GANGA SARAN AND SONS PVT. LTD.

CALCUTTA

INCOME TAX OFFICER & ORS.

April 23, 1981

[P.N. BHAGWATI, AND E.S. VENKATARAMlAH, JJ.)

Income Tax Act 1961, S. 147-lncome Tax-Escaped assessment-Duty of assessee to disclose fully and truly all material facts necessary for his assessment for that .vear-Meaning of.

Director in sole charge of management of business of assessee-Paid remuneration for services-Utilisation of the remuneration by director-Assessee whether under ob/i!{ation to .disclose to the Income Tax Officer in the course of its assessment.

The assessee was incorporated as a Private Limited Company in March, 1947 with G as its Managing Director and it took over the business of the trading company carried on by 'D' in Delhi. D was the brother-in-law of G and was placed in charge of the management of the business of the Delhi Branch of the assessee and he was paid a salary of Rs. JOOJ per month, commission at the rate of I per cent on the sales of the Delhi Branch and bonus equivalent to three months salary.

The assessments of the assessee for the years 1949-50 to 1959-60 were finalised on the b1Sis of the decisions of the Income-Tax Tribunal and the amounts paid to the Managing Director and the other Directors including D by way of salary, commission and bonus were allowed in full as permissible deductions and so was the interest paid on the credit balances in their respective accounts.

On the 28th March, 1968, the Income Tax Officer issued a notice under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment of the assessee for the assessment year 1959-60 on the ground that the income of the assessee had escaped assessment at the time of the original assessment. The Income Tax Officer, however, did not state the reasons which had led to the belief that the income of the assessee had escaped assessment by reason of omis- £ion or failure to disclose material facts nor did he give any reasons though requested by the assessec.

The assessee's writ petition challenging the validity of the notice was allowed by a Single Judge and the notice issued by the Income Tax Officer was quaiihed. It was held that there was no omission or fa ii ure on the part of the

GANGA SARAN V. I.T.O. 565

assessee to disclose material facts relating to his assessment and that there A was no reason to believe that any part of the income of the assessee had escaped assessment at the time of the original assessment by reason of wrong allowance of the remuneration paid to D as a permissible deduction.

The Division Bench allowed the appeal, holding that the Income Tax Officer had reason to believe that the remuneration paid to D had been wrongly allowed as a permissible deduction by reason of omission or failure on the part of the assessee to disclose the material facts and the notice issued by the Income Tax Officer was justified.

Allowing the appeal to this Court,

HELD : 1. (i) Neither of the two conditions necessary for attracting the applicability of Section 147(a), was satisfied. The notice issued by the Income C Tax Officer is therefore without jurisdiction. [574 G]

(ii) It is not possible to sustain the conclusion that the assessee omitted or failed to disclose fully and truly any material facts relating to his assessment.

[574 F]

2. (i) Before the Income Tax Officer can assume jurisdiction to issue D notice under Section 147(a), two distinct conditions must be satisfied. First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without Jurisdiction. [571 F] E

(ii) The important words under Section 147(a) are "has reason to believe" and these words are stronger than the words "is satisfied.". The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Income Tax Officer, in coming to the belief, but the Court can examine whether the reasons are rele.vant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income Tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid. [571 G-57.2 CJ

3. Even a close relative who is in management and charge of a business on a full time basis is entitled to be paid rem.uneration and, in fact, it would be wholly unreasonable to expect him to work free of charge. [573 Cl

In the instant case D was the brother-in-law of G the Managing Director of the assessee but this circumstance cannot lead to an inference that the payment of remuneration to D who was solely managing and looking after the business of the Delhi Bench of the assessee was sham and bogus. There is nothing unusual in D giving a loan to his brother-in-law, the Managing Director or making gifts to the son, wife and daughter-in-law of the Managing Director who were his close relatives. Any inference that the payment of remuneration to D was sham and bogus cannot be drawn merely from the manner in which he expended the amount of remuneration received by him, particularly when the persons to whom he gave a loan and made gifts were his close relatives.

( 573 E-574 BJ

4. The statements of account of D with the assessee for the relevant accounting year as also the previous years were with the Income Tax Officer at the time of the original assessment and these statements of account clearly showed that out of the amount of remuneration credited to his account, he had made gifts to the sons of G on 31st July, 1957 and given a loan to G on the 25th August, 1958 and the Income Tax Officer was fully aware that G was the Managing Director of the assessee. The assessee could not therefore be said to be under an obligation to disclose to the Income Tax Officer in the course of its assessment as to how the director who was in sole charge of the management of the business of the assessee, and who was being paid remuneration for the services rendered by him to the assessee, had utilised the amount of remuneration received by him. [574 C-F] ..

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1146 of 1973.

From the judgment and order dated the !st, June 1972 of the Calcutta High Court in Appeal No. 150 of 1971 arising out of Matter No. 262 of 1968.

Debi Pal, A.K. Verma and K.J. John for the Appellant.

V.S. Desai, Champat Rai and Miss A. Subhash:"ni for the Respondents.

The Judgment of the Court was delivered by

BHAGWATI, J. This appeal by certificate is directed against an order passed by a Division Bench of the High Court of Calcutta allowing an appeal against a decision of a Single Judge which quashed and set aside a notice dated 28th March 1968 issued by the Income Tax Officer under section 148 of the Indian Income Tax Act, 1961 seeking to reopen the assessment of the assessee for the assessment year 1959-60.

The facts giving rise to the appeal are a little important and they may be briefly stated as follows.

Prior to March 1947, one Deo Datt Sharma carried on business in Delhi in the name of Sharma Trading Company. The business was quite a prosperous one and the record shows that Deo Datt Sharma was making an average profit of about Rs. 36,000 per year.

In March 1947, the assessee was incoroporated as a private limited company with Ganga Saran Sharma as its managing director and it took over the business of Sharma Trading Company as a going concern in consideration of allotment of 1703 shares in the share capital of the assessee to Deo Datt Shrama. The share capital of the assessee consisted of 8500 shares out of which 1703 shares were allotted to Deo Datt Sharma, ~5 shares were held by Ganga Saran Sharma and 3500 shares, by a company called Narendra Trading Company controlled by Ganga Saran Sharma and his wife. It may be pointed out at this stage that Deo Datt Sharma was the brother-in-law of Ganga Saran Sharma. When business of Deo Datt Sharma was taken over by the assessee, Deo Datt Sharma was appointed Director of the assessee along with two other persons.

Deo Datt Sharma was placed in charge of management of the business of Delhi Branch of the assessee and

0he was paid a salary of Rs. 1000 per month, commission at the rate of I per cent on the sales of the Delhi Branch and bonus equivalent to three months' salary. Ganga Saran Sharma .and the other two directors were also paid salary, commission and bonus but it is not necessary to set out the quantum of the emoluments paid to them, because in this appeal we are concerned only with the emoluments paid to Deo Datt Sharma and not with the emoluments paid to other directors.

The Income Tax Officer while assessing the assessee to tax for the assessment year 1949-50 disallowed the claim of the assessee for deduction in respect of payments made to the managing director and other directors on account of commission and bonus. On appeal by the assessee the Appellate Assistant Comviissioner disagreed with the view taken by the Income Tax Officer and allowed the entire amount paid to the managing director and other directors by way of commission and bonus.

So far as Deo Datt Sharma is concerned, the Appellate Assistant Commissioner observed that having regard to the fact that this very business was carried on by Deo Datt Sharma prior to its taking over by the assessee and it was a prosperous business earning on an average ab:lut Rs. 36,000 per ye!lr and after taking over of the business by the assessee, Deo Datt Sharma continued to be in sole management of the

568 SUPREME COURT REPO!lTS

(1981] 3 S.C.R

business of the Delhi Branch, the aggregate amount paid to him could not at all be regarded as excessive and was allowable as a permissible deduction.

Thus the entire amount paid by the assessee to the managing director and other directors was allowed by the Appellate Assistant Commissioner as a deduction in computing the taxable income of the assessee.

The assessee had thereafter n 0 difficulty in claiming deduction of the amount paid to the managing director and other directors on account of salary, commission and bonus, but again in the assessment year 1956-57, the Income Tax Officer disallowed a substantial portion of the remuneration paid to the managing director and the assessment made by the Income Tax Officer was confirmed in appeal by the Appellate Assistant Commissioner and in further appeal by the Income Tax Tribunal.

This led to the making of a reference and the High Court answered the question referred to it in favour of the assessee and held that the disallowance of a portion of the remuneration paid to the managing director was not justified. While making the assessment for the assessment year 1957-58, the Income Tax Officer once again disallowed a part of the remuneration paid to the managing director as also the amounts of interest paid to the directors on the balances lying to the credit of their respective accounts with the assessee on account of undrawn remuneration.

The Appellate Assistant Commissioner in appeal held that the interest paid to the directors on the balances lying to the credit o( their respective accounts was an allowable expenditure but he sustained the disal!owance of a portion of the remuneration paid to the managing director. The assessee thereupon preferred a further appeal to the Tribunal and after considering all the facts and circumstances of the case, the Tribunal came to the conclusion that the remuneration paid to the managing director as also to the other directors was not at all excessive and no portion of it could justifiably be disallowed. The result was that not only was the remuneration paid to the managing director and the other directors allowed in full as a permissible deduction but also the amount of interest paid on the credit balances in their respective accounts was allowed to be deducted as a permissible expenditure. Obviously, and this could not be disputed on behalf of the Revenue, the accounts of the managing .director and other directors including Deo Datt Sharma showing the amount of remuneration credited and the withdrawals debited in each year were produced before the Income Tax Officer and he was aware that only a very small amount was withdrawn by Deo Datt Sharma out of the remuneration credited in his account~ The

GA)IGA SARAJ\I v. l.T.O. (Bhagwati, J.) 569

record also shows that on a querry made by the Income Tax Officer the assessee furnished inter alia the assessment file number of Deo Datt Sharma who was being assessed in Delhi. The assessment for the assessment year 1958-59 also followed the same course upto the stage of appeal before the Income Tax Tribunal and ultimately the amount of interest paid to the directors on the credit balances in their respective accounts was allowed as a permissible deduction to the assessee.

