Bombay Act III of 1901, that the company was not entitled to claim interest by way of damages, and that no claim to recover the amount of remission or concession could be made in the suit as framed, and in any event the municipality was not liable to pay the amount claimed because the company was in a 'prosperous condition'. It was also contended that the suit was barred by the law of limitation. Finally it was contended that the defendant-municipality was entitled to deduct the collection charges out of the amount claimed.
5. The learned trial Judge substantially negatived all the contentions raised by the defendant except two: (i) relating to the claim made by the company about the award of interest by way of damages and (ii) regarding collection charges for the taxes; and he passed a decree for Es. 13,397-9-9 in favour of the plaintiff company.
6. In this appeal, Mr. Kotwal on behalf of the municipality has raised three contentions: (i) that the municipality is not liable, since the date on which the Baroda State (Application of Laws) Order, 1949, was issued, to give effect to the remissions granted by the former Baroda State because there is no provision in the Bombay District Municipal Act under which such remissions could be directed to be given by the State to the municipality; (ii) that enforcement of the claim made by the plaintiff company is barred by Section 167A of the Bombay District Municipal Act; and (iii) that unless the municipality received the amount from the Government of Bombay it was under no obligation to pay the same to the plaintiff company; in other words, the liability of the municipality was conditional upon the amount being received from the Government of Bombay which was primarily liable to pay the same. We will deal with these contentions seriatim.
7. The Baroda Municipal Act of S.Y. 1962 was substantially based upon Bombay Act III of 1901. A large majority of the provisions of the former Act were identical with the provisions of Act III of 1901. But by Section 59(Tha) of the Baroda Municipal Act (for which there is no parallel provision in Act III of 1901) it was provided that
For the development of Trade and Industry, if the Government deems fit to grant exemption or any other concession, (1) to any factory in respect of any of these taxes, or (2) in respect of the levy of octroi or other tax on goods manufactured in any factory in the State and imported or exported at any place in the State, the Huzur shall pass proper order, after considering the opinion of the municipality, and the municipality shall abide by it.
Evidently by this clause authority was reserved to the Euler of the Baroda State to grant exemption to certain tax payers in the matter of levy of octroi duty and other taxes and the municipality was bound to comply with the direction given by the State authorities. It is in pursuance of this authority that the former Baroda State granted concessions or remissions to the plaintiff company in the levy of terminal tax. The municipality under Section 46 framed the Terminal Tax Rules prescribing the rates of terminal tax, and the terms on which exemption was to be given. Rule No. 7 thereof provided:
The concessions given to industries for the development of trade will continue for this tax also.
The procedure for giving the concession was then set out in the rule. It was stated:.the merchants and factory owners of Petlad who are given exemption of octroi or who are given concession of. paying a fixed amount should pay the amount of terminal tax and take receipts thereof and produce the same in the municipality at the end of the year and the municipality after just deducting 5 per cent, charges of the Railways company for collecting the terminal tax or octroi, refund the balance to the factory owners and no factory owner is to be given a free pass.
That pursuant to this direction remission of terminal tax was given up to the year 1947-48 is undisputed. The dispute between the parties has arisen in respect of the concession claimed to be due since and after the year 1948-49. As we have already observed, on July 30, 1949, the Baroda (Application of Laws) Order, 1949 was passed and thereby Bombay Act III of 1901 was applied and Baroda Act XII of 1949 which had repealed the Baroda Act of S.Y. 1962 was itself repealed. At the time when the Bombay Merged State (Laws) Act, 1950, was passed, Section 180A was added to Bombay Act III of 1901. It was provided by Sub-section (1) of that section:
Notwithstanding anything contained in the foregoing provisions of this Act, such rules, by-laws, or orders made, issued or sanctioned by or in respect of any of the municipalities whether constituted under the A Class Municipalities Act (Baroda No. XII of 1949) or the B Class Municipalities Act (Baroda No. XIV of 1949) of the former Baroda State (hereinafter called 'the said Municipalities' and 'the said Baroda Municipalities Acts' respectively) as were in force immediately before the 30th day of July 1949 under the said Baroda Municipalities Acts, shall in so far as they are consistent with the provisions of the Bombay District Municipal Act, 1901 (Bom. III of 1901), be deemed to have been made, issued, or sanctioned by or in respect of the said municipalities under the appropriate provisions of the said Act on the said date and continue in force until altered, repealed or amended by a competent authority.
