Collector Of Sultanpur And Another vs Raja Jagdish Prasad Sahi

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 1014 of 1963

Decision Date: 5 November 1964

Coram: J.C. Shah, S.M. Sikri

In the matter titled Collector of Sultanpur and another versus Raja Jagdish Prasad Sahi, a decision was rendered on 5 November 1964 by the Supreme Court of India. The case was authored by Justice J.C. Shah and was heard by a bench comprising Justice J.C. Shah, Justice S.M. Sikri, and Justice K. Subbarao. The petitioner was the Collector of Sultanpur together with another official, and the respondent was Raja Jagdish Prasad Sahi. The citation for the judgment is reported as 1965 AIR 909 and 1965 SCR (1) 29. The case concerned the provisions of the Uttar Pradesh Zamindari Abolition and Land Reforms Act, 1952, specifically section 6(d), and the related Rule 8‑A made under the Uttar Pradesh Zamindari Abolition and Land Reforms Rules. The issue arose from a certificate issued by the Deputy Commissioner of Sultanpur, under which proceedings were initiated to recover an instalment of tax that had been assessed under the Uttar Pradesh Agricultural Income‑Tax Act, 1949. The respondent approached the Allahabad High Court under article 226 of the Constitution, seeking a writ that would either restrain the collector from recovering the tax by coercive means or, alternatively, require the revenue authorities to adjust the tax demand against compensation bonds that had been issued to the respondent pursuant to the Zamindari Abolition Act after his zamindari was vested in the State.

The High Court held that the collector was obliged to accept the compensation bonds as full satisfaction of the tax instalments that were due. On appeal, the Supreme Court examined whether the collector possessed any discretion to adjust the agricultural income‑tax liability against the compensation amount that remained due to the respondent. The Court observed that Rule 8‑A of the Zamindari Abolition and Land Reforms Rules is mandatory in nature and requires the collector to realize the tax in the manner prescribed. The introductory clause of the rule, which states “without prejudice to the right of the State Government to recover dues,” does not convert the collector’s duty into a discretionary choice; rather, it merely clarifies that the adjustment of dues against compensation shall not affect the State Government’s right to recover any outstanding amounts by other means. Consequently, the collector had no option to refuse the adjustment. The Court further held that the facts of the case fell squarely within the scope of section 6(d) of the Zamindari Abolition Act, and therefore the benefit of Rule 8‑A was applicable to the respondent. The tax in question had been assessed for the period ending 30 June 1952. Although the assessment was made after the close of the previous year and after the date on which the zamindari vested in the State, the income that gave rise to the tax liability pertained to the previous year, i.e., before the vesting date, and thus was subject to the adjustment provision.

The judgment was delivered in Civil Appeal No. 1014 of 1963, which was filed by special leave from a decree dated 7 April 1960 issued by the Allahabad High Court in Civil Miscellaneous Writ No. 1562 of 1956. Counsel for the petitioners appeared on behalf of the Collector and the other official, while counsel for the respondent represented Raja Jagdish Prasad Sahi. The Court’s decision affirmed the mandatory nature of Rule 8‑A and required the collector to adjust the agricultural income‑tax demand against the compensation bonds, without prejudice to any further recovery rights of the State.

Counsel Din Dayal Sharma appeared for the respondent. The judgment was delivered by Justice Shah. The respondent, Raja Jagdish Prasad Sahi, had his agricultural income assessed by the Collector of Sultanpur under the Uttar Pradesh Agricultural Income‑Tax Act of 1949 for the Fasli year 1359, which corresponds to the period from 1 July 1951 to 30 June 1952. The assessment required the respondent to pay the tax in four equal installments of Rs 13,274‑5‑0 each. He failed to pay the first installment, which was due on 9 December 1952, and also failed to pay the second installment, which was due on 9 February 1953. Consequently, the revenue authorities imposed a total penalty of Rs 4,400 for default on the two installments. After a certificate was issued by the Deputy Commissioner of Sultanpur, proceedings were initiated to recover Rs 17,674‑5‑0, representing the amount of the second installment together with the penalty. The respondent then filed a petition under Article 226 of the Constitution before the Allahabad High Court, seeking a writ that would restrain the Collectors of Sultanpur and Allahabad from recovering the amount claimed in the certificate by any coercive means. In the alternative, the petitioner asked that, if any part of the amount was found to be recoverable, the revenue authorities should be directed to adjust that amount against the compensation bonds that had been issued to him under the Uttar Pradesh Zamindari Abolition and Land Reforms Act No 1 of 1951, hereinafter referred to as the Abolition Act.

