1963 (3) TMI 49 - SC - Income Tax

Supreme Court affirms tax liability adjustment on compensation bonds under agricultural and land reforms acts.

HARI NARAIN Versus BADRI DAS

HARI NARAIN Versus BADRI DAS - 1963 AIR 1558, 1964 (2) SCR 203 Issues:1. Recovery of penalty for default in payment of agricultural income tax instalments.2. Validity of adjusting tax liability against compensation bonds under the U.P. Agricultural Income-tax Act and the Zamindari Abolition and Land Reforms Act.Issue 1: The case involved the recovery of penalty for default in payment of agricultural income tax instalments by the respondent, which led to proceedings initiated by the Revenue authorities to recover the outstanding amount. The High Court, in response to a petition under Article 226 of the Constitution, held that the recovery of penalty was not based on proper orders under the U.P. Agricultural Income-tax Act, rendering the proceedings for sale void. The High Court directed the Revenue authorities to adjust the tax due against compensation bonds under the Abolition Act. The Collectors appealed to the Supreme Court challenging this order, but the claim for penalty recovery was not pressed. The Supreme Court analyzed the grounds raised by the Revenue authorities, including the contention that adjusting tax liability against compensation bonds was not permissible.Issue 2: The State argued that the Collector had no obligation to adjust tax liability against compensation bonds based on three grounds: (i) lack of machinery for adjustment, (ii) discretionary power of the Collector under Rule 8-A of the Abolition Act, and (iii) ineligibility of tax payable after a specific date for set-off against compensation. The Supreme Court rejected these arguments, emphasizing the mandatory nature of Rule 8-A, which obligated the Collector to realize tax in the prescribed manner. The Court clarified that the Collector's duty to adjust tax against compensation did not prejudice other recovery options available to the State. Additionally, the Court interpreted the relevant provisions of the U.P. Agricultural Income-tax Act and the Abolition Act to support the adjustment of tax liability against compensation bonds. The Court remanded the case to the High Court to determine the availability of compensation bonds for delivery and the effectiveness of adjusting tax liability against compensation due to the respondent.In conclusion, the Supreme Court upheld the High Court's decision regarding the adjustment of tax liability against compensation bonds and remanded the case for further consideration based on the availability of compensation bonds. The judgment clarified the mandatory nature of Rule 8-A and the applicability of tax liability adjustment against compensation under the relevant Acts.