1965 (2) TMI 7 - SC - Indian Laws

Supreme Court: Compensation Bonds Not for Tax Payment

The Supreme Court held that Zamindari Abolition Compensation Bonds could not be used for agricultural income-tax payment as neither the Act nor rule 8-A ... Whether Zamindari Abolition Compensation 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 have to be accepted by the appropriate authorities in payment of the agricultural income-tax due from them? Held that:- 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. 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(4) of the Act and rule 8-A 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 to 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. Allow the appeal, set aside the order of the High Court and restore that of the Collector dated August 24, 1956 Issues:- Acceptance of Zamindari Abolition Compensation Bonds for agricultural income-tax payment.Detailed Analysis:The Supreme Court judgment addressed the issue of whether Zamindari Abolition Compensation Bonds issued by the U. P. Government could be accepted by the appropriate authorities as payment for agricultural income-tax. The respondent, an ex-Zamindar, had been assessed for tax and penalty, totaling Rs. 868. When he attempted to pay using bonds and cash, his application was rejected by the Agricultural Income-tax Assessing Officer and the Collector. The respondent then filed a writ petition at the High Court of Allahabad, seeking acceptance of the bonds for tax payment or deduction from the rehabilitation grant. The High Court found the rejection of the bonds to be incorrect and directed the Collector to reconsider the application in accordance with the law. The appellant appealed this decision, arguing that neither the Act nor rule 8-A allowed for bonds to be accepted for tax payment, while the respondent contended that rule 8-A mandated the realization of tax from compensation until the bonds were encashed.The court examined the relevant provisions, noting that the Act did not explicitly permit bonds for tax payment. An amendment to the Act allowed for the deduction of arrears from compensation payable to intermediaries. Rule 8-A specified the recovery of arrears from compensation, but neither the Act nor the rule mandated the acceptance of bonds for tax payment. Referring to precedent, the court emphasized the mandatory nature of rule 8-A for realizing tax from compensation. It clarified that the delivery of bonds to the intermediary constituted payment of compensation, which extinguished the claim for compensation. The rules governing compensation payments indicated that once bonds were delivered, the compensation was considered paid, and the bonds could not be encashed before the due date.The court rejected the argument that negotiability of the bonds made them legal tender, emphasizing that being negotiable did not obligate anyone to accept them for payment. It concluded that once compensation was paid in cash or bonds, it ceased to be payable, and neither the Act nor rule 8-A allowed for the receipt of agricultural income-tax in bond form. Consequently, the Collector was not at fault in refusing to accept the bonds for tax payment. The court allowed the appeal, overturned the High Court's decision, and reinstated the Collector's order. The respondent was directed to bear the costs of the appeal.In summary, the Supreme Court ruled that Zamindari Abolition Compensation Bonds could not be accepted for agricultural income-tax payment as neither the Act nor rule 8-A mandated their acceptance. The delivery of bonds to intermediaries constituted payment of compensation, extinguishing the claim for compensation. The negotiability of the bonds did not make them legal tender, and once compensation was paid in cash or bonds, it ceased to be payable. The court allowed the appeal, setting aside the High Court's decision and restoring the Collector's order, with costs to be borne by the respondent.