The assessment of the assessee for the subsequent year 1959-60 was thereafter completed on the basis of the decision of the Income Tax Tribunal for the two earlier assessment years and the amounts paid to the managing director and other directors including Deo Datt Sharama by way of salary, comission and bonus were allowed in full as permissible deductions and so was the interest paid on the credit balances in their respective accounts. ·

On 28th March, 1968 the Income Tax Officer issued a notice under section 148 of the Income Tax Act, 1961 seeking to reopen the assessment of the assessee for the assessment year 1959-60 on the ground that the income of the assessee had escaped assessment at the time of the original assessment.

Since a period of four years had already elapsed from the close of the assessment year 1959-60 and no notice could be issued under section 147 (b), it was obvious that the notice issued by the Income Tax Officer was based on section 147 (a), and it could be justified only if it could be shown that the Income Tax Officer had reason to believe that, by reason of omission or failure on the part of assessee to disclose any material facts, the income of the assessee had escaped assessment.

The Income Tax Officer however did not indicate in the notice as to what were the reasons which had led hi111 to believe that the income of the assessee had escaped assessment by reason of omission or failure to disclose material facts nor did he give any reasons though requested by the assessee to do so. The assessee thereupon preferred a writ petition in the High Court of Calcutta challenging the validity of the notice on the ground that there was no omission or failure on the part of the assessee to disclose any material facts at the time of the original assessment and that in 11.ny event, there was no reason to believe that any part of the income of the assessee had escaped assessment by reason of such omission or failure.

The writ petition was admitted and rule was issued by a single Judge of the Calcutta High Court. The Income Tax Officer, possibly on service of the rule, addressed a letter dated 19th June 1968 to the assessee stating that

A the notice was issued by him because he had reason to believe that the payment of remuneration to Deo Datt Sharma was bogus and false.

The Income Tax Officer also stated in the affidavit filed by him in reply to the writ petition that after the assessment of the assessee was completed for the assessment years upto 1963-64, the Income Tax Officer came to learn that Deo Datt Sharma was the B brother-in-law of Ganga Saran Sharma, managing director and that Deo Datt Sharma had disposed of the income received by him by way of remuneration from the assessee, in the following manner :

I. On 31st July 1957 he made a gift to

Shri Narendra Sharma son of Shri Ganga Saran Sharma, Managing Director of the Company.

Rs. 12,550.00

On 25th August 1958 he made a loan to Ganga Saran Sharma.

Rs. 2,25,000.00

Total 2,37,550.00

and thereafter, out of the amount lying to his credit in the account with the assessee, he had made the following gifts :

On 5th December 1960 gift to Brahma Devi wife of Ganga Saran Sharma Rs. 1,0l,101.00

On 21st December 1960 gift to lndu Sharma daughter-in-law of Ganga Saran Sharma Rs. 15,101.00

On 26th December 1961 gift to Hemlata Sharma daughter-in-law of Ganga Saran Sharma.

Rs. 50,101.00

The Income Tax Officer stated that out of the total amount of remuneration of Rs. 3,51,000 received by Deo Datt Sharma during the period upto 31st March 1962, he had paid tax in the sum of about Rs. 65,000/- and spent a total sum of Rs. 2,37,550 on account of gifts and loan as aforesaid and the withdrawals made by him for his own purposes thus did not amount to more than Rs. 4000 per year. These facts, according to lhe Income Tax Officer, showed

that the remuneration paid to Deo Datt Sharma was not genuine and was sham and bogus and the amount of such remuneration alleged to have been paid to Deo Datt Sharma was wrongly allowed as a permissible deduction and hence the assessment of the assessee was liable to be reopened by issue of a notice under section 147 (a).

The learned single Judge of the Calcutta High Court who heard the writ petition took the view that there was no omission or failure on the part of the assessee to disclose any material facts relating to 'his assessment and that in any event; there was no reason to believe that any part of the income of the assessee had escaped assessment at the time of the original assessment by reason of wrong allowance of the remuneration paid to Deo Datt Sharma as a permissible deduction.

The writ petition was accordingly allowed by him and the notice issued by the Income Tax Officer was quashed and set aside. The Income Tax Officer thereupon preferred an appeal before a Division Bench of the Calcutta High Court and the learned Judges constituting the Division Bench allowed the appeal, holding that the Income Tax Officer had reason to believe that the amount of remuneration paid to Deo Datt Sharma had been wrongly allowed as a permissible deduction by reason of omission or failure on the part of the assessee to disclose the material facts set out above and the notice issued by the Income Tax Officer was justified. The assessee thereupon preferred the present appeal in this Court after obtaining a certificate of fitness from the High Court of Calcutta.

It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue notice under section 147 (a).

First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under section 147 (a) are "has reason to believe" and these words are stronger than the words "is satisfied".

The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which

have weighed with the Income Tax Officer in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147 (a).

It there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income Tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be .liable to he struck down as invalid.

Now here on the facts as admitted or found it is clear that Deo Datt Sharma was carrying on the same business prior to the incorporation of the assessee as a private limited company and this business was yielding him an average profit of about Rs. 36000 per year.

When the assessee, on incorporation, took over the business as a going concern from Deo Datt Sharma it appointed Deo Datt Sharma as a director and placed him in sole charge of the management of the Delhi Branch of the business. In fact, it could not be disputed on behalf of the Revenue that Deo Datt Sharma was looking after the business of the Delhi Branch of the assessee in the same manner in which he was doing when he was sole proprietor of the business and for this work done by him, Deo Datt Sharma

was paid salary at the rate of Rs. 1000 per month, commission at the rate of one per cent on the sales of the Delhi Branch and bonus equivalent of three months' salary. The amount of remuneration paid to Deo Datt Sharma was thus not without consideratfon; in fact, it was paid for valuable services rendered by Deo Datt Sharma

in solely managing the business of the Delhi Branch of the assessee.

Now once it is conceded that Deo Datt Sharma was in sole charge and management of the business of the Delhi Branch of the assessee and was rendering full time service to the assessee in that capacity, it is difficult to see ho~ any one could reasonably come to the belief that the payment of remuneration made to him was sham and bogus. Surely, the Income Tax Officer could not expect Deo Datt

Sharma to devote his full time and energy to the business of the Delhi Branch of the assessee without any remuneration whatsoever.

The actual remuneration paid to Deo Datt Sharma was in fact found to be genuine and reasonable by the Appellate Assistant Commissioner

while disposing of the appeal of the assessee for the assessment year 1949-50 as also by the Income Tax Tribunal while disposing of the appeal for the assessment year 1957-58. It is true that Deo Datt Sharma was the brother-in-law of Ganga Saran Sharma, the managing director of the assessee, but this circumstance cannot by any stretch of imagination lead to an inference that the payment of remuneration to Deo Datt Sharma who was solely managing and looking after the business of the Delhi Branch of the assessee was sham and bogus. Even a close relative who is in management and charge of a business on a full time basis is entitled to be paid remuneration and, in fact, it would be wholly unreasonable to expect him to work free of charge.

The Revenue, however, relied strongly on the fact that out of the total amount of remuneration of Rs. 3,51,000 received by Deo Datt Sharma and credited to his account with the assessee, he had not withdrawn more than Rs. 4,000 per year for himself and an aggregate sum of Rs. 2,37,550 was expended by him in giving a loan to Ganga Saran Sharma and making gifts to the son, wife and daughters-in-law of Ganga Saran Sharma on diverse dates between 31st July, 1957 and 26th December 1961. We fail to see how this fact can lend itself to the inference that the payment of remuneration to Deo Datt Sharma was bogus and not genuine.

It is an admitted fact that Deo Datt Sharma was the brother-in-law of Ganga Saran Sharma and there is nothing unusual in Deo Datt Sharma giving a loan to Ganga Saran Sharma or making gift to the son, wife and daughters-in-law of Ganga Saran Sharma who were his close relatives. It is indeed difficult to appreciate how any inference can reasonably be drawn that the payment of remuneration to Deo Datt Sharma was sham and bogus merely from the manner in which he expended the amount of remuneration received by him, particularly when the persons to whom he gave a loan and made gifts were his close relatives. It is possible that Deo Datt Sharma had other financial resources apart from the remuneration derived by him from the assessee and he therefore decided to give a loan and make gifts to his close _relatives out of the remuneration received by him for valuable services rendered to the assessee.

In fact, if he had no other financial resources, it is extremely difficult - one might say, almost impossible-to believe that he worked for the assessee and managed and looked after the business of the Delhi Branch on a full time basis without any remuneration or in any event on a

paltry remuneration of Rs. 4,000 per year when the managing director and other directors who were working like him were getting much more from the assessee and as the proprietor of the business prior to its taking over by the assessee, he was earning an average profit of about Rs. 36,000/- per year.

We are clearly of the view that on these facts the Income Tax Officer could have no reason to believe that the payment of remuneration to Deo Datt Sharma was sham and bogus and that the amount of remuneration paid to him was wrongly allowed as a permissible deduction.

