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PETITIONER: STATE OF U.P. AND OTHERS

       Vs.

RESPONDENT: SRI NARAIN

DATE OF JUDGMENT: 22/02/1965

BENCH: DAYAL, RAGHUBAR BENCH: DAYAL, RAGHUBAR SUBBARAO, K. MUDHOLKAR, J.R. BACHAWAT, R.S. RAMASWAMI, V.

CITATION:  1965 AIR 1919            1965 SCR  (3) 130

ACT:    U.P.  Zamindari Abolition & Land Reforms Act, 1950  (U.P. Act  of   1951)--U.P.  Zamindari Abolition  &  Land  Reforms Rules--Compensation  Bonds--Acceptance  in  payment  of  tax dues--Delivery  to  intermediary-Ceases to  be  payable--Ss. 6(d), 68, r. 8-A.

HEADNOTE:    The respondent  who was assessed to agricultural  income- tax made an application to the Assessing Officer  depositing compensation Bonds and prayed that the Bonds be accepted  in payment  of tax dues. This was rejected stating  that  there was  no rule for acceptance of these bonds. Another  attempt by  the  respondent was also turned down by  the  Collector. Thereafter  the respondent presented a writ petition in  the High  Court for directing them to accept the Bonds  in  lieu off  the tax dues. The High Court was of  the  opinion  that the  two  officers completely ignored the provisions  of  s. 6(d)  of  the Act and r. 8A, and directed the  Collector  to decide the respondent’s application in accordance with  law. In  appeal by special leave:     HELD:  (i)  Neither s. 6(d) nor r. 8A provide  that  the Bonds  must  or can be accepted  in  payment   of   tax   on agriculture  income. [133 E]     Collector  of  Sultanpur v. Raja  Jagdish  Prasad  Sahi. [1965] 2 S.C.R. 28, referred to.     (ii)  When the compensation payable to  an  intermediary has   been  paid  in  the  form  of  cash  or  Bonds.   that compensation ceased to be payable.     The  fact  that the Bonds are negotiable does  not  make them legal tender and does not make it obligatory on  anyone including Government to accept them in payment of any  dues. The  only  result  of  their  being  treated  as  negotiable instruments is that the owner of the Bonds can transfer them to any person who is agreeable to purchase them. [134 D-F]

JUDGMENT:

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   CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  424  of 1963.    Appeal by special leave from the judgment and order dated April  8, 1960 of the Allahabad High Court in  Civil   Misc. Writ No. 2650 of 1956. C.B. Agarwala and O.P. Rana, for the appellant. Yogeshwar  Prasad,  Harder Singh and M.V. Goswami,  for  the respondents. The Judgment of the Court was delivered by     Raghubar Dayal, J. This appeal, by special leave, raises the question whether Zamindari Abolition Compensation  Bonds (shortly  termed  Bonds) issued by the  U.P.  Government  to intermediaries  in  payment of compensation payable  on  the basis  of  their rights under the  Uttar  Pradesh  Zamindari Abolition  and Land Reforms Act, 1950 (U.P. Act I of  1951), hereinafter  referred to as the Act, have to be accepted  by the  appropriate authorities in payment of the  agricultural income-tax due from them. 131     The facts leading to the appeal, in brief, are that  the respondent,  an  ex-Zamindar, was assessed  to  agricultural income-tax  in the assessment year 1360 F  corresponding  to 1952-53, on the basis of the agricultural income accruing in the  previous year 1359 F corresponding to 1951-52.  He  did not  pay  the  assessed tax and was further  assessed  to  a penalty. In the result, Rs. 868/- were to be paid by him for tax plus penalty.     The  respondent’s writ petition contending that  he  was not  liable  to  pay tax was dismissed by  the  High  Court. Thereafter, the agricultural income-tax authorities took out proceedings for the realisation of the amount due from  him. On July 24, 1956, the respondent presented an application to the  Agricultural Income-tax Assessing  Officer,  Allahabad, stating  that he had no ready cash to pay the dues and  that he was therefore depositing Bonds of the value of Rs.  850/- and Rs. 18/- in cash and praying that the Bonds be  accepted in payment of tax dues. This application was rejected by  an order  stating that there was no rule for the acceptance  of those bonds and that they be returned to the applicant.     On  August  1,  1956,  the  respondent  made  a  similar application to the Collector complaining that the  Assessing Officer  had  no valid  reason to refuse to take  the  Bonds when   the   Bonds  were   negotiable   instruments.    This application  was also rejected on a report of the  Assessing Officer  that the Bonds were not accepted in the  settlement of   agricultural  income-tax  dues,  that  they  were   not negotiable  and that there was no provision in the  Act  for their acceptance.     Thereafter, the respondent presented a writ petition  to the High Court of Allahabad praying for the issue of a  writ of  certiorari quashing the orders of the Assessing  Officer and  the  Collector, Allahabad, for the issue of a  writ  of mandamus  directing them to accept the Bonds in lieu of  the tax  dues  and, in any case, to deduct the amount  from  the rehabilitation grant due to the petitioner and for the issue of a writ of prohibition directing the opposite parties from adopting  coercive measures for the realisation of  the  tax due from the petitioner. The grounds mentioned in support of the prayers were that the Bonds were negotiable  instruments and   therefore  refusal  to  accept  them  in  payment   of agricultural income-tax was illegal, that they, having  been issued by Government, could not be subsequently refused they being perfectly valid legal tender and that in view or r. 8A of  the  Rules  made under the Act the amount  due  for  tax should have been deducted from the interim compensation.

