State of U.P. & Ors Vs. Sri Narain
 INSC 42 (22 February 1965)
22/02/1965 DAYAL, RAGHUBAR
DAYAL, RAGHUBAR SUBBARAO, K.
CITATION: 1965 AIR 1919 1965 SCR (3) 130
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.
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.
 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]
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
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
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.
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 installments and in default of payment a penality of Rs. 43/- was imposed
for each default in payment of the four installments 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 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
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
(1)  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 the Government. Rule 65 provided that the
installments 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
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
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
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