We may point out that, in fact, the statement of account of Deo Datt Sharma with the assessee for the relevant accounting year as also the previous years were with the Income Tax Officer at the time of the original assessment and these statements of account clearly showed that out of the amount of remuneration credited to his account, he had made a gift of Rs. 12,550 to the son of Ganga Saran Sharma on 31st July 1957 and given a loan of Rs.2,25,000 to Ganga Saran Sharma on 25th August, 1958 and the Income Tax

Officer was fully aware that Ganga Saran Sharma was the managing director of the assessee. It is possible and we may assume it in favour of the Revenue, that the subsequent gifts made by Deo Datt

Sharma to the wife and daughters-in-law of Ganga Saran Sharma were not disclosed to the Income Tax Officer at the time of the original assessment, but these gifts being subsequent to the relevant accounting year, the assessee was not bound to disclose the same to the Income Tax Officer.

Moreover, it is difficult to appreciate how tle assessee could be said to be under an obligation to disclose to the Income Tax Officer in the course of its assessment as to how a director who was in sole charge of the management of the business of the assessee and who was being paid remuneration for the services rendered by him to assessee, had utilised the amount of remuneration received by bim.

We do not think it possible to sustain the conclusion that the assessee omitted or failed to disclose fully and truly any material facts relating to his assessment.

We must in the circumstances hold that neither of the two conditions necessary for attracting the applicability of section l 47{a) was satisfied in the present case and the notice issued by the Income Tax Office.r must be held to be without jurisdiction.

We accordingly allow the appeal, set aside the judgment of the Division Bnch and restore that of the learned single Judge quashing

--y

GANGA SARAN v. l.T.O.(Bhagwa(i, J.) 575

and setting aside the notice dated 28th March 1968 issued by the A Income Tax Officer against the assessee.

The Revenue will pay the costs of the assessee throughout.

N.V.K.

Appeal allowed

GANGA SARAN AND SONS PVT. LTD.

CALCUTTA

INCOME TAX OFFICER & ORS

April 23, 1981

P.N. BHAGWATI

Income Tax Act 1961

S. 147

Delhi

28th March, 1968

Section 148

Income Tax Act, 1961

Section 147(a)

Section 147(a)

Section 147(a)

Section 147(a)

31st July, 1957

25th August, 1958

Calcutta High Court

A.K. Verma

K.J. John

V.S. Desai

Champat Rai

A. Subhash:"ni

BHAGWATI

section 148

Indian Income Tax Act, 1961

Deo Datt Sharma

Sharma Trading Company

Ganga Saran Sharma

Deo Datt Shrama

Narendra Trading Company

Income Tax Tribunal

Deo Datt Sharama

section 148

Income Tax Act, 1961

section 147

section 147

High Court of Calcutta

31st July 1957

Narendra Sharma

Brahma Devi

lndu Sharma

Hemlata Sharma

31st March 1962

section 147

section 147

section 147

section 147

Deo Datt

Sharma

26th December 1961


ASSISTANT CONTROLLER OF ESTATE DUTY & ORS.

PRAYAG DASS AGARWAL

April 23, 1981

[ R.S. PATHAK AND E.S. VENKATARAMIAH, JJ.]

Estate Duty Act, 1953-Section 52, scope of-Whether under section 52 of the Estate Duty Act, 1953, the Central Government is bound to accept in satisfaction of the whole or any part of the duty payable under the Act at such price as C may be agreed upon between the Central Government and the person accountable for estate duty any property passing on the death of the deceased when an application is made for that purpose by such person.

On the death of his father which took place on September 29, 1964 the respondent filed a statement of account under the Estate Duty Act of the estate passing on the:death of the deceased. The estate duty payable in respect of the estate in question was determined at Rs. 3,37,543.40 by the Assistant Controller of Estate Duty, Allahabad, by his order dated November 30, 1970. When the appeal filed against the said order was still pending, the respondent made an application under section 52(1) of the Act on February 16, 1971 to the Central Board of Direct Taxes offering one of the items of property passing on the death of the deceased, namely, premises No. 1, Phaphamau Road, Allahabad, whose principal value had been determined at fRs. 2,53,625 in part payment of the balance of estate duty which was still payable by him under the order of assessment. The said offer was not accepted by the Central Board of Direct Taxes but the appellant hernin wrote to the respondent stating that the respondent could pay the 'arrears of estate duty payable by him in monthly instalments of Rs. '10,000 each beginning from October 29, 1971 subject to payment of interest @ 9% per annum on the arrears outstanding. Thereupon the respondent filed a writ petition before the High Court of Allahabad requesting the High Court to issue a writ in the nature of mandamus to the Union of India to consider the application made by him under section 52(1) on its merits, to negotiate and settle the price of the property offered by him in settlement of part of duty payable by him and to give credit to the extent of the price so determined under the Act.

The High Court held that if the accountable person exercised the option to pay the estate duty by transferring property, the Central Government could not refuse to accept the offer and insist upon payment by another mode when there was agreement about the price between it and the accountable person. The High Court, however, held that it was not necessary to decide the question whether it was open to the Central Government to refuse the offer of property on a ground other than the price as the impugned order had not disclosed any reason at all for rejecting the offer. Accordingly, the High Court directed the respondents before it to dispose of the application afresh in accordance with law.

Hence the appeal after obtaining special leave of the Court.

Affirming the High Courfs directions, the Court

ASTT. CONTROLER ESTATE V. PRAYAG DASS 577

HELD; 1:1.

What section 52(1) of the Estate Duty Act does is to set forth one more mode in which estate duty may be recovered. It is a provision made specially for the recovery of estate duty. It enables the Government to recover the duty in accordance with that mode. The other statutory modes prescribed under section 51 and specified in the Rules are those where recourse by the accountable obliges the Revenue to accept the payment made in any of those modes and to treat it, by compulsion of statute, as satisfaction of the dues.

The peculiarity of the mode provided under section 52(1) is that while recourse to it by the accountable person does not automatically imply satisfaction of the dues, there is the duty cast on the Revenue to consider the application by the accountable person offering an item of property as a mode for satisfying the dues. The Government must consider the application on its merits and in the exercise of sound administrative judgment. [587 F-H, 588 A]

1:2. Ordinarily in every contract for the purchase of property there are two stages. (il In the first stage, there is complete freedom to l'the parties to decide whether one should enter into negotiations with the other at all and in that regard the law takes no account of the reason of any party for not choosing to entertain the proposal for sale made by the other however arbitrary, illogical or irrelevant the reason may be. (ii) The second stage follows the entertaining of the proposal and the actual negotiations between the parties which may or may not fructify in a contract. Section 52(1) is concerned with the first stage, and differs in this from the complete freedom to entertain the proposal in that the proposal made under section 52(1) by the accountable' person must be considered by the Central Government and any decision taken by it on that question must proceed on considerations which are relevant and bonafide. The price of the property is, however, left to be determined by agreement in the event of the Government deciding to accept the offer made by the accountable person.

This forms part of the second stage. [588 A-DJ

1 :3.

The Estate Duty Act is a fiscal statute principally intended to levy and collect estate duty which when coilected has to be disbursed in accordance with Part XU of the Constitution. It is not a law providing for acquisition of a property forming part of the estate of the deceased. Section 52 is in the nature of an enabling provision which authorises the Central Government to accept a property in lieu of estate duty payable subject to the conditions mentioned in it. It is true that even enabling words in a statute which confer a discretionary power may have to be interpreted as compulsory where they amount to words clearly intended to effectuate a legal right.

But ordinarily such words are permissive only. [585 F, 586 C-D)

In the instant case, the very fact that there is a need for an agreement upon the price of the property between the Central Government and the accountable person makes the power of the Central Government under section 52(1) of the Act discretionary and permissive. Any other meaning may lead to impractical and incongruous result. [586 D-E)

I ;4. On a plain construction of section 52 of the Act the Central Government may at its discretion either accept th' property offered under section 52 or may not if the circumstances so wa_rrant. The accountable person cannot claim

A that the Central Government is bound to accept such property. The power of the Central Government under section 52 is purely administrative and discretionary.

Therefore, the said power should be exercised subject to the same limitations which govern all such administrative and discretionary powers. The Central Government or the authority which is competent to take a decision should exercise its discretion bonafide and in good faith by addressing itself to the matter before it and should not allow itself to be influenced by extraneous and B irrelevant considerations. The question should not be disposed of in an arbitrary or capricious way. In this case, the Court can only ask the authority concerned to exercise the discretion vested in it but it cannot be asked to exercise it in a particular way. [587 A-B, D-F]

Che/la Rama Bhupal Reddy v. Central Board of Direct Taxes and Anr., [1977) 108 I.T.R. 695 Andhra Pradesh, approved.

2. In the instant case, the High Court was right in holding that it had not been shown that the competent authority had properly exercised its discretion.

The Board proceeded on the assumption that its discretion was unfettered even by considerations relevant to administrative law and did not probe into the question of the availability of liquid cash in the hands of the respondent to pay tee estate duty and the averment of the respondent that the entire liquid cash had been invested in business. [588 E, H, 589 A] ·

CIVIL APPELLATE JURISDICTION : Civil Appeal No. !843 of 1974.

Appeal by special leave from the judgment and order dated . the 6th September, 1972 of the Allahabad High Court iu Civil Misc .

. E Writ No. 27 of 1972.

S.C. Manchanda, Champat Rai and Miss A. Subhashini for the Appellants.

Pramod Swarup for the Respondent.

The Judgment of the Court was delivered by

VENKATARAMIAH, J. The question which arises for consideration in this appeal by special kave is whether under section 52 of the Estate Duty Act, 19 53 (hereinafter referred to as the Act) the Central Government is bound to accept in satisfaction of the whole or any part of the duty payable under the Act at such price as may be agreed upon between the Central Government and the person accountable for estate duty any property passing on the death of the deceased when an application is made for that purpose by such person.