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   The  counter  affidavit  filed  by  the   Naib-Tehsildar Agriculture Income-tax Officer, Allahabad, on behalf of  the State,   stated   that  the  respondent  was   assessed   to agricultural  income-tax in the assessment  year  commencing from July 1, 1952 on the income derived in the previous year commencing from July 1, 1951, that the tax 132 had to be paid in four instalments and in default of payment a  penality  of  Rs. 43/- was imposed for  each  default  in payment of the four instalments and that the Bonds could not be  accepted  towards the tax due under s. 6(d) of  the  Act read  with r. 48 of the Rules as the tax had fallen  due  in 1360 F, corresponding to July 1, 1952 to June 30, 1953.     The High  Court held that the orders of the Agricultural Income-tax Assessing Officer and the Collector were wrong as the  ground for refusing to accept the Bonds in  payment  of the  tax on the ground that there was no rule  or  statutory provision for their acceptance was incorrect and appeared to have  been given in complete ignorance of the  provision  of law. Reference was made to the provisions of s. 6(d) of  the Act and r. 8A. The High Court was of the opinion that  these have  been  completely  ignored by  the  two  officers.  It, therefore thought that the orders were liable to be  quashed and   that  adequate  relief  would  be  available  to   the respondent  if  a direction was given to  the  Collector  to decide  his application dated August I, 1956, in  accordance with law. The High Court therefore quashed the order of  the Collector  dated August 24, 1956 and directed him to  decide the  respondent’s application afresh in accordance with  law as indicated above.     The  appellant  thereafter obtained special  leave  from this Court and appealed against the order of the High  Court dated April 8, 1960.     The main contention for the appellant  before us is that neither s. 6(d) of the Act nor r. 8A provides that Bonds can be  accepted in payment of agricultural income:tax and  that therefore  the order of the Collector dated August 24,  1956 was correct. For the respondent it is urged that r. 8A makes it  mandatory  for the Agricultural  Income-tax  Officer  to realise   the   agricultural  income  tax   due   from   the compensation payable  and that  compensation continues to be payable till the Bonds are actually encashed,     Section 6(d) of the Act, as originally enacted, did  not provide, among the consequences of the vesting of the estate in  the  State,  that arrears  on  account  of  agricultural income-tax  might be realised by deducting the  amount  from the  compensation  money payable to the  intermediary  under Chapter III. An amendment was made in this clause (d) by  s. 3  of U.P. Act XVI of 1953, with retrospective  effect  from July  1,  1952. and the relevant portion  of  the  provision after amendment reads thus:                     "All arrears of revenue,  ......  or  an               arrear  on  account  of  tax  on  agricultural               income  assessed under the  U.P.  Agricultural               Income-tax,  Act,  1948  for  any period prior               to  the date of vesting shall continue  to  be               recoverable  from such intermediary  and  may,               without   prejudice  to  any  other  mode   of               recovery  be realised by deducting the  amount               from  the compensation money payable  to  such               intermediary under Chapter III;"               133                   Rule   8A  was  added  to  the  rules   by               Notification   No.  3266/I-A-1056-1954   dated               August  17,  1954 and  its  relevant  portions