By Bombay Act IV of 1950, Bombay Act III of 1901 was applied to municipalities in the merged areas, by including that Act in the first schedule with the addition of Section 180-A as stated by us earlier. It is evident, therefore, that all rules, bye-laws and orders made, issued or sanctioned by or in respect of any of the municipalities constituted under the Baroda Acts were to be deemed to have been made, issued or sanctioned by or in respect of the said municipalities under the appropriate provisions of Bombay Act III of 1901 as from July 30, 1949. By statute, therefore, the orders issued by the Baroda State to the municipalities were to be deemed to continue under the appropriate provisions of Bombay Act III of 1901. If, therefore, under Bombay Act III of 1901 a remission could be granted in the matter of levy of terminal tax, the order passed by the former Baroda State must be deemed to be continued by the Bombay Merged States (Laws) Act, 1950, read with Bombay Act III of 1901.
8. Mr. Kotwal on behalf of the municipality contended that there was no provision in Bombay Act III of 1901 under which a remission of the nature granted to the company could be claimed. We are unable to accept that contention. Under Section 59 of Bombay Act III of 1901, a municipality is entitled to select for imposition, subject to general or special orders of the State Government, any of the taxes specified therein: and terminal tax is one of the taxes which may be imposed by a municipality under Section 59. By Section 60 it is provided that the municipality before imposing a tax shall observe certain preliminary procedure, viz., that it shall resolve to select for the purpose one or other of the taxes specified in Section 59 and prepare rules for the purpose of Clause (i) of Section 46 prescribing the tax selected and shall by such resolution and in such rules specify inter alia the class or classes of persons or of property, or of both, which the municipality desires to make liable. Section 46(i) provides that the municipality shall make and from time to time alter or rescind rules, prescribing, subject to the provisions of Chapter VII, the taxes to be levied in the municipal district for municipal purposes, the grounds on which exemptions are to be recognised, the conditions on which and the extent to which remissions may be granted and the system on which refunds are to be allowed and paid. It is clear, therefore, from Sections 59, 60 and 46 that the municipality was competent to select for imposition a tax called the terminal tax on goods imported into or exported from the municipal limit and also to prescribe by rules framed in that behalf the exemptions which may be recognised and the conditions on which and the extent to which remissions may be granted. The power of the municipality to provide by rules a scheme for granting remissions in the matter of recovery of any of the taxes specified in Section 59 including the terminal tax will sustain the remission granted by Rule 7 which we have already referred to as appropriately granted under Sections 59, 60 and 46 of the Act.
9. But Mr. Kotwal contends that there is no provision in Act III of 1901 whereby the State Authority is competent to direct the municipality to grant remission to any class of tax-payers. It is urged that a municipality may by resolution grant a remission to any class of tax-payers but the municipality cannot be compelled by the State Authorities to grant such a remission. Mr. S.M. Shah, who appears on behalf of the company, invited our attention to the opening words of Section 59 of the Act which contemplate that the imposition of a tax may be subject to any general or special orders which the State Government may make in that behalf, and contended that orders which could be passed by the former Baroda State may appropriately be passed under the head of 'special orders' contemplated by Section 59. But we do not think it necessary to decide the question whether it is open to the State to direct by general or special order grant of remission in the matter of levy of a tax by exercising authority under Section 59, because, in our view, the municipality of Petlad lias in fact framed rules which grant remissions in the matter of levy of the terminal tax to the cotton textile mills within its area. Whether the rule has been made because the municipality was ordered by the Baroda State Authorities or by a resolution passed in the unfettered discretion of the members of the municipality, is not germane in discussing the question about the obligation of the municipality to refund a percentage of the tax. The rule is a statutory rule which the municipality has framed and that rule is within the competence of the municipality. That being so, it must be held that the remission was granted by the municipality under the rules made under the appropriate provisions of the Bombay District Municipal Act III of 1901.