On the death of Lala Beni Madho Agarwal which took place on September 29,1964 his son Prayag Dass Agarwal, the respondent

herein filed a statement of account under the Act of the estate passing on the death of the deceased. The estate duty payable in respect of the estate in question was determined at Rs. 3,37,543.40 by the Assistant Controller of Estate Duty, Allahabad by his order dated November 30, 1970. When the appeal filed against the said order was still pendi.ng, the respondent made an application under section 52(1) ofthe Act on February 15, 1971 to the Central Board of Direct Taxes offering one of the items of property passing on the death of the deceased, namely premises No. l, phaphamau Road, Allahabad, whose principal value had been determined by the Assistant Controller at Rs. 2,53,655 in part payment of the balance of estate duty which was still payable by him under the order of assessment.

The said application elicited a cryptic reply dated September 16, 1971 from the Under Secretary of the Central Board of Direct Taxes, the relevant part of which read as follows :-

•;1 am directed to refer to your petition dated 16.2.1971 on the subject mentioned above and to say that your offer is not acceptable." , /

The Assistant Controller, however, wrote to the respondent on October 21,1971 stating that the respondent could pay the arrears of estate duty payable by him in monthly instalments of Rs. 10,000 each beginning from October 29, 1971 subject to payment of interest @ 9% per annum on the arrears outstanding.

Thereupon the respondent filed a writ petition before the High Court . of Allahabad under Article 226 of the Constitution against the Assistant Controller, the Central Board of Direct Taxes and the Union of India requesting the High Court to issue a writ in the nature of mandamus to the Union of India to consider the application made by him under section 52(1) on its merits, to negotiate and se.ttle the.price of the property offered by him in settlement of part of duty payable by him and to give credit to the extent of the price so determined under the Act. The respondent contended inter alia that section 52 of the Act conferred a right on an accountable per.ion, if he chose to do so, to offer an item of property passing on the death of the deceased in respect of whose estate, duty was payable under the Act in discharge of the whole or part of such duty and that it imposed a reciprocal obligation on the Central Government to accept such property and-. adjust its price as may be agreed upon between the Central Government and the accountable person towards the duty payable. He further contended that the Central Government had no right to reflise to accept the offer so made by the accountable person and that he

•..

having made the offer to pay the duty by transfer of the property in question he could not be compelled to pay the duty to the extent of its price.

He, therefore prayed for the issue of appropriate direction -~ to the Central Government to comply with section 52 of the Act 1 accordingly.

On behalf of the Union Government it was inter alia urged that it was not bound to accept an offer made under section 52(1) of any property and it was within the discretion of the Union Government to reject the offer.

The High Court held that if the accountable person exercised the option to pay the estate duty by transferring property, the Central Government could not refuse to accept the offer and insist upon payment by another mode when there was agreement about the price between it and the accountable person. It, however, held that it was not necessary to decide the question whether it was open to the Central Government to refuse the offer of property on a ground other than the price as the impugned order had not disclosed any reason at all for rejecting the offer.

Accordingly the High Court directed the Union Government and the Central Board of Direct Taxes to dispose of the application of the petitioner afresh in accordance with law. This appeal is filed against the said decision of the High Court under Article 136 of the Constitution.

Section 5(1) of the Act provides that in the case of every person dying after the commencement of the Act there shall, save as expressly provided in the Act, be levied and paid upon the principal value ascertained as per the relevant provisions of the Act of all property, settled or not settled, including agricultural land situate in the territories which immediately before November 1, 1956 were comprised in the States in the First Schedule to the Act which passes on the death of such person, a duty called 'estate duty' at the rates fixed in accordance with section 35 of the Act. The rates of estate duty are set out in the Second Schedule to fie Act. The principal value of the property liable for estate duty has to be ascertained in accordance with the provisions in Part V of the Act. The estate duty levied under the Act can be collected as per provisions in Part VII of the Act.

Section 51 of the Act states that estate duty may be collected by such means and in such manner as the Central Board of Direct Taxes may prescribe. Rule 18 of the Estate Duty Rules (hereinafter referred to as 'the Rules') made by the Central Board of Direct Taxes in exercise of the powers conferred by sub-section (1) of

ysection 85 of the Act deals with payment of estate duty. That Rule provides inter alia that payment of any duty may be made by delivery of a cheque on a scheduled bank or by a bank draft issued by a scheduled bank or by depositing the amount of duty in the Government Treasury or by adjustment of any refund of income-tax, excess profits tax, business profits tax or excess profits tax deposit.

Section 52 of the Act as it was originally enacted provided that the Board might prescribe that Government securities could be accepted in payment of estate duty on such items as it thought fit.

When it was suggested that a provision corresponding to section 56(1) of the Finance (1909-10) Act 1910 as it stood at the time when the Act was enacted could be introduced into the Act, it was not accepted by the Indian Finance Minister. Section 49 of the British Finance Act 1946 (9 & IO Geo 6 C. 64) provided that the Commissioners of Inland Revenue could accept any property under -section 56-of the Finance (1909-10) Act 1910 in satisfaction or part satisfaction of any estate duty and amendedthe latter Act accordingly. Section 56(1) of British Finance (1909-10) Act, 1910 which was again amended by the British Finance Act of 1949 read thus:

"56(1) The Commissioners may, if they think fit, on the application of any person liable to pay estate duty or settlement estate duty accept in satisfaction of the whole or any

part of such duty any such real (including leasehold) property E as may be agreed upon between the Commissoners and that person.''

The legal position in the United Kingdom as it existed in 1965 in so far as transfer of real and leasehold property in payment of estate duty is concerned 'is summarized in Dymond's Death Duties (14th Editii>n) at pages 720-721 th us :

"D-Transfer of Property in Payment of Duty : -

(1) Real and leasehold property:-

Bys. 56(1) of the Finance (1909-10) Act, 1910, as extended and amended by s. 49 of the Finance Act, 1946 (which applies to deaths at any time) and the Finance Act, 1946 (which applies to deaths at any time) and the Finance Act, 1949, Sched. XI, Pt. IV the Commsisioner's may, if they think fit, on the application of any person liable to pay any Death Duties, accept in satisfaction of the

whole or part of such duty any such real (including leasehold) property as may be agreed upon between the Commissioners and the accountable person.

The Commissioners have the right to accept foreign real or leashold property, but they are scarcely likely to do so.

The property accepted need not itself be liable to duty. It may be accepted in satisfaction of duty on any property, real or personal. No Stamp Duty is to be payable on the transfer of such property (Finance 1909-10) Act, 1910, s. 56(2). The disposition of any property accepted by the Commissioners is provided for by ss. 50 and 51 of the Finance Act, 1946, under which the Treasury may direct that the land be transferred direct to a body of persons (e.g. the National Trust) or to trustees for such a body, etc,. instead of to the Commissioners, and the duty receivable by the latter may be paid out of the National Land Fund established by s. 48 of the Act. It is within the discretion of the Commissioners whether they will accept property under this provision, but the Chancellor of the Exchequer in his Budget statement for 1946 said that he expected the power (which hitherto had not in practice been used) to operate on a substantial scale in the future : it is understood that seventy properties had been taken over up to the 31st March, 1963.

He referred also to the National Trust and the Youth Hostels Association as examples of the bodies not established for profit, and having for their object "the provision, improvement or preservation of amenities enjoyed, or to be enjoyed, by the public or the acquisition of Ian ' 1

c, 2 used by the public" to which the land may be L.:isferred. Particulars of properties accepted are givc;1 in the Con nissioner's Annual Reports.

There is no provision for the tran fer of land by a person other than the accountable persCJ.1, and the acquisition price cannot exceed the amount of the duty.

The Commissioners' powers extend to the acquisition of foreign immovable property, but are scarcely likely to be exercised in respect of it."

The position in the United Kingdom appears to be more or Jess the same even after the former estate duty was replaced by the new tax known as capital transfer tax by the British Finance Act

--__,,,.,,-.

1975 (vide section 22 of the Finance Act 1975). The relevant part A of paragraph 17 of Schedule 4 to that Act reads thus :

. "17 (I) The Board may, if they think fit on the application of any person liable to pay tax, accept in satisfaction of the whole or any part of it any property to which this paragaph applies.

(2) This paragraph applies to any such land as may be agreed upon between the Board and the person liable to pay tax.

(3) This paragraph also applies to any objects which are or have been kept in any building-

(a) If the Board have determined to accept or have accepted that building in satisfaction or part satisfaction of tax or estate duty, or ............ " (See Halsbury's Statutes of England (Third Edition) Vol. 45 at page 1870).

Section 52 of the Act was substituted by a new section 52 by the Direct Taxes (Amendment) Act, 1964. The new section reads thus:

"52. Payment of duty by transfer of property-

(!) The Central Government may, on an application of the person accountable for estate duty, accept in satisfaction of the whole or any part of such duty any property passing on the death of the deceased at such price as may be agreed upon between the Central Government and that person, and thereupon such person shall deliver possession of the property to such authority as may be specified by that Government in this behalf.

(2) Notwithstanding anything contained in any other law for the time being in force, on the date the possession

of the property is delivered to the authority under sub- G section (1) -

(i) the property shall vest in the Central Government; and

(ii) the Central Government shall, where necessary, intimate the registering authority concerned accordingly ;

and the authority shall administer the property in such manner as the Central Government may direct.

(3) Where the price referred to in sub-section (1) exceeds the aggregate of the amounts due under this Act in respect of the estate of the deceased, the excess shall be applied in the following order to the payment of any tax, penalty, interest or other amount -

(i) which the legal representative of the deceased is liable to pay in respect of the income, expenditure or wealth of, or gift made by, the deceased under any of the Acts referred to in clause (c) of section 2 of the Central Boards of Revenue Act, 1963 ;

(ii) which the executor is liable to pay under any of the Acts aforesaid in respect of the estate of the deceased for the period of the administration of the estate ;

(iii) which the person beneficially entitled to the property in question is liable to pay under any of those Acts ;

and the balace, if any, shall be paid to the accountable person."

