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Kesho Ram Passey Vs. Reserve Bank of India and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Writ Petition No. 1044 of 1982
Judge
Reported in(1983)36CTR(P& H)148; [1984]146ITR16(P& H)
ActsIncome Tax Act, 1961 - Sections 54E
AppellantKesho Ram Passey
RespondentReserve Bank of India and ors.
Appellant Advocate M.R. Agnihotri and; O.P. Goyal, Advs.
Respondent Advocate H.S. Brar, Adv. for respondent No. 1,; R.K. Chhibbar, Adv. for respondent No. 2 and;None for responde
Cases ReferredMahanto v. Bimal Krishna Sen Gupta
Excerpt:
.....the date of transfer. on the facts enumerated above, and so clearly admitted in the return of the state bank of india, the bank draft of rs. 40,000 was handed over to the state bank on january, 28, 1981. it clearly shows that this amount, which is in the nature of a negotiable instrument, was deposited with the state bank of india who is an agent of the reserve bank of india within six months of the sale. i can do no better than to quote a passage from the judgment of their lordships of the supreme court in kalipada das alias mahanto v. bimal krishna sen gupta [1983] 1 scc 14; air 1983 sc 876. the facts of that case are that the appellant-tenants, during pendency of their appeal before the high court, twice failed to comply with the order of the high court to supply copies of..........at patiala, on august 1, 1980, for a consideration of rs. 39,120. he instructed his bankers, the state bank of patiala, patiala, to deposit rs. 40,000 (by making the figure round) in the 7-year national rural development bonds (hereinafter called 'the bonds'), through the agency of the state bank of india, chandigarh, who were duly authorised agents to accept such payments on behalf of the reserve bank of india. the abovesaid amount in the form of a bank draft along with an application on a prescribed form were sent by the petitioner to the state bank of india through state bank of patiala, patiala, on january 23, 1981, i.e., well within the statutory period of six months from the date of transfer. the state bank of india on receipt of this amount made the necessary entries in the.....
Judgment:

S.S. Kang, J.

1. This is a petition by Shri Kesho Ram Passey under arts. 226/227 of the Constitution of India for issuing a writ of certiorari quashing orders of respondent No. 1 as conveyed to him through letters, annexs,: P-6, P-9, P-11 and P-13.

2. To highlight the questions that fall for determination, the facts, as they emerge from the pleadings of the parties, may be set down. Shri Kesho Ram Passey, petitioner, sold a plot of land situate at Patiala, on August 1, 1980, for a consideration of Rs. 39,120. He instructed his bankers, the State Bank of Patiala, Patiala, to deposit Rs. 40,000 (by making the figure round) in the 7-Year National Rural Development Bonds (hereinafter called 'the Bonds'), through the agency of the State Bank of India, Chandigarh, who were duly authorised agents to accept such payments on behalf of the Reserve Bank of India. The abovesaid amount in the form of a bank draft along with an application on a prescribed form were sent by the petitioner to the State Bank of India through State Bank of Patiala, Patiala, on January 23, 1981, i.e., well within the statutory period of six months from the date of transfer. The State Bank of India on receipt of this amount made the necessary entries in the receipt register on January 28, 1981, which again was within the prescribed period.

