Satyendra Nath Das Gupta, J. - (1.) The case raises the interesting question whether the cesses actually paid by a Coal Company under the Cess Act (Bengal Act IX of 1880) and the Bengal Primary Education Cess Act. 1930 should be considered as working expenses of the Coal Company so as to merit deduction for the purpose of arriving at the net profits which have to be ascertained before cess is payable. The petitioner, The Real Jambad Coal Co., Ltd., which admittedly works a coal mine for the purpose of which it has to pay rent and royalty to the owner of the mine, claimed that for calculation of the cess for the year 1953-54 for arriving at the actual sum of net profits deduction should be made of the following sums for which the Company was liable, viz., Rs. 490|8/- on account of Mines Board of Health cess to be paid under the Bengal Mining Settlement Act to the Asansol Mines Board of Health, a sum of Rs. 1.309-7-0 on account of Education cess, a sum of Rs 900/- on account of rent, a sum of Rs. 15,000/-on account of P.W.D cess, a sum of Rs. 31, 230-8-3 as royalty and some other sums. While deductions as prayed for in respect of certain other sums were allowed, deductions on account of these sums were disallowed by the Cess Deputy Collector. Ultimately the deduction claimed for Rs. 490|8/- on account of payment to the Asansol Mines Board of Health has been allowed by the Collector and we are no longer concerned with that. The other four items, namely, Rs. 1,309|7/- for Education cess, Rs. 900/- for rent Rs. 15,000/- for P.W.D. cess and Rs. 31,230|8|3 for Royalties have not been deducted. The Cess Deputy Collector's order as regards these four items was affirmed by the Collector of Burdwan to whom an appeal had been taken. The Commissioner of Burdwan Division who was moved against this decision of the Collector of Burdwan refused to interfere with the order of the Collector and an application to the Board of Revenue was also unsuccessful. The Company now asks for this Court's interference in exercise of its power of superintendence under Article 227 of the Constitution. I am clearly of opinion that if the prayer for deduction of these amounts has been wrongly disallowed the action of these Tribunals, namely, the Collector hearing the appeal, the Commissioner and the Board of Revenue has resulted in gross injustice and it is a fit case where this Court should interfere in exercise of its power of superintendence. The real question, therefore, is whether the order for refusing to deduct these amounts is correct. It is worth noting at this stage that while the Commissioner, Burdwan Division, has based his decision that no deduction should be allowed on the fact that these amounts have not been actually paid during the year, the Collector refused to allow the deductions claimed on account of rent, P.W.D. cess and Education cess as in his view these could not be treated as working expenses. The Cess Deputy Collector apparently based his rejection of the prayer for deduction as regards all the items on the fact that actual payments had not been made while as regards the cess he also expressed the view that cess being payable out of profit the amounts charged for cess could not be considered as working expenses. Whether actual receipts and payments or receipts which would have been reasonably obtained and payments which should have been; reasonably made are to be taken into account in calculating the net profits depends on whether the accounts are kept in what is known as the cash accounting system or the mercantile system. Specific provision as regards this has been made in the Income-tax Act. There is no provision as regards this matter in the Cess Act, but it is the common case of both sides before us that both the mercantile system of accounting and cash accounting system are recognised by the revenue departments in their calculation of net profits under the provisions of the Cess Act. It is clear that in the present case the mercantile system of accounting has been followed. It is because of this that on the receipt side what been taken as receipts were not the actual monies received on sale or on other account but the money's which would have been reasonably received if the stock of coal including what had actually been sold and what remained in the reserve had been actually paid for during the year. When this is accepted as the correct mode of ascertaining the receipts, it stands to reason that in ascertaining the expenditure the same mode should be followed and the amounts which should have been reasonably paid during the year should be treated as expenditure even though actual payments have not been made during the year. The view taken by the Commissioner, Burdwan Division, the Collector and the Cess Deputy Collector that as actual payments have not been shown to have been made those amounts could not be considered as real expenditure must, therefore, be rejected. The direct consequence of this is that the amount of Rs. 900/- due on account of rent and the amount of Rs. 31,230|8|3 on account of royalty had to be deducted as claimed by the Company in order to ascertain the net profits even though these amounts have not actually been paid. It should be mentioned that it is not disputed before us that payments of rent and royalty should be considered as working expenses of the colliery.
(2.) The question remains whether the cess levied under the Cess Act of 1880 and the Education Cess levied on the basis of the cess levied under the Cess Act should be considered as working expenses of the colliery. Mr. Laik has stressed before us this fact that the whole scheme of legislation in imposing a cess under the Cess Act of 1880 is that it is levied on the property. On this he bases an argument that just as rent which is to be paid on company's occupation of the property is rightly considered as a working expense, cess which is levied on the property should also be considered as working expense. There is no doubt that cess is an imposition on the property itself. This is clear from the language of section 5 of the Cess Act and has also been held in a number of cases. It is important to notice, however, that the Legislature after enacting in section 5 of the Cess Act that all immovable property with certain exceptions shall be liable to payment of a road cess and a public works cess, provides in section 6, "The road cess and the public works cess shall be assessed on the annual value of lands 'until provision to the contrary is made by the Central Legislature' and on the annual net profits from mines, quarries, tramways, railways, and other immovable property, ascertained respectively as in this Act prescribed." Chapter V of the Cess Act deals with the procedure to be followed for the valuation, assessment and levy of cesses on mines. Section 72 requires the owner, chief agent, manager or occupier of a mine to lodge 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. Section. 75 provides that if the return be not furnished within the period of two months as prescribed or within the extended time allowed by the Collector or if the Collector shall deem that any return made is untrue or incorrect the Collector shall himself proceed to ascertain and determine the annual net profits. Section 76 provides that if the Collector is unable to ascertain the annual net profits he shall determine the value of the property and shall thereupon determine six per centum on such value to be the annual net profits thereon. What deserves the careful attention of the court is that in so far as mines are concerned cess under the Cess Act is to be assessed on the annual net profits that have been earned. Whether the annual net profits for a particular year be fixed at the average for three years as indicated in section 72, or on calculation of a six per cent return on the value of the property as determined, the whole basis is that profits had been earned and only after profits had been earned the cess conies into existence. It may indeed happen that in a particular year no profit had been earned and still because of the procedure laid down for calculating the net profits on the average of three years or on the failure of that on the calculation of a six per cent return on the value of the property a cess will have to be levied. The fact that in a particular year this may happen does not, however, alter in my view the legal position that cess is only assessed on the net profits earned. It is meaningless to say that cess has to be paid only on the net profits, if the cess itself payable for any year has to be deducted in calculating the net profits. My conclusion, therefore, is that no deduction on account of what has been paid or liable to be paid on cess can be allowed in calculating the net profits.
(3.) I would, therefore, hold that while the decision of the Cess Deputy Collector as affirmed by the Collector and the Commissioner that no deduction should be made on account of a sum of Rs. 15,000/- said to be due for cess under the Cess Act and Rs. 1,309|7|0 on account of primary education cess under the Primary Education Cess Act is correct, the refusal to allow the deduction of Rs. 900/- on account of rent and Rs. 31,280|8|3 on account of royalty is wholly wrong and unjust. I would, therefore, set aside the orders refusing deduction of these amounts and direct that in the calculation of' net profits these amounts, viz., Rs. 31,230|8|3 on account of royalty and Rs. 900/- on account of rent be deducted.;