In the Notes on Clauses annexed to the Bill which ultimately became the Direct Tax (Amendment). Act 1964, it was stated :

"Sub-clause (b} seeks to substitute the provisions of section 52 of the Estate Duty Act by a new provision, enabling the Central Government to accept at an agreed price, the assets comprised in an estate passing on the death of the deceased towards payment of the estate duty, if the accountable person so offers.

Provision is also made that any balance of the price left after satisfying the amounts due under the Estate Duty Act will be adjusted against amounts due under the other Direct Taxes Act from the deceased, his estate and the accountable person beneficially . entjtled to the asset in question in that order."

Let us now analyse section 52 qf the Act. A proceeding under section 52 does not commence until an application is made by the person accountable for estate duty. It is entirely at his option whether a property passing on the death of the deceased should be transferred so that its price can be adjusted towards payment of the es_tate duty.

The Central Government cannot compel him to do so.

When the accountable person voluntarily applies to the Central

Government, the section says that the Central Government 'may' accept the property offered in satisfaction of the estate duty at such price as may be agreed upon between it and the accountable person.

Section 52 of the Act does not say that the Central Government shat I do so but it may do so. The question in this case is whether the Central Government is bound to do so. We shall revert to this question later on. Then the price of the property has to be agreed upon between the Central Government and the accountable person.

The price so agreed upon should naturally relate to the date on which agreement takes place and it cannot certainly be the principal value of the property determined in the estate duty proceedings.

This provision may '.perhaps indirectly act as a deterrent against excessive valuation of the property in the estate duty proceedings because when the question of determination of its price under section 52 of the Ac-t arises there ought not to be a wide disparity between the principal value determined in the estate duty proceedings and what is offered by the Central Government as the price under section 52.

When once the price is agreed upon, then the accountable person is bound to deliver possession of the property to such authority as may be specified by the Central Government. On such delivery the property vests in the Central Government without any further formality.

Sub-section (3) of section 52 of the Act provides that where the price agreed upon exceeds the amount due as estate duty, the excess amount shall be applied to the payment of any tax penalty, interest or other amount payable in the order mentioned in clauses (i) to (iii) thereof. If after adjusting all such dues, any balance still remains, such balance shall be paid to the accountable person.

The Act is a fiscal statute principally intended to levy and collect estate duty which when collected has to be disbursed in accordance with Part XII of the Constitution. It is not a law providing for acquisition of a property forming part of the estate of the deceased. Part VII of the Act in which sections 51 and 52 occur only provides the machinery for collection of the duty. Whereas section 51 of the Act authorises the Board to prescribe the means and manner in which the estate duty may be collected, section 52 gives the option to the accountable person to offer a property passing on the death of the deceased so that its price may be adjusted towards the payment of the estate duty.

Rule 18 of the Rules made by the Board pursuant to section 51 enables the accountable person to discharge his liability in one or more ways mentioned therein and there the Central Government is left with no choice

about them.- Payment of duty in any of the said ways discharges the liability of the accountable person under the Act. Section 52 of the Act however, appears to be an alternative mode by which such liability can be discharged but it has some distinguishing features.

Indisputably the price of the property offered thereunder has to be agreed upon between the Central Government and the accountable person which introduces an element of consensus into the proceeding.

But the point on which the parties are at issue in this case is whether the Central Government is bound to accept a property offered by the accountable person under section 52 and initiate proceedings to settle its price by negotiation. The language of the statute prima facie does not compel the Central Government to do so.

The section is in the nature of an enabling provision which authorises the Central Government to accept a property in lieu of estate duty payable subject to the conditions mentioned in it. It is true that even enabling words in a statute which confer a discretionary power may have to be interpreted as compulsory where they amount to words clearly intended to ; effectuate a legal right. But ordinarily such words are permissive only. In the instant case the very fact there is a need for an agreement upon the price of the property between the Central Government and the accountable person makes the power of the Central Government under section 52(1) of the Act discretionary and permissive. Any other meaning may lead to impractical and incongruous result. The Central Government cannot be compelled to accept the properties in discharge of the estate duty when no agreement is possible on its price, and when law does not provide for a machinary to determine the price when there is no agreement. The history of the corresponding legislation in the United Kingdom and the language of section 52 read with the 'Notes on clauses' attached to the relevant Bill extracted above suggest that the Central Government has the option either to accept or reject the offer made by an accountable person under section 52. This has to be so having regard to the administrative difficulties involved in the matter.

As mentioned earlier, the Act is a fiscal statute intended to collect duty and not to acquire property. If section 52 of the Act is held to be mandatory then the Central Government will be obliged to acquire properties in several parts of India where it may not find any use for them and spend money on their management and upkeep and arrange for their disposal.

The cost of administration involved in the Act in that case possibly may be much more than the duty realisable under the Act. Further if such is the construction to be placed then what happens if the price of the property offered is more than the duty payable ?

Then in every such case, the Government would be compelled to acquire property by paying

to the accountable person the amount which is in excess of the duty and other sums payable under section 52(2)(i)to(iii) even when it does not need such property.

Surely such could not have been the intention of the Parliament. We are of the view that on a plain construction of section 52 of the Act, the Central Government may at its discretion either accept the property offered under section 52 or may not if the circumstances so warrant. The accountable person cannot claim that the Central Government is bound to accept to such property. The power of the Central Government under section 52 is purely administrative and discretionary. The High Court was in error in holding that if an assessee wanted to pay the estate duty by transferring property, the Government could not refuse to accept the offer and insist upon payment by another mode, provided there was agreement on the price of the property between the Government and the assessee.

When once it is held that the power of the Government under section 52 of the Act is administrative and discretionary, it follows that the said power should be exercised subject to the same limitation which govern all suchadministrative and discretionary powers.

The Central Government or the authority which is competent to take a decision should exercise its discretion bona fide and in good faith by addressing itself to the matter before it and should not allow itself to be influenced by extraneous and irrelevant considerations.

The question should not be disposed of in an arbitrary or capricious way.

In this case, the Court can only ask the authority concerned to exercise the discretion vested in it but it cannot be asked to exercise it in a particular way.

On this question we approve the decision of the Andhra Pradesh High Court in Chella Rama Bhupal Reddy v.

Central Board of Direct Taxes & Anr.(1)

The true legal position may be summarised thus.

What section 52(1) does is to set forth one more mode in which estate duty may be recovered. It is a provision made specially for the recovery of estate duty. It enables the Government to recover the duty in accordance v.ith that mode.

The other statutory modes prescribed under section 51 and specified in the Rules are those where recourse by the accountable person obliges the Revenue to accept the payment made in any of those modes and to treat it, by compulsion of statute, as satisfaction of the dues.

The peculiarity of the mode provided under section 52(1) is that while recourse to it by the accountable person does not automatically imply satisfaction of the

(!) [1977] 108 I.T.R. 695.

Hdues, there is the duty cast on the Revenue to consider the application by the accountable person offering an item of property as a mode for satisfying the dues. The Government must consider the application on its merits and in the exercise of sound administrative judgment. Ordinarily in every contract for the purchase of property there are two stages. (I) In the first stage, there is complete freedom to the parties to decide whether one should enter into negotiations with the other at all and in that regard the law takes no account of. reason of any party for not choosing to entertain the proposal for sale made by the other however arbitrary, illogical or irrelevant the reason may be. (2) The second stage follows the entertaining of the proposal and the actual negotiations between the parties which may or may not fructify in a contract.

Section 52(1) now under consideration is concerned with the first stage, and differs in this from the complete freedom to entertain the proposal in that the proposal made under section 52( I) by the accountable person must be considered by the Central Government and any decision taken by it on that question must proceed on considerations which are relevant and bona fide. The price of the property is, however, left to be determined by agreement in the event of the Government deciding to accept the offer made by the accountable person.

This forms part of the second stage.

In the instant case, the High Court was, however, right in holding that it had not been shown that the competent authority had properly exercised its discretion. In the counter affidavit filed

by the Assistant Controller of Estate Duty, some reasons were given in support of the decision of the Board. That counter affidavit is of no use for the deponent could not speak on behalf of the Central Government or the Board. In the counter affidavit of Balbir Singh, Secretary, Central Board of Direct Taxes and Deputy Secretary to the Government of India, two principal grounds were mentioned for rejecting the offer•one, that the Central Govrrnment was not bound to accept the offer and two, that it had been snown that "the cash in hand, cash in bank, book debts, business profits, rent and share of the deceased in the firm of Ramnarain Lal Beni Madho amounted to Rs. 4,57,462 which amount was more than sufficient to pay the entire estate duty demand". On the other hand the respondent contended in his reply affidavit that he had no liquid cash to pay the estate duty as it had been invested in business.

But there appears to have been no further probe into the question. It is also obvious that the Board proceeded on the assumption that its discretio!l was unfettered even by considerations relevant to administrative

law.

In these circumstances, we feel that there was no proper A exercise of the discretion by the Board.

y We, therefore, affirm the direction issued by the High Court but subject to the observations made above and direct the Board to dispose of the application afresh in accordance with law.

The appeal is accordingly disposed of.

No costs.

V.D.K.

PRAYAG DASS AGARWAL

April 23, 1981

R.S. PATHAK

E.S. VENKATARAMIAH, JJ.

