1964 (11) TMI 5 - SC - Income Tax

Whether rule 8-A is framed in exercise of the power reserved under section 26 of the Abolition Act to effectuate the provisions of clause (d) of section 6 and adjustment under the rule can only be made in respect of agricultural income-tax payable for any period prior to the date of vesting? Held that - Rule 8-A requires the Collector to adjust the liability to pay agricultural income-tax due by the intermediary against compensation payable to him. This order the High Court has directed the Collector to make in favour of the respondent but in making the order the High Court has proceeded on the assumption that compensation bonds remain to be delivered to the respondent. For reasons already set out there are no materials on which the truth of the assumption may be ascertained. We therefore set aside the order passed by the High Court and remand the case to the High Court for deciding whether there are any compensation bonds remaining to be delivered and if not whether by any appropriate order or direction adjustment of tax liability against compensation due to the respondent which has been directed by the High Court under rule 8-A can be made effective.

Summary

Issues:
1. Recovery of penalty under U.P. Agricultural Income-tax Act.
2. Validity of adjusting tax liability against compensation bonds.
3. Interpretation of rule 8-A of the Zamindari Abolition and Land Reforms Rules.

The judgment pertains to the assessment of agricultural income tax and penalty on the respondent for the Fasli year 1359. The respondent failed to pay the instalments, leading to penalty imposition. The respondent sought relief under Article 226 of the Constitution from the High Court, which 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. The Supreme Court did not consider the penalty recovery issue as it was not pressed. The main contention was whether the High Court could order the adjustment of tax liability against compensation bonds. The State argued that the adjustment was not permissible due to various reasons, including lack of machinery for adjustment and discretionary power of the Collector. However, the Supreme Court held that rule 8-A mandates the Collector to realize the tax in the manner provided, rejecting the State's arguments that the rule provided an option rather than an obligation.

Furthermore, the State contended that rule 8-A only applies to tax payable for periods before the date of vesting. The Court disagreed, emphasizing that the tax assessed under the U.P. Agricultural Income-tax Act is for the previous year's income, making it fall within the ambit of section 6(d) of the Abolition Act. Therefore, the adjustment of tax liability against compensation was deemed permissible. The Court remanded the case to the High Court to determine if compensation bonds were yet to be delivered and to ensure the effective adjustment of tax liability against compensation due to the respondent under rule 8-A. The judgment concluded with no order as to costs for the appeal.