10. Incidentally it was sought to be urged by Mr. Kotwal that taxation of trade and industry was not within the competence of the municipality and, therefore, the granting of remissions of a tax with the object of protecting trade and industry was not within the competence of the municipality. But the terminal tax is one of the taxes which is within the competence of a District Municipality to impose, and that tax has been selected for imposition by the Petlad Municipality, and there is no dispute that it has lawfully been imposed and levied. If the municipality may competently levy the terminal tax, we fail to appreciate why the municipality may not make rules for granting remissions or exemptions to certain classes of tax-payers in the levy and collection of that tax. When the municipality is framing rules for granting remission in the recovery of a certain tax which is imposed upon the citizens generally or a certain class of tax-payers, it is not seeking to legislate in the matter of the object for which the remission is given. We are, therefore, unable to accept the argument of Mr. Kotwal that the municipality was incompetent to grant remission of a percentage of the terminal tax merely because the object of the remission was to protect or benefit trade and industry. The remissions granted by the municipality must, therefore, be regarded as validly continued after July 30, 1949, and the plaintiff-company is entitled to the remissions.
11. The contention that the company's claim is barred by the law of limitation has, in our judgment, no substance. The taxes in respect of which refund is claimed related to the period between August 1, 1948, and October 21, 1952. It is urged that a suit for recovery of tax, which the municipality under the Act or the Rules was obliged, to refund, may lie within the period and subject to the conditions prescribed by Section 167-A of Bombay Act III of 1901, and not otherwise, and the present suit by the company being beyond the period prescribed thereby, is barred. Section 167-A (1) of the Bombay District Municipal Act, in so far as it is material, provides:
No suit shall lie against a municipality...in respect of any act done in pursuance or execution or intended execution of this Act, or in respect of any alleged neglect or default in the execution of this Act-
(a) unless it is commenced within six months next after the accrual of the cause of action; and
(b) until the expiration of one month after notice in writing has been, in the case of a municipality, delivered or left at the municipal office....
If the cause of action has accrued to the plaintiff-company more than six months before the date of the suit, and the suit is in respect of any act done in pursuance or execution or intended execution of the Act, the suit may Be liable to be dismissed as barred by Section 167-A. But, in our judgment, Section 167-A has no application to the claim made by the company. The municipality had never before the suit was filed denied liability to pay the amount claimed by the plaintiff Company. As we have pointed out earlier, from time to time demands were made by tie company for the amounts payable and the municipality did not deny liability to satisfy the claim. In resolution after resolution formally discussed and put to vote before the meetings of the General Board of the municipality, the liability of the municipality to refund the amount of terminal tax to the company was accepted and acknowledged, but the liability was not discharged by payment. It was only on February 1, 1953, that the municipality resolved that the amount will be paid on the same being received from the Government; but even by that resolution the liability was not denied. In our judgment, failure, while accepting liability, to satisfy the same cannot be said to be an 'act done in pursuance or execution or intended execution' of the Bombay District Municipal Act III of 1901.
12. It was held by a division bench of this Court in Ranchordas Moorarji v. The Municipal Commissioner for the City of Bombay ILR (1901) 25 Bom. 387 : 3 Bom. L.R. 158, that a suit for refund of taxes which had been paid and which the plaintiff was entitled under the rules to a refund of was not governed by Section 527 of the City of Bombay Municipal Act III of 1888. In that case, a tax-payer of the Bombay Municipality sued to recover certain town duty which he had paid on importing grain and sugar but which under Section 195 of Act III of 1888 he was entitled to have refunded on exporting the commodity. The tax-payer applied for refund in October 1899, but his claim was rejected on February 21, 1900. A suit was then filed on August 21, 1900. It was contended by the municipality that the suit was barred as it did not comply with the requirements of Section 527 of Act III of 1888 which prescribed that one month's notice shall be given of any suit intended to be commenced in respect of any act in pursuance or execution or intended execution of the Act, and the action shall be commenced within ninety days from the date of the act or omission complained of. The Court held that Section 527 did not apply and that no. notice of the suit to the defendant-municipality was necessary. It was observed that the defendant-Commissioner of the municipality-could not claim that his conduct had any relation to the excution of the Act if he Knowingly and intentionally acted in contravention of its provisions, and to the claim made by the plaintiff Section 527 was no bar.