Estate Duty Act, 1953

Section 52

section 52

Estate Duty Act, 1953

Central Government

29, 1964

Allahabad

November 30, 1970

section 52(1)

February 16, 1971

Central Board of Direct Taxes

October 29, 1971

High Court of Allahabad

Union of India

section 52(1)

section 52(1)

section 51

section 52(1)

Section 52(1)

section 52(1)

Section 52

section 52(1)

section 52

section 52

section 52

S.C. Manchanda

Champat Rai

A. Subhashini

Pramod Swarup

VENKATARAMIAH

section 52

Lala Beni Madho Agarwal

Prayag Dass Agarwal

section 52(1)

High Court . of Allahabad

Article 226

section 52(1)

section 52

section 52

section 52(1)

Article 136

Section 5(1)

November 1, 1956

First Schedule

section 35

Second Schedule

Section 51

section 85

Section 52

section 56(1)

Section 49

British Finance Act 1946

section 56

Section 56(1)

United Kingdom

Dymond

s. 49

Finance Act, 1946

Finance Act, 1946

Finance Act, 1949

s. 56(2)

ss. 50 and 51

Finance Act, 1946

s. 48

31st March, 1963

section 22

Finance Act 1975

Schedule 4

Section 52

section 52

section 2

Central Boards of Revenue Act, 1963

section 52

section 52

section 52

Section 52

section 52

section 52

section 52

Part VII of the Act

sections 51 and 52

section 51

section 52

section 51

Section 52

section 52

section 52(1)

section 52

section 52

section 52

India

section 52(2)(i)

Parliament

section 52

section 52

section 52

section 52

Andhra Pradesh High Court

section 52(1)

section 51

section 52(1)

Section 52(1)

section 52( I)

Balbir Singh

Government of India

Central Govrrnment

Ramnarain Lal Beni Madho


LAJPAT RAJ AND OTHERS

STATE OF PUNJAB AND OTHERS

April 24, 1981

[A.D. KOSHAL AND BAHARUL !SLAM, JJ.]

Punjab Security of Land Tenures Act (JO of 1953) Ss. 5, 5A and 5-B and Punjab Security of Land Tenure Rules 1956 Rule 4 and Form E-lntimation by landlord in Form £-Whether amounts to selection of permissible area under S,. 5-B(l)-

Prescribed authori1y whether can after the same.

Respondent No. 3, a displaced J)erson from Pakistan, was allotted more than 60 standard acres of land. Out of this land he made an oral gift of some land in lieu of maintenance to his wife, respondent No. 4, who sold that land to the appellants.

D In the proceedings for declaration of the surplus area of the land owned by

respondent No. 3 the Special Collector included the land sold to the appellants in the "select area" of Respondent No. 3, The appeal of Respondent No. 3 to the Commissioner was dismissed as time-barred and this order was upheld in revision by the Financial Commissioner.

A single Judge dismissed his petition under Article 226. In appeal, a Division Bench held that the order of the Special Collector, directing a variation in the reservation made by respondent No. 3 without his consent was not only contrary to the povisions of the Act but was without jurisdiction and a nullity in as much as the Act vested no power of such variation in the Collector.

Jn the appeal to this Court it was contended on behalf of the appellant, that : (I) the admission to the effect that responden.t No. 3 had intimated his reserved area in Form E to the Collector before gifting the land to his wife was made before the High Court on behalf of the appellants on the basis of some misconception on the part of their counsel, that actually no such reservation was ever made and that the admission could at best be interpreted to mean that respondent No. 3 had sent an intimation in Form E to the Special Collector detailing therein the area selected by him as his permissible ar.::a in pursuance of the provisions of sub-section (1) of section 5-B of the Act, and (2) If no reservation was made by respondent No. 3 the whole basis of the impugned judgment falls and the Collector would have jurisdiction to amend the permissible area of respondent No. 3 by way of adjustment of the equities arising in favour of the appellants.

Dismissing the appeal,

HELD : Jn assuming that respondent No. 3 had intimated his reservation "in pursuance of sub-sction (I) of section 5, the High Court was in error

)ry

}. ..

,• --

LAJPAT RAl V. PUNJAB 591

and the case had to be decided on the basis of the factual position that respondent No. 3 had failed to make any reservation under that sub-section but that he had made a selection in Form E in pursuance of the provision.s of sub-section (I) of section 5-B. [600 H-601A]

The inclusion of the land in question in the surplus area of respondent No. 3 does not effect the right of ownership of the appellants. [604 A]

1. (a) Reservation of land was envisaged only in section 5(1) of the Act and had to be intimated within six months from the date of its commencement i.e. on or before the 15th October, 1953. [599 El

(b) No provision was ever made in the Act or the rules framed thereunder

for a reservation of land by a land-owner who had failed to send an intimation C thereof on or before the 15th October, 1953. [599 F]

(c) What was provided by section 5-B was, that a landowner who had not exercised the right of reservation under the Act could select his permissible area and send intimation thereof in Form E to the prescribed authority within a period of six months from the 11th December, 1957 i. e. on or before 11th May, 1958. 'Reservation' was something different from the 'Selection' of permissible area, The two terms were not only not synonymous but were mutually eKclusive. 'Selection' of permissible area was allowed only to a landlord who had not eKercised his right of 'reservation'. [599 G-600 A]

(d) Form E was meant only for intimation of selection of permissible area under sub-section (I) of section 5B and not for reservation under sub-section (1)

of section 5 which could be made only through an intimation in the Form in E Annexure "B" to the 1953 Rules. [600 BJ

2.(a) 'Surplus area' is arrived at by excluding the reserved area from the total area of a land-owner in case a reservation has been made by him lawfully. (Clauses (4) and (5-a) of section 2.) [601 C]

(b) Where no area has been lawfully reserved by the land-owner, surplus area is worked out under section 5B or 5C. [601 DJ

(c) Under section 5, the landowner is entitled to reserve out of the entire land held by him in the State as landowner, any parcel or parcels not exceeding the permissible area by intimating his selection in the prescribed form to the Patwari of the estates, etc. In doing so he is legally bound to include in his reserved area such land as conforms to the description of any of the 6 categories covered by clauses (a) to (f) of the proviso to sub-section (I) of section 5. [601E]

(d) Once a reservation has been intimated within 6 months from the date

of commencement of the Act, it cannot be varied either by act of parties or by operation of law, except with the written consent of tenant affected by such H variation. [601 F]

(e) If a land-owner has failed to reserve land in accordance with the provisions of section 5 he has another chance to select his permissible area within 6 months from the commencement of the Punjab Security of Land Tenures (Amendment) Act, 19.i7. [601 G]

(f) The prescribed authority is given the power to select the permissible area of a landowner under sub-section (2) of section 5-B but the mandatory B condition attached to the exercise of that power is that it shall b~ resorted to only if the landowner has failed to select his permissible area in accordance with the provisions of sub-section (1) of that section. In other words, if the concerned land-owner has already selected his permissible area in accordance with the provisions of sub-section (1) of section 5-B, sub-section (2) of that section does not come into play at all and there is no occasion for the exercise by the prescribed authority of the po11<er. of selection. [602 A-C) c

In the instant case Respondent No. 3 had made a selection of his permissible area in accordance with the provisions of sub-section (I) of section 5-B, a selection whichthe prescribed authority had no power to vary either under sub-section (2) of section 5-B or under any other provisions of the Act. The order of the Special Collector dated March 30, 1962 was therefore passed without jurisdiction and was a nullity. [602 D-E]

Gurucharan Singh and Ors. v. Prithi Singh and Ors. [1974] I S.C.C. 138, distinguished.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1981-N of 1970.

From the judgment and order dated the 21st May 1970 of the Punjab and Haryana High Court in Letters Patent Appeal No. 195 of 1966.

G.L. Sanghi, :s.K. Mehta, P.N. Puri and M.K. Dua for the Appellants.

O.P. Sharma and M.S. Dhillon for the Respondents.

The Judgment of the Court was delivered by

KosHAL, J. This appeal by certificate is directed against the judgment dated May 21, 1970 of a Division Bench of the High Court of Punjab and Haryana accepting a Letters Patent Appeal and holding that in view of the provisions of sections 5, 5-A and 5-B of the Punjab Security of Land Tenures Act, 1953 (hereinafter referred to as the Act), the concerned Collector had no jurisdiction to vary the reserved area of a land-owner by including therein the lands sold by him to others.

.'(

LAJPAT RAI v. PUNJAB (Kasha[, J.) 593

Most of the relevant facts are undisputed and may be briefly stated thus. Sadh Singh, respondent No. 3, who is a displaced person from Pakistan, was allotted more than 60 standard acres of land in village Karyam, Tehsil Nawanshehar, District Jullundut, in lieu of the land left by him in Pakistan. He also owned a little more than I standard acre of land in village Surwind, Tehsil Patti, District Amritsar. About 3 years after the Act came into force, i.e., on March 9, 1956, respondent No. 3 made an oral gift of some of his land in lieu of maintenance to his wife Nirmal Kaur, respondent No. 4, who entered into an agreement dated January 21, 1957 with the three appellants for sale to them of the land gifted to her, against a consideration of Rs. 4200.

The land covered by the gift was mutated in favour of respondent No. 4 on April 17, 1957 and she conveyed the same to the three appellants by a registered sale-deed dated August 8, 1957.

The agreement mentioned above as well as the sale deed following it were attested by respondent No. 3 as a marginal witness.

The proceedings for declaration of the surplus area out of the land owned by respondent No. 3 were initiated by the Collector on June 20, 1958.

They passed through various stages before the Collector and in appeal before the Commissioner.

Ultimately the Special Collector, Punjab, declared the surplus area of respondent No. 3 after hearing him and the appellants, through an order dated March 30, 1962, and while doing so, he included the land sold to the appellants by respondent No. 4 in the "select area" of respondent No. 3, as prayed for by the appellants. The order was based on some rulings of the Financial Commissioner, Punjab, to the effect that all sales for valuable consideration effected by a land-owner after the enforcement of the Act should be included in his "select area". Respondent No. 3 unsuccessfully challenged the order in an appeal which was dismissed by the Commissioner as time-barred. The order of the Commissioner was upheld in revision by the Financial Commissioner.