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             read:                     "8-A. Without prejudice to the right  of               the  State  Government  to  recover  the  dues               mentioned below by such other means, as may be               open to it under law:                     (1)  all  arrears  of  land  revenue  in               respect  of the estates which have  vested  in               the  State  Government  as  a  result  of  the               notification  under  Section 4  of  the  Uttar               Pradesh  Zamindari Abolition and Land  Reforms               Act,  1950  (Act  1 of 1951), and  of  tax  on               agricultural  income assessed under  the  U.P.               Agricultural  Income-tax Act, 1948  (U.P.  Act               III of 1949) due from an intermediary for  any               period  prior to the date of vesting shall  be               realised:                     (a)  in the case of an intermediary  who               was assessed to land revenue of Rs. 10,000  or               more  from the amount of interim  compensation               due to him, and                     (b)  in the case of an intermediary  who               was  assessed to a land revenue of  less  than               Rs.  10,000  per annum by deduction  from  the               amount of compensation payable to It  is clear from the above provisions that neither s.  6(d) nor  r.  8A provide that Bonds must or can  be  accepted  in payment of tax on agricultural income.     It has been held by this Court in Collector of Sultanpur v Raja Jagdish Prasad Sahi(1) that the provisions of s. 6(d) of the Act would apply to arrears on account of agricultural income-tax  assessed in 1360F on the basis  of  agricultural income  during the year 1359F and that the provisions of  r. 8A are mandatory.     It  is  not  urged  for the  appellant  that  r.  8A  is inconsistent  with the provisions of s. 6(d) which  provides that  arrears of tax may be realised from  the  compensation payable  and therefore appears to give a discretion to.  the authorities   to  realise  the  arrears  of  tax  from   the compensation payable.     We  do not agree with the contention for the  respondent that the compensation payable to the intermediary  continues to  remain  payable even after the compensation  Bond’s  had been  delivered to him. Section 68 of the Act provides  that the  compensation under the Act shall be payable in cash  or in  bonds  or partly in cash and partly in bonds as  may  be prescribed. It is clear therefore that the delivery of Bonds to  the intermediary is in payment of the compensation.  The claim   for   compensation  is  thus  satisfied   when   the compensation has been paid in accordance with the provisions of s. 68. This is also clear from the relevant rules for the payment of compensation. (1) [1965] 2 S.C.R. 23. 134     Rule 62 as it stood prior to November 29, 1956, provided that  the  compensation would be paid  in  negotiable  bonds which would be described as Zamindari Abolition Compensation Bonds.  Rule  63 as it then stood provided  that  the  Bonds would  be issued in specified denominations and  would  bear interest  at  the specified rate on the principal  that  had become payable calculated from the date of vesting. Rule  64 provided that interest together with the principal of a Bond would be paid in equated annual installments except for  the last,  as described in Appendix IV during the period  of  40 years beginning from the date of vesting, provided that  any Bond might be redeemed at an earlier date at the option   of

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the Government. Rule 65 provided that the instalments due on a  Bond from the date of its effacement would be payable  on presentation from and after July 1st next after the delivery of the Bond to the intermediary.     These  rules show that the compensation does not  remain payable  alter the delivery of the Bonds and that the  Bonds could   not  be  cashed  before  the  due  date  for   their encashment.     The  fact  that the Bonds are negotiable does  not  make them legal tender and does not make it obligatory on anyone, including Government, to accept them in payment of any dues. The  only  result  of  their  being  treated  as  negotiable instruments is that the owner of the Bends can transfer them to any person who is agreeable to purchase them.     When  the  compensation payable to an  intermediary  has been  paid in the form of cash or Bonds,  that  compensation ceases  to be payable. Section 6(d) of the Act and r. 8A  of the rules do not. as already stated, provide for the receipt of agricultural income-tax in the form of Bonds.     We are therefore of opinion that the Collector cannot be said  be in error in not accepting the Bonds which had  been delivered  and which were not even cashable at the time,  in payment  of the arrears of agricultural  income-tax  payable under the Agricultural Income-tax Act.     We accordingly allow the appeal, set aside the order  of the  High  Court  and restore that of  the  Collector  dated August  24,  1956 The respondent will pay the costs  of  the appeal to the appellants Appeal allowed. 135