# STATE OF U.P. AND OTHERS v. SRI NARAIN

- **Citation:** [1965] 3 S.C.R. 130
- **Court:** Supreme Court of India
- **Decided:** 1965-02-22
- **Case number:** Civil Appeal No. 424 of 1963
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-u-p-and-others-v-sri-narain-3384
- **Pages:** 5

## Headnote

130
STATE OF U.P. AND OTHERS
v.
SRI NARAIN
February 22, 1965
'
[K. SUBBA
RAO,
RAGHUBAR DAYAL,
J. R. MUDHOLKAR, R. S.
A.
BACHAWAT AND V. RAMASWAMI, JJ.J
B
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), BB. r. B-A.
1,he 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
C
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 of the tax dues. The High Court was of the opinion
that the two officers completely ignored the provisions of s. 6(dJ of
the Act and r. BA, and directed the Collector to decide the responD
dent's application in accordance with law. In appeal by special
leave:
HELD: (i) Neither s. 6(d) nor r. BA provide that the Bonds must
or can be accepted in payment of tax on agriculture income
fl33 El
Collector of Sultanpur v. Raja Jagdish Prasad Sahi, [1965] 2
S.C.R. 2B, referred to.
E
(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 purF
chase them. fl34 D-Fl
Ctv1L
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.
G
C. B. Agarwala and 0. P. Rana, for the appellant.
Yogeslnvar Prasad, Hardev Singh and M. V. Goswami, for
the respondents.

## Text

130
STATE OF U.P. AND OTHERS
v.
SRI NARAIN
February 22, 1965
'
[K. SUBBA
RAO,
RAGHUBAR DAYAL,
J. R. MUDHOLKAR, R. S.
A.
BACHAWAT AND V. RAMASWAMI, JJ.J
B
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), BB. r. B-A.
1,he 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
C
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 of the tax dues. The High Court was of the opinion
that the two officers completely ignored the provisions of s. 6(dJ of
the Act and r. BA, and directed the Collector to decide the responD
dent's application in accordance with law. In appeal by special
leave:
HELD: (i) Neither s. 6(d) nor r. BA provide that the Bonds must
or can be accepted in payment of tax on agriculture income
fl33 El
Collector of Sultanpur v. Raja Jagdish Prasad Sahi, [1965] 2
S.C.R. 2B, referred to.
E
(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 purF
chase them. fl34 D-Fl
Ctv1L
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.
G
C. B. Agarwala and 0. P. Rana, for the appellant.
Yogeslnvar Prasad, Hardev 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 H
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 acc;epted by the appropriate authorities in payment of
the agricultural income-tax due from them.
STATE v. NARAIN (Dayal, J.)
131
A
The tacts 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 corre3ponding 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
B 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 res0
pondent presented an application to the Agricultural Income-tax
Assessing Officer, Allahabad, stating that he had no ready cash to
pay the dues aiid 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
D those bonds and that they be ret\Jrned 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
B 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, thP respondent presented a writ petition to the High
Court of Allahabad praying for the issue of a writ of certiorari
Jr
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 petition.er and
for the issue of a writ of prohibition directing the opposite parties
from adopting coercive measures for the realisation of the tax due
.e 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
D
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 I, 1952 on the income derived
in the previous year commencing from July I, 1951, that the tax
132
SUPREME
COURT
REPORTS
(1965) 3 S.O.B,
had t? be paid in four instalments and in default of payment a A
penahty 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. 4S 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 B
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 then: 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. SA. The High Court C
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 D
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 S, 1960.
E
The main contention for the appellant before us is that
neither s. 6(d) of the Act nor r. SA 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. SA makes it mandatory for the
Agricultural Income-tax Officer to realise the agricultural incomeP
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 fo the State,
that arrears on account of agricultural" income-tax might be realised G
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
B
of tax on agricultural income assessed under the U .P.
Agricultural Income-tax, Act,
194S for any period
prior to the date of vesting shall continue to be recoverable from such intermediary and may, without prejtid!ce
to any other mode of recovery be realised by deductmg
the amount from the compensation money pay'\ble to
such intermediary under Chapter III;"
A
B
c
STATE v. NARAIN (Dayal, J.)
133
Rule SA was added to the rules by Notification No. 3266/I-A1056-1954 dated August 17, 1954 and its relevant portions read:
"S-A. Without prejudice to the right of the State Government lo recover the dues mentioned below by such
other means, as may be open to it under law:
(!) 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
I of 1951), and of tax on agricultural income assessed
under the U.P. Agricultural Income-tax Act, 194S (U.P.
Act Ill pf 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
D
(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 amouqt of compensation payable to
him;"
It is clear from the above provisions that neither s. 6(d) nor r. SA
B 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(') that the provisions of s. 6(d) of the
Act would apply to arrears on account of agricultural income-tax
ai;sessed in l360F on the basis of agricultural income during the
F year 1359F and that the provisions of r. SA are mandatory.
It is not urged for the appellant that r. SA 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
6
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 Bonds had been delivered
to him. Section 6S of the Act provides that the compensation
under the Act shall be payable in cash or in bonds or partly in
H 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 jlaid lin accordance with the
provisions of s. 6S. This is also clear from the relevant rules for
the payment of compensation.
(') [tn65] 2 S.C.R. 28.
134
SUPREME
COURT
U.EPORTS
[1965] 3 s.c.R.
Rule 62 as it steed prior to November 29, 1956, provided A
that the compensation w.ould 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
B
principal of a Bond would be paid in equated annual instalments
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 instalments due on a Bond C
from the date of its enfacement would be payable on presentation
from and after July !st next after the delivery of the Bond to the
intermediary.
These rules show that the compensation does not remain payable atter the delivery of the Bonds and that the Bonds could
not be cashed before the due date for their encashment.
D
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 0nly
result of their being treated as negotiable instruments is that the
owner of the Bonds can transfer them to any person who is agreeE
able 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 incomeF
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.
G
We accordingly allow the appeal, set aside the order of thi
High Court and restore that of the Colkctor dated August 24, 1956
The respondent will pay the costs of the appeal to the appellants
Ap~al allcwed. B