It was then that respon- #dent No. 3 knocked at the door of the High Court through a petition under article 226 of the Constitution of India which was dismissed by a learned Single Judge on the ground that the order of the Special Collector had become final by reason of the appeal taken against it being time-barred. The learned Judge observed that respondent No. 3 was not entitled to any relief in exercise of the extra-ordinary jurisdiction of the High Court under the said article in view of the fact that he had failed to pursue diligently the remedy of appeal which was open to him.

A In the appeal which respondent No. 3 filed under clause IO of

the Letters Patent, the Division Bench observed :

"In accordance with section 5 of the Punjab Security of Land Tenures Act, 1953, the appellant intimated his reserved area in form E to the Collector before making the gift in favour of his wife. This fact is not so stated in the pleadings, but the counsel of both the parties admit this fact to be so".

and after referring to the provisions of sections 5, 5-A and 5-B of the Act concluded :

"The Collector has no jurisdiction to vary the reserved area of a landowner by including the land sold by him to others in his reserved area.

Under section 5 of the Act, the only jurisdiction with the Collector is to find out whether the reservation has been made in accordance with the directions contained in that section but the Collector has no jurisdiction to include an area in the reserved area of a landowner which is not covered by any of the clauses

(a) to (f) of the proviso to section 5 of the Act."

In coming to this conclusion. the Division Bench relied upon three decisions of the High Court of Punjab and Haryana rendered by other Division Benches and reported as Bhagat Gobind Singh

v. Punjab State and Others, (1) State of Punjab and others v. Shamsher Singh and others, (2) and Mota Singh v. Fina11cial Commissionfr Punjab and if others. (3) An argument raised before it on behalf of the present appellants that the order of the Collector made in contravention of section 5 of the Act could at best be treated as an illegal order and not one passed without jurisdiction and therefore a nullity, was repelled.

In this connection, reliance was placed by the Division Bench on three judgments of this Court, namely, Ne mi Chand Jain v.

Financial Commissioner Punjab, (4) Smt.

Kaushalya Devi v. K.L. Bansal, (5) and Bahadur Singh v. Muni ' Subrat Dass, another, (6).

In the result, the Division Bench held

(1) I.L.R. [1963] I Punjab 500.

(2) [1966] P.L.J. 16. (3)

[1980] P.L.J. 338.

(4) [1963] P.L.J. 137. (5)

[1969] 2 SCR 1048

[6] [1969] 2 SCR 432.

LAJPAT RAJ v. PUNJAB (Kasha/, J.) 595

that the order of the Special Collector dated March 30, 1962, directing a variation in the reservation made by respondent No. 3 without his consent was not only contrary to the provisions of the Act but was without jurisdiction and a nullity in as much as the Act vested no power of such variation in the Collector. It further held that a pettion under article 226 of the Constitution of India by respondent No. 3 with the prayer that the order of the Special Collector dated March 30, 1962, be quashed was competent, even though he had not exhausted his remedies of appeal and revision.

In the above premises, the Division Bench accepted the Letters Patent Appeal and set aside the order of the Special Collector dated March 30, 1962, as also those orders which followed and confirmed it, and directed the Collector to declare the surplus area of respondent No. 3 after excluding therefrom the area reserved by him as his permissible area.

Mr. Sanghi, learned counsel for the appellants, has raised the following contentions before us : D

(a) The admission to the effect that respondent No. 3 had intimated his reserved area in Form E to the Collector before gifting the land to his wife was made before the High Court on behalf of the appellants on the basis of some misconception on the part of their counsel.

Actually no such reservation was ever made and the admission could at best be interpreted to mean that respondent No. 3 had sent an intimation in Form E to the Special Collector detailing therein the area selected by him as his permissible area in pursuance of the provisions of sub-section ( 1) of section 5-B of the Act.

(b) If no reservation was made by respondent No. 3 the whole basis of the impugned judgment falls and the Collector would have jurisdiction to amend the permissible area of respondent No. 3 by way of adjustment of the equities arising in favour of the appellants.

After hearing Mr. Sanghi we find force in contention (a) but none in contention (b), as we shall presently show.

We may

A mention here that respondent No. 3 has remained up-represented before 11s in spite of service.

For a proper consideration of the two contentions, it is necessary to refer to certain provisions of the Act as they originally stood, the amendments made thereto in the year 1957 and the rules B framed thereunder from time to time.

The Act was enforced on the 15th April 1953.

On that date section 5 thereof comprised 5 sub-sections of which sub-sections_ ( 4) and (5) were omitted in the year 1953 itself. Sub-sections (I) and (3) of that section are relevant and are reproduced below : c

"5. (I) Any reservation before the commencement of this Act shall cease to have effect, and subject to the provisions of sections 3 and 4 any landowner who owns land in excess of the permissible area may reserve out of the entire land held by him in the State of Punjab as landowner, any parcel or parcels not exceeding the permissible area by intimating his selection in the prescribed form and manner to the patwari of the estate in which the land reserved is situate or to such other authority as may be prescribed :

"Provided that in making this reservation he shall include his areas owned in the following order :

(a) area held in a Co-operative Garden Colony,

(b) area under self-cultivation at the commencement of this Act other than the reserved area,

(c) reserved area excluding the area under a jhundimar tenant or a tenant who has been in continuous occupation for 20 years or more immediately before such reservation,

(d) area or share in a Co-operative Farming Society,

(e) any other area owned by him,

(f) area under a jhundimar tenant".

"(3) A landowner shall be entitled to intimate a reservation within six months from the date of commence-

LAJPAT RAI v. PUNJAB (Koshal, J.) 597

ment of this Act, and no reservation so intimated shall be varied subsequently whether by act of parties or by operation of law, save with the consent in writing of the tenant affected by such variation or until such time as the right to eject such tenant otherwise accrues under the provisions of this Act."

The term 'reserved area' was defined in clause ( 4) of section 2 thus:

'(4) "Reserved area" means the area lawfully reserved under the Punjab Tenants (Security of Tenure) Act, 1950 (Act XXII of 1950), as amended by President's Act, V of I 951, hereinafter referred to as the "I 950 Act" or under this Act.'

The Act as originally framed did not contain any provision for the determination of what is now known as "surplus area" a

term which was introduced into the Act for the first time in 1955 D through the addition of clause (5-a) to section 2.

On the 19th May 1953 were promulgated the Punjab Security of Land Tenures Rules, I 953 (for short, the I 953 Rules),· under rule 3 of which a landowner had to notify his reservation to the Patwari of the concerned estate in pursuance of the provisions of E sub-section (1) of section 5 of the Act. in the Form designated as

~- Annexure "B" to those Rules.

On the 27th April 1956 were promulgated the Punjab Security of Land Tenures Rules, I 956 (hereinafter referred to as the 1956 Rules). It was by rule 4 thereof that Form E was for the first time prescribed. That rule stated :

"4. Where a landowner has not reserved the area permitted for self-cultivation, he will, at the same time as he submits the declarations prescribed in rule 3 above, intimate, in writing, to the Patwari/Patwaris of the Circle/ Circles in which his lands are situated, the land/lands selected by him for self-cultivation. This intimation shall be in Form E."

This rule clearly indicates that a landowner was given the H right to select an area for self-cultivation only in case he had not reserved such area on or before the 15th October, 1953.

A Sections 5-A and 5-B were added to the Act in the year 1957

with effect from I Ith December 1957 by means of Punjab Act No. 46 of 1957. They state:

Section 5-A

"Every land-owner or tenant. who owns or holds land in excess of the permissible area and where land is situated in more than one Patwar Circle, shall furnish, within a period of six months from the commencement of the Punjab Security of Land Tenures (Amendment) Act, 1957, a declaration supported by an affidavit in respect of the land owned or held by him in such form and manner and to such authority as may be prescribed."

Section 5-B

"(!) A land-owner who has not exercised his right of reservation under this Act, may select his permissible area and intimate the selection to the prescribed authority within the period specified in section 5-A and in such form and manner as may be prescribed :

"Provided that a land-owner who is required to furnish a declaration under section 5-A shall intimate his selection along with that declaration.

"(2) If a land-owner fails to select his permissible area in accordance with the provisions of sub-section (!), the prescribed authority may, subject to the provisions of section 5-C, select the parcel or parcels of lands which such person is entitled to retain under the provisions of this Act :

"Provided that the prescribed authority shall not make the selection without giving the land-owner concerned an opportunity of being heard".

Simultaneously the definition of 'surplus area' contained in clause (5-a) of section 2 of the Act was amended to read thus:

-'"'\

LAJPAT RAJ v. PUNJAB (Koshal, J.) 599

'(5-a) "Surplus Area" means the area other than A the reserved area, and, where no area has been reserved, the area in excess of the permissible area selected under section 5-B or the area which is deemed to be surplus area under sub-section (I) of section 5-C and includes the area in excess of the permissible area selected under section 19-B, but it will not include a tenant's permissible area :

'Provided that it will include the reserved area, or part thereof, where such area or part has not been brought under self-cultivation within six months of reserving the same or getting possession thereof after ejecting a tenant from it, whichever is later, or if the landowner admits a new tenant, within three years of the expiry of the said six months.'

In consequence of these additions rule 4 of the 1956 Rules was also amended so as to contain a provision that an intimation D under section 5-B (I) of the Act shall be furnished by a landowner in Form E.

In relation to contention (a) the following propositions emerge from the various provisions of law just above set out :

(i) Reservation of land was envisaged only in section 5 ( 1) of the Act and had to be intimated within six months from the date of commencement of that Act, i.e., on or before the 15th October 1953.