13. In Ranchordas's, case, after paying the tax in the first instance the plaintiff had a right to obtain a refund and when the municipality while admitting liability did not refund the tax, it was held that the suit was not governed by Section 527 of Act III of 1888. In the present case, when the plaintiff-company was in the first instance bound to pay the tax, and in fact paid the same, but under the law prevailing it was entitled to refund of a percentage of the tax paid, and the municipality while admitting liability did not refund the same, it must, on the authority of Ranchordas's case, be held that the suit was not governed by Section 167-A of the Bombay District Municipal Act III of 1901.
14. Mr. Kotwal sought to place strong reliance upon a judgment of this Court in the Municipality of Chopda v. Motilal. (1957) 60 Bom. L.R. 48. In that case, the Municipality of Chopda had levied under Section 59 of the Bombay District Municipal Act, 1901, a tax called the 'cotton manufacturing tax' and a dispute arose about the legality of that tax. This Court held that a substantial part of the tax was not leviable by the municipality as the levy thereof was subject to the ceiling provided by Article 276 of the Constitution, But the Court still held that the plaintiff's suit for refund of the tax already paid by him under protest was governed by Section 167-A of the Bombay District Municipal Act. In our judgment, that case is easily distinguished. In that case, the tax itself was not leviable, but the municipality in execution or intended execution of the Act purported to levy it, and the plaintiff sought refund of the tax paid. It was held that the suit for recovery of the tax was governed by Section 167-A. In the present case, there is no dispute that the tax is leviable by the municipality and there is no illegality in the levy thereof. The plaintiff-company claims refund of a part of the tax paid by it, relying upon the remission given by the authority of the Baroda State and continued under the provisions of Section 180-A of the Bombay District Municipal Act, 1901. In failing to refund the amount to which the plaintiff company is entitled under the Rules, the municipality was not doing an 'act in pursuance or execution or intended execution' of the Act. We are, therefore, of the view that the present case is governed not by Section 167-A of the Bombay District Municipal Act but by the normal period of limitation provided in that behalf by the Limitation Act. It is undisputed that if the suit does not fall within the scope of Section 167-A, it is governed by Article 62 of the Limitation Act.
15. Mr. Kotwal contended that even if the suit was governed by Article 62 the claim made by the plaintiff for the amount which fell due for the period July 31, 1949 to July 31, 1950, is barred by limitation. But, in our view, that contention also cannot be sustained. As we have already pointed out, the municipality had not only passed resolutions but had also informed the company that the liability to refund the tax was accepted. For instance, by letter, dated January 24, 1953, the municipality had informed the plaintiff-company that the matter was under consideration and 'proper clarification' will be made thereon. It also appears from the resolution, dated September 29, 1951, which is signed by the President of the municipality, that the liability to refund the amount claimed by the plaintiff company was accepted. These resolutions, in our judgment, amounted to clear acknowledgment of liability, and the claim of the plaintiff company was by virtue of the acknowledgment of liability not barred in respect of the amounts which fell due for the period between July 31, 1949 and July 31, 1950.
16. There is also, in our judgment, no substance in the submission that the liability to provide funds for granting remission is of the State of Bombay and unless the amount to be refunded is received from the State the suit is not maintainable. It is true that it was under the direction of the former Baroda State that the municipality refunded a certain percentage of the terminal tax paid by the tax-payers within the area of the Petlad Municipality. 'We will assume that the Baroda State did reimburse to the municipality the amounts refunded to the tax-payers. But the liability to refund the amount claimed by the plaintiff by way of remission was by the rules imposed upon the municipality and not upon the Government. Whatever arrangement there may have existed between the municipality and the State Government it did not affect the incidence of liability. The liability remained the liability of the municipality, and the fact that the Baroda Government chose for reasons of its own to make good the amount paid by the municipality did not shift the burden from the municipality to the State Government. We are, therefore, unable to agree with the contention of Mr. Kotwal that the defendant municipality was not liable to be sued by the plaintiff company for refund of the amount of remission claimed by the company unless the municipality received the same from the Government of Bombay.
17. On the view taken by us, the appeal must fail and is dismissed with costs.