3. On May 22, 1981, the Reserve Bank of India informed the petitioner that he was not entitled to exemption from the capital gains tax as the investment in the scheme had been made by him beyond the period of six months from the receipt of consideration. A copy of this letter is annexed as annex. P-6 to the petition. The petitioner wrote to the Reserve Bank of India and the State Bank of India, Chandigarh, that the application form of the petitioner for investment of Rs. 40,000 with the Bonds duly filled in and signed having been sent on January 23, 1981, along with a bank draft for the said amount, was within the prescribed period of six months from August 1, 1980, and that the objection that the investment had been made beyond six months was wholly untenable. The State Bank of Patiala, Patiala, also addressed a communication to the manager, Reserve Bank of India, on May 30, 1981, reiterating that Shri K.R. Passey had tendered his application for inventing Rs. 40,000 in the Bonds, through them and the amount was remitted to the State Bank of India, Chandigarh, along with the application form, in duplicate, duly filled in and signed on January 23, 1981. The State Bank of India, Chandigarh, vide their letter dated February 3, 1981, intimated the State Bank of Patiala, that the subscriber has not mentioned the amount of sale proceeds received in column No. 4 and advised them to resubmit the same (application) duly completed immediately for onward transmission to the Reserve Bank of India: The needful was immediately done and the information was sent to the State Bank of India, vide letter dated February 7, 1981. The State Bank of India sent a provisional receipt in respect of the application tendered for the Bonds and the receipt was sent to the beneficiary. Under these circumstances, it could not be said that there was any delay and the amount was not invested by the applicant within the stipulated period of six months and that the subscriber was not entitled to exemption from the capital gains tax. It was requested that Shri Kesho Ram Passey be issued the Bonds for the amount invested. A copy of this letter was addressed to the State Bank of India, Chandigarh. On September 4, 1981, the State Bank of India, Chandigarh, addressed a letter to the Manager, Reserve Bank of India, in which it was stated that an application for the Bonds favouring Shri Kesho Ram Passey was received in their office from the State Bank of Patiala, Patiala, on January 28, 1981, and as the amount of net sale proceeds realised was not mentioned therein under col. No. 4, the same was returned. There was hardly any delay in returning this application. The application duly completed was submitted to them, vide letter dated February 7, 1981. The bank draft, which accompanied the application, for Rs. 40,000 was realised on February 19, 1981, and the amount was remitted to the State Bank of India, Calcutta, on February 20, 1981. The Reserve Bank of India, vide their letter dated October 17, 1981, reiterated their earlier stand that in order to earn exemption from the capital gains tax under Section 54E of the I.T. Act (hereinafter called 'the Act'), the petitioner should have invested the sale proceeds of the property in the Bonds within six months, i.e., by February 1, 1981. Since in this case, the complete application was received on February 12, 1981, Shri Kesho Ram Passey's investment became ineligible for exemption under Section 54E of the Act. Despite repeated representations by the petitioner, the Reserve Bank of India did not change their stand. Aggrieved, the petitioner has tiled this writ petition.

4. Separate returns have been filed on behalf of the State Bank of India and the Reserve Bank of India. In their return, the State Bank of India have admitted all the pleas raised by the petitioner. They have admitted that they had received the application along with a bank draft of Rs. 40,000. It has been averred that a bank draft is a negotiable instrument and the delivery thereof to the State Bank of India amounts, in law, to payment to the State Bank or deposit with it. It is a statutory agent of the Reserve Bank of India. Payment to an agent is payment to the principal. The payment of Rs. 40,000 was received in law by the State Bank on January 28, 1981. It was denied that the petitioner is not entitled to the exemption from capital gains tax or that the investment in the scheme had been made by the petitioner after the lapse of six months. The Reserve Bank of India, in their return have contended that the application along with the draft of Rs. 40,000 had been received by the State Bank of India at Chandigarh, a designated office authorised to receive applications and investment in Bonds, on January 28, 1981, and it returned the application to the State Bank of Patiala on February 3, 1981, as the petitioner had not mentioned in col. No. 4 the amount of sale proceeds, and, therefore, the application was incomplete. The completed application had been received by the State Bank of India, Chandigarh, on February 12, 1981, and the draft was actually deposited on February 1.2, 1981. By the time the State Bank of India received the completed application, it was barred as the time of six months had elapsed and, as such, the petitioner was not entitled to invest in the Bonds and to the exemption from capital gains tax. It was asserted that the tendering of an incomplete application together with the draft is not sufficient compliance with the provisions of Section 54E of the Act. It was also contended that even the CBDT have no power to condone the delay in making the investment in the said Bonds.

5. From the perusal of the pleadings, the following undisputed facts emerge ; That the petitioner had sold a plot of land on August 1, 1980, for a sum of Rs. 39,120. He had sent an application along with a bank draft in the sum of Rs. 40,000 through the State Bank of Patiala, Patiala, and the same was received by the State Bank of India, Chandigarh, on January 28, 1981. The State Bank of India is an agent of the Reserve Bank of India and was entitled to receive deposits and applications for the issuance of Bonds. Column No. 4, the heading of which is, 'Sale proceeds realised or additional compensation or additional consideration received', in the application was blank. However, in col. No. 5 of the application which is titled 'Net consideration, i.e., the sale proceeds realised as reduced by any expenditure incurred wholly and exclusively in connection with the transfer', a figure Rs. 39,120 was entered. The application was sent back to the petitioner for completion. He completed the same and returned it to the State Bank of India, where it was received on February 12, 1981.