(ii) No provision was ever made in the Act or the rules framed thereunder for a reservation of land by a landowner who had failed to send an intimation thereof on or before the 15th October 1953.

(iii) What was provided by section 5-B was, inter alia,

that a landowner who had not exercised the right G of reservation under the Act could select his permissible area and send intimation thereof in Form E to the prescribed authority within a period of six months from the 11th December, 1957, i.e .. 0n or before !Ith May, 1958.

Reserva- IJ lion' was something different from the 'Selection'

of permissible area. The two terms were not only not synonymous but were mutually exclusive. 'Selection' of permissible area was allowed only to a landlord who had not exercised his right of 'reservation'

(iv) Form E was meant only for intimation of selection of permissible area under sub-section (I) of section 5-B and not for reservation under subsection (I) of section 5 which could be made only through an intimation in the Form in Annexure "B" to the 1953 Rules.

The propositions just above enunciated bring out incongruity from which the admission made before the High Court suffers.

There could be no reservation in Form E by respondent No. 3. If he send an intimation in that Form it could only be about a selection of his permissible area under sub-section (I) of section 5-B. That this was really so clearly appears from the following observation made in the order of the Special Collector dated 2nd March 1961 :

"The counsel for the owner argued that area sold was not included in Form E filed before the Special Collector and that he was not prepared to include it in the select area of 50 S.A. to which he is entitled".

The order from which this observation has been extracted was set aside by the Commissioner, Jullundur Division, on the 8th January, 1962 when the case was remanded to the Special Collector for a fresh decision after hearing the three appellants as well as respondents Nos. 3 & 4.

The Special Collector then heard all these parties and passed his order dated the 30th March 1962 which also unmistakebly indicates that the intimation given by respondent No. 3 to the Special Collector was not in respect of any reservation but covered only a selection of the permissible area. Reference in this connection may be made to the fact that twice in that order the Special Collector used the term "select area" in relation to the lands which respondent No. 3 could be allowed to retain in his possession.

Jn assuming (on the basis of the admission made at the bar) H that respondent No. 3 had intimated his reservation in pursuance of sub-s((tion (J) o.f section 5, the High Court was thus in error and

LAJPAT RAI v. PUNJAB (Koshal, J.) 601

the case has to be decided on the basis of the factual position that respondent No. 3 had failed to make any reservation under that subsection but that he has made a selection in Form E in pursuanceof the provisions of sub-section (1) of section 5-B.

Contention (a) raised by Mr. Sanghi is, therefore, accepted in full.

We now proceed to consider contention (b) in the light of B the provisions above extracted, a bare reading of which leads to the following conclusions in relation to that contention :

(a) 'Surplus area' is arrived at by excluding the reserved area from the total area of a land-owner in case a reservation has been made by him lawfully. (Clauses

(4) and (5-a) of section 2.)

(b) Where no area has been lawfully reserved by the landowner, surplus area is worked out under section 5-B or

5-C.

(c) Under section 5, the landowner is entitled to reserve out of the entire land held by him in the State of Punjab as landowner, any parcel or parcels not exceeding the permissible area by intimating his selection in the prescribed form and manner to the patwari of the estate, etc.

In doing so he is legally bound to include in his reserved area such land as conform to the description of any of the 6 categories covered by clauses (a) to (f) of the proviso to sub-section (1) of section 5.

(d) Once a reservation has been intimated within 6 months from the date of commencement of the Act, it cannot be varied either by act ofparties or by operation of law, except with the written consent of the tenant affected by such variation.

(e) If a land-owner has failed to reserve land in accordance with the provisions of section 5, he has another chance to select his permissible area within six months from the commencement of the Punjab Security of Land Tenures (Amendment) Act (Punjab Act No. 46 of J 957) in the prescribed manner.

(f) The prescribed authority is given the power to select the permissible area of a landowner under sub-section

(2) of section 5-B but the mandatory condition attached to the exercise of that power is-that it shall be resorted to only if the landowner has failed to select his permissible area in accordance with the provisions of sub-section (I) of that section. In other words, if the concerned land-owner has already selected his permissible area in accordance with the provisions of sub-section (I) of section 5-B, sub-section (2) of that section does not come into play at all and there is no occasion for the exercise by the prescribed authority of the power of selection.

These conclusions further lead to the inference that if the prescribed authority (in this case the Special Collector) exercises the power of selection in a situation to which sub-section 5-B is not attracted, his order would be without jurisdiction and a nullity and that is precisely what has happened in this case.

As held by us earlier, respondent No. 3 had made a selection of his permissible area in accordance with the provisions of sub-section (1) of section

5. B a selection which the prescribed authority had no power to vary either under sub-section (2) of section 5-B or under any other provisions of the Act. The order of the Special Collector dated March 30, 1962 must, therefore, be held to have been passed without jurisdiction and, therefore, to be a nullity.

9. In support of the proposition that the order of the Special Collector did not suffer from lack of jurisdiction, learned counsel for the appellants has relied upon the following observations in Gurcharan Singh and Others v. Prithi Singh and Others, (1j wherein this Court defined the scope of powers of the Collector while acting under sub-section (2) of section 5-B of the Act:

"While it is true that a landowner who fails to reserve or select his permissible area within the prescribed period, cannot exercise that right subsequently, and thereafter it is for the Collector to determine the defaulter's permissible and surplus areas, in exercising this power under section 5-B, the Collector has to act judicially. He is bound to give notice to the landowner, and the transferees from him,

(1) [1974) I s.c.c. 138.

LAJPAT RAI v. PUNJAB (Kasha/, J.) 603

if known. Thereafter he has to hear the parties who appear, and to take into consideration their representations and then pass such order as may be just. In so exercising his discretion, the Collector ma>', subject to the adjusment

of equities on both sides, incluoe the transferred area m the 'permissible area' or the 'surplus area' of the landowner.

Thus, in the process the Collector is not to ignore altogether the wishes of the landowner.

He may accept them to the extent they are consistent with the equities of the case".

It is urged on the authority of these observations that the Collector has in all cases the power to alter the particulars of an area reserved or selected by a landowner so as to bring it in conformity with any equities that may arise in the attendant circumstances. This proposition is wholly unacceptable to us for the simple reason that in Gurcharan Singh's case (supra), the landowner had made neither a reservation nor a selection of his permissible a'rea within the prescribed period, so that sub-section (2) of section 5-B was undoubtedly attracted to his case. The observations above extracted were obviously confined to a case of that type, and have nothing to do with a. situation where the landowner concerned has selected his permissible area in accordance with the provisions of sub-section (1) of section 5-B so that there is no occasion for the prescribed authority to exercise his powers under sub-section (2) of that section.

Gurcharn Singh' s case, therefore, is of no assistance at all to the case of the appellants.

10.

Nor do we see how any equities arise in favour of the appellants, such as would entitle them to have . the land in question included in the permissible area of respondent No. 3. It is not their case that any representation to the effect that land would be so included was made to them by either respondent No. 3 or respondent No. 4 .Furthermore they must be credited with full knowledge of the extent of the land owned by respondent No. 3 and of the consequences flowing therefrom in view of the provisions of the Act. Thus they acquired the land with their eyes open and subject to all the liabilities and defects from which it suffered in the hands of their transferor (and also their transferor's transferor).

In the absence of word of mouth of respondent No. 3 or his conduct to the contrary; they cannot now be heard to say that if respondent No. 3 exercises a right of selection of his permissible area which the Act confers on him, that right must be modified to suit their convenience.

In this connection we may also mention that the inclusion of the land in question in the surplus area of respondent No. 3 does not affect the right of ownership of the appellants. Of course the result of such inclusion would certainly be that the concerned authorities would be enabled to settle tenants on the land as permitted by the Act-and that is a risk which the appellants must be deemed to have bought with the land.

11. For the reasons stated we dismiss the appeal but with no order as to costs.

N.V.K.

Appeal dismissed.

LAJPAT RAJ AND OTHERS

STATE OF PUNJAB AND OTHERS

April 24, 1981

A.D. KOSHAL

Punjab Security of Land Tenures Act

Ss. 5, 5A and 5

Article 226

section 5

section 5

LAJPAT RAl V. PUNJAB

section 5

section 5(1)

15th October, 1953

section 5

11th December, 1957

11th May, 1958

section 5B

section 5

section 2

section 5B

section 5

section 5

section 5

section 5

section 5

section 5

section 5

March 30, 1962

Gurucharan Singh

G.L. Sanghi

K. Mehta

P.N. Puri

M.K. Dua

O.P. Sharma

M.S. Dhillon

KosHAL

High Court of Punjab and Haryana

sections 5, 5

Sadh Singh

Pakistan

Karyam

Nawanshehar

Jullundut

Surwind

Patti

Amritsar

March 9, 1956

Nirmal Kaur

January 21, 1957

April 17, 1957

August 8, 1957

June 20, 1958

Punjab

article 226

Constitution of India

section 5

sections 5, 5

section 5

section 5

section 5

[1969] 2 SCR 1048

[1969] 2 SCR 432

article 226

Constitution of India

Sanghi

section 5

15th April 1953

section 5

sections 3 and 4

State of Punjab

section 2

section 2

19th May 1953

section 5

27th April 1956

Sections 5

Section 5

Section 5

section 5

section 5

section 5

section 2

section 5

section 5

section 19

section 5

section 5

section 5

section 5

section 5

section 5

2nd March 1961

Jullundur Division

8th January, 1962

30th March 1962

section 5

section 5

section 2

section 5

section 5

section 5

section 5

section 5

section 5

section 5

section

5

section 5

section 5

section 5

Gurcharan Singh

section 5

section 5

Gurcharn Singh

N.V.K.