Settlement agreement between local body and taxpayer acted upon for over a year is binding and irrevocable.

In brief

The question

1. Whether a settlement regarding tax arrears reached between a private party and a local authority (Grampanchayat) during the pendency of litigation is binding if it has subsisted for a significant period without revocation

The court held

The Court held that the dispute achieved quietus through the mutual agreement

It also directed

It directed the Grampanchayat to act upon the settlement, receive the arrears of property tax at the rate of 50 paise per sq. ft. for the period of 1997-98 to 2024-25, and facilitate the construction of the school

the Grampanchayat retains the right to levy future taxes in accordance with law beyond the settlement period

Rule was made absolute in these terms

01Facts

The Petitioner, a mushroom cultivation company, challenged a series of property tax levies and attachment orders (dated 2001–2005) issued by the Grampanchayat Bakori

¶ 1

The Petitioner contended that its land was agricultural and the structures were integral to agricultural activities, thus exempt from Grampanchayat tax

¶ 2

In May 2025, the Petitioner proposed paying tax at 0.25 paise per sq. ft. for 1997–2025 and constructing a school for the village

¶ 2

The Grampanchayat (Respondent No. 5) counter-offered a rate of 0.50 paise per sq. ft. via letter dated June 16, 2025

¶ 3

the Petitioner accepted on July 4, 2025

¶ 4

At the final hearing, Respondent No. 5 attempted to deviate from this year-old settlement by seeking to file a new affidavit

¶ 7

02Issues

i.1. Whether a settlement regarding tax arrears reached between a private party and a local authority (Grampanchayat) during the pendency of litigation is binding if it has subsisted for a significant period without revocation

¶ 6, 9

ii.2. Whether an elected representative or local body can unilaterally revoke a settlement proposal after acceptance to the detriment of public interest

¶ 8, 10

03Law Applied

tax jurisprudence (both direct and indirect) recognizes the settlement of taxes in various forms

¶ 10

local authorities cannot act on "whims and fancies" or "ipse dixit" to revoke settled positions, as such actions constitute gross arbitrariness and an abuse of authority under Article 14

¶ 8

04Reasoning

The Court observed that the settlement had subsisted for nearly a year without any formal revocation or objection from the Grampanchayat

¶ 6

The Court reasoned that the settlement was a "composite" agreement benefiting the public through the construction of a school building (Smt. Rajinder Mohini Malhotra Zilla Parishad School)

¶ 8, 10

The Court rejected the Respondent’s last-minute attempt to file additional pleadings, holding that allowing a local body to "speculate under the garb of pending litigation" after a year of acceptance would be high-handed

¶ 9, 10

Since the Petitioner agreed to the higher rate (0.50 paise) demanded by the Respondent, the Court found the settlement extremely favorable to the public body and legally enforceable

¶ 6, 10