- (1.) The Union of India, as the owner of the Central Railway, instituted a suit for refund of Rs. 2 76,967 collected as tax from the Railway Administration by the respondent Municipality during the period from 1931 till the institution of the suit in November, 1954. The facts leading up to the suit are that, the G. I. P. Railway which was a Private Company, had land situated within the limits of the respondent Municipality. On this land, stood the railway station, their Water Reservoir at Bhusi, bungalows of Officers, and certain other buildings. There were also vacant lands and some lands on which railway lines were laid out. In this area which belonged to the G.I.P. Railway the Railway Company itself built roads, supplied water from its Bhusi Reservoir. Ranged for the lighting, and provided other services. In fact, up to the year 1916, the Railway used to supply water even to the Municipality from its Bhusi Reservoir on pay meet. The Municipality was governed, at that time, by the Bombay District Municipal Act No. 3 of 1901 (hereinafter referred to as "the Act of 1901") under which a tax on lands and buildings situated within the municipal limits used to be charged @ 4 per cent of the annual rental value, but no tax was levied on the buildings and lands of the G. I. P. Railway in view of S. 135 of the Indian Railways Act No. 9 of 1890 In the year 1914, the Government of India issued a notification under Section 135 of the Railways Act declaring that the Administration of the G.I.P. Railway shall be liable to pay, in aid of the funds of the local authorities set out in the Schedule, the taxes specified against each of those authorities. Against the name of Lonavala Municipality, which is the respondent in this case, the tax mentioned was House-tax. Thus, the exemption granted to the Railway Administration was taken away by this notification in respect of house-tax and house-tax became payable by the G.I.P. Railway to the respondent. In 1916, the respondent constructed its own water reservoir and became independent of the Railway for water supply, but no water rate was charged from the Railway even thereafter, though water charges for actual quantities of water supplied in three of the bungalows was charged from the occupants of the bungalows. The rest of the Railway Colony continued to be supplied with water from the Railway Reservoir at Bhusi.
(2.) On 4th May, 1916 the respondent promulgated new rules for taxation and, instead of charging separate house-tax and water rate, it decided to charge a consolidated tax assessed as a rate on buildings and lands in accordance with clause (c) of the proviso to section 59 (1) of the Act of 1901. Thereafter it appears that the respondent demanded this consolidated tax from the Railway in respect of the Railway lands and buildings. The Railway felt that, since, under the notification of 1914, house tax only was payable by the Railway Administration, there was no justification for the respondent to charge consolidated tax from it and, consequently, protested against this payment. Thereafter, on 26th July, 1917, the Government of India issued a fresh notification under S. 135 of the Railways Act whereby the Railway Administration was rendered liable to pay what was described as "tax on lands and buildings". On the issue of this notification, the respondent started charging the G. I. P. Railway this consolidated tax and this continued until some tune in the year 1927 by which time the G.I.P. Railway was taken over by the Government and became a Government undertaking. In the Rules promulgated on 4th May, 1916, the consolidated tax described as a general rate on buildings and lands was not chargeable on government property. Relying on this provision in the Rules, an objection was raised that the charge of the tax was illegal when the Railway had become government property.
(3.) Subsequently, tile respondent Municipality amended its Rules and promulgated fresh Rules on the 6th October. 1931. By this time the respondent Municipality had been constituted into a Borough under the Bombay Municipal Boroughs Act No. 18 of 1925 (hereinafter referred to as "the Act of 1925"). These new Rules were thus promulgated under this Act of 1925. Under these Rules, the exemption in respect of government property to the charge of the general rate on buildings and lands, which was contained in the Rules of 1916, was deleted and all lands and building within the Municipal Borough became chargeable irrespective of their being owned by the Government. A separate clause was incorporated giving certain exemptions, but since they do not affect the case before us, they need not be mentioned. In pursuance of these Rules of 1931, the respondent started collecting the consolidated tax assessed as a rate on buildings and lands of the Railway from it.;