The High Court held that the penalty could not be recovered because the recovery was not based on a proper order passed under section 31 of the Agricultural Income‑Tax Act. Accordingly, the threatened sale proceedings were declared void, and the Court ruled that the Collector was obliged to accept the compensation bonds payable under the Abolition Act as satisfaction for the outstanding tax installments. The Court therefore set aside the proceedings for recovery of the penalty and directed the revenue authorities to grant relief to the respondent under Rule 8‑A of the Zamindari Abolition and Land Reforms Rules, in the manner prescribed in the judgment. The Collectors of Sultanpur and Allahabad appealed this order to this Court, obtaining special leave. The claim to recover the penalty has not been pressed before us, and no further discussion is required on that point. The revenue authorities, however, contend that the High Court lacked jurisdiction to order an adjustment of the tax liability against the compensation bonds. They rely on three grounds: first, that compensation due to the respondent had already been paid through compensation bonds issued under section 68 of the Abolition Act, and there is no mechanism to adjust tax liability against bonds that have already been delivered to the intermediary; second, that Rule 8‑A gives the Collector a discretionary option to adjust tax liability against compensation, but does not obligate him to do so at the intermediary’s request; and third, that under section 6 of the Abolition Act, tax payable for the period after 1 July 1952 is not liable to be set off against compensation payable to the intermediary. The first contention was not raised before the High Court, and the record does not contain sufficient material to conclude that all certificates relating to the compensation had been delivered to the respondent before he sought adjustment under Rule 8‑A. As early as 1953 the respondent had claimed that the tax due should be set off against the compensation payable to him, whereas the revenue authorities now argue that the compensation bonds were issued only in 1955, relying on certain averments to support that position.

Under the Zamindari Abolition and Land Reforms Rules the Collector possessed the discretion to adjust a tax liability against the compensation that was payable, but the Collector was not compelled to provide such adjustment at the request of the intermediary. In addition, the third contention relied upon by the Revenue authorities asserted that, pursuant to section 6 of Act 1 of 1951, any tax liability accruing after 1 July 1952 could not be set off against compensation that was due to the intermediary. The Court observed that the first of these contentions had never been raised before the High Court and that the record did not contain sufficient material to permit a conclusion that every certificate relating to the compensation had been delivered to the respondent prior to his seeking an adjustment under Rule 8‑A. The respondent, however, had as early as 1953 lodged a claim that the tax due should be set off against the compensation amount that was payable to him. The Revenue authorities now attempted to establish before this Court that compensation bonds had been issued only in 1955. Their reliance was placed upon certain statements made in the respondent’s petition before the High Court and upon the recitals contained in the application for leave to appeal against the High Court’s order. In paragraph 36, clause (4) of that petition the respondent asserted before the High Court that, if any portion of the amount was held recoverable, the Revenue authorities could be directed to adjust it against compensation bonds of corresponding face value that had been issued to the petitioner under the Abolition Act. In the grounds cited in the application for a certificate that the matter was fit for appeal to this Court, the appellants contended that the bonds had been given to the respondent under the Abolition Act as payment of compensation and consequently no further compensation money remained payable to him. The Court noted that the admission relied upon in the petition was not sufficiently clear and unambiguous to justify acting upon it for the first time in this Court, especially since it had not been relied upon before the High Court. Moreover, the Court could not rely on a plea that was raised for the first time in the petition for a certificate under article 133 of the Constitution. Counsel for the Revenue authorities of the State of Uttar Pradesh, identified only as Mr Agarwala, then read extracts from a letter of the Collector of Allahabad. That letter stated that after the High Court’s order the respondent had been asked to surrender the amounts he had withdrawn under the compensation bonds, but that the respondent had failed to do so. Consequently, the public debt office was, in the circumstances, unable, in accordance with Rule 8‑A of the Rules framed under the Abolition Act, to permit an adjustment of tax due against the compensation bonds. The Court held that it would not be appropriate to consider such additional evidence at this stage. If any merit existed in the first ground, it should have been raised before the High Court and supported by evidence tendered there.

The Court noted that the issue should have been placed before the High Court and that any supporting evidence ought to have been presented in that Forum. Consequently, the Court treated the second and third grounds together. Under the Uttar Pradesh Agricultural Income Tax Act 3 of 1949, agricultural income‑tax and the accompanying super‑tax specified in the Schedule to that Act become chargeable each year on the total agricultural income of the preceding year of every person, subject to the provisions of the Act and the Rules framed thereunder. Section 2(13) defines the term “previous year” as the twelve‑month period ending on 30 June immediately preceding the year for which the assessment is to be made. Section 6 of the Uttar Pradesh Zamindari Abolition and Land Reforms Act provides that, upon issuance of an appropriate notification by the State Government, all estates vest in the State free of any encumbrances. When such a notification is published in the State Gazette, notwithstanding any contract, document or other law then in force and save as otherwise provided in the Act, the consequences set out in Section 6 take effect from the date of vesting for the area covered by the notification. Clause (d) of Section 6 states that all arrears of revenue, cesses or other dues in respect of any estate so acquired, including any arrear of tax on agricultural income assessed under the Uttar Pradesh Agricultural Income Tax Act 1948 for any period prior to the vesting date, remain recoverable from the intermediary and may, without prejudice to any other mode of recovery, be realised by deducting the amount from the compensation payable to that intermediary under Chapter III. Section 26 empowers the State Government to make Rules to give effect to the provisions of Chapter II of the Act in which Section 6 appears. Chapter III deals with the assessment of compensation, and Section 68 of Chapter III provides that compensation may be paid in cash, in bonds, or partly in cash and partly in bonds as prescribed. In accordance with Section 26 read with Section 6(d), the State Government framed Rule 8‑A, which became operative on 17 August 1954. Rule 8‑A declares, without prejudice to the State Government’s right to recover the dues by any other legal means, that all arrears of land revenue in respect of estates that have vested in the State Government as a result of a notification under Section 4 of the Uttar Pradesh Zamindari Abolition and Land Reforms Act 1950, and all tax on agricultural income assessed under the Uttar Pradesh Agricultural Income Tax Act 1948, shall be recoverable in the manner prescribed therein.