6. Mr. M.R. Agnihotri, senior advocate, learned counsel for the petitioner, has argued that the provisions of Section 54E of the I.T. Act and the notification issued in pursuance thereof postulate that in order to earn an exemption from the capital gains tax the assessee should invest the net sale proceeds of the immovable property sold by him, within six months of the transfer, in the Bonds. Since, in the present case, the bank draft for Rs. 40,000 which is a negotiable instrument, along with an application had been handed over to the State Bank of India, Chandigarh Branch, on January 28, 1981, the money stood invested in the Bonds because the State Bank of India was an authorised agent of the Reserve Bank of India and could receive the payments and applications.

7. On the other hand, Mr. H.S. Brar has argued that the application made by the petitioner when submitted to the State Bank was incomplete. It lacked in material information in so far as its col. No. 4 had not been filled in. This was not a competent application and no action could be taken on it. When a complete application was filed, the limitation of six months had already expired.

8. In order to appreciate the contentions raised by the learned counsel for the parties, it will be appropriate to read the relevant parts of the statutory provisions.

9. Section 54E of the Income-tax Act:

'Capital gain on transfer of capital assets not, to be charged in certain cases.--(1) Where the capital gain arises from the transfer of a capital asset, not being a short-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, within a period of six months after the date of such transfer, invested or deposited the whole or any part of the net consideration in any specified asset (such specified asset being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,--

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under Section 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged under Section 45.

Explanation 1.--For the purposes of this sub-section 'specified asset' means--...... (b) in a case where the original asset is transferred after the 28th day of February, 1979, such National Rural Development Bonds as the Central Government may notify in this behalf in the Official Gazette.... '

10. Notification No. 388(E), dated June 22, 1979

'In pursuance of Clause (b) of Explanation I to Sub-section (1) of Section 54E of the Income-tax Act, 1961 (43 of 1961), the Government of India hereby notifies the issue of 7-year National Rural Development Bonds from the 9th July, 1979, until further notice.

2. Limit on investment.--Investment in the bonds will be made by persons to the extent of net consideration of a long term capital asset transferred, or any additional compensation or additional consideration received, after the 28th day of February, 1979. 'Net consideration' means the sale proceeds of the long-term capital asset as reduced by an expenditure incurred wholly and exclusively in connection with such transfer...... 11. Applications for Bonds.--(1) Application for the bonds must be in multiples of Rs. 10.

(2) Applications will be received at-

(a) offices of the Reserve Bank of India at Ahmedabad, Bangalore, Bombay (Fort and Byculla), Calcutta, Hyderabad, Jaipur, Kanpur, Madras, Nagpur, New Delhi and Patna ; and

(b) the following branches of the State Bank of India, Agartala Branch, Aizwal Branch, Bhopal Main Branch, Bhubaneshwar Branch, Chandigarh Branch, Gangtok Branch, Gauhati Branch, Imphal Branch, Itanagar Branch, Kohima Branch, Panaji Branch, Pondicherry Branch, Port Blair Branch, Shillong Branch, Simla Branch, Srinagar Branch and Trviandrum Branch.

(3) Applications shall be submitted in duplicate in the form attached hereto or in such other form which may be so varied as the circumstances of each case may require......

(4) Applications should be accompanied by the necessary payment in the form of cash or cheque. Cheques tendered at the office of the Reserve Bank of India or the State Bank of India should be drawn in favour of the bank concerned.'

11. It is manifest from the language of Section 54E of the Act that the most important thing is that the capital gains arising from the transfer of a capital asset should be invested or deposited in the new assets within a period of six months. The investment or deposit is the crucial thing. The filling up of the application which has been prescribed by the notification is only a procedural matter. On the facts enumerated above, and so clearly admitted in the return of the State Bank of India, the bank draft of Rs. 40,000 was handed over to the State Bank on January, 28, 1981. It clearly shows that this