Rule 8‑A provided that any amount due from an intermediary for a period before the date of vesting had to be realised in two specific ways. First, if the intermediary had been assessed land revenue of ten thousand rupees or more, the amount was to be taken from the interim compensation that was due to him. Second, if the intermediary’s assessed land revenue was less than ten thousand rupees per annum, the amount was to be deducted from the compensation payable to him. The State Government argued that the rule merely gave the Collector an option to recover land‑revenue or agricultural‑income‑tax by adjusting it against compensation and that the Collector was not compelled to make such a set‑off. The Court could not accept that submission. The language of Rule 8‑A itself states that the amount due from an intermediary for any period prior to vesting shall be realised in the manner described in clauses (a) and (b). By this wording the rule is mandatory, obliging the Collector to realise the tax exactly as prescribed. The introductory phrase “without prejudice to the right of the State Government to recover dues” does not convert the duty into a discretionary option; it merely preserves the State’s right to recover the dues by any other lawful means if the adjustment cannot be effected. Consequently, if for any reason the adjustment fails and the tax or land‑revenue cannot be recovered through the compensation, the State retains the unrestricted right to recover the amounts by alternative methods permitted by law.

The High Court was therefore correct in holding that the Collector possessed no option when adjusting the liability to pay agricultural‑income‑tax against the compensation amount that remained due to the respondent, which the High Court described as “still due”. Nonetheless, it was contended that Rule 8‑A was framed under the power granted by section 26 of the Abolition Act to give effect to clause (d) of section 6, and that adjustment under the rule could be made only with respect to agricultural‑income‑tax payable for periods prior to vesting. It was further argued that the scheme of the Act allowed arrears of land revenue, other dues, and agricultural‑income‑tax to remain recoverable even after the estate vested in the State under section 6, and that such continuing amounts were required, under the rules, to be adjusted against compensation payable for the compulsory termination of the intermediary’s rights. Relying on the clause in section 6(d) that speaks of “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,” counsel submitted that even if section 3 of the U.P. Agricultural Income‑Tax Act assessed tax on the total agricultural income of the preceding year, that tax remained due for the assessment year and therefore fell within the ambit of section 6(d). The Court rejected this plea, holding that the assessment, although made after the close of the previous year, itself pertained to the income of that previous year, and thus the tax was payable for the period ending on 30 June 1952, bringing it squarely within the scope of section 6(d) and subject to adjustment under Rule 8‑A.

In this case the Court examined the contention that because the Uttar Pradesh Agricultural Income‑tax Act, 1948 imposes tax on the total agricultural income of the preceding year, the tax assessed on the respondent for the period from 1 July 1952 to 30 June 1953 represents a tax due for the year of assessment and therefore does not fall within the ambit of Section 6(d) of that Act, and consequently Rule 8‑A could not be invoked to adjust the tax liability against the amount of compensation. The Court declared that it was unable to accept this plea. It observed that Section 3 of the Uttar Pradesh Agricultural Income‑tax Act expressly charges the entire agricultural income of the previous year to tax, and although the assessment is made after the close of that year, the income on which tax is levied is nevertheless the income of the preceding year. The Court noted that the legislature had unmistakably intended to create a liability for tax on the previous year’s agricultural income. Accordingly, the tax assessed was for the period that ended on 30 June 1952, and the present case clearly fell within the terms of Section 6(d). On that basis the benefit of Rule 8‑A was admissible to the respondent. Rule 8‑A requires the Collector to set off the liability to pay agricultural income‑tax, which is due from the intermediary, against the compensation that is payable to that intermediary. The High Court had directed the Collector to make such an order in favour of the respondent, but it had done so on the assumption that compensation bonds were still to be delivered to the respondent. The Court found that no material existed on which the truth of that assumption could be verified. Consequently, the Court set aside the order of the High Court and remanded the matter to that Court for a determination as to whether any compensation bonds remain to be delivered, and if none remain, whether, by an appropriate order or direction, the adjustment of tax liability against the compensation due to the respondent under Rule 8‑A can be effected. The remitted case is to be disposed of by the High Court on the evidence already on record or on any additional evidence that the parties may produce. The Court made no order as to costs of this appeal and ordered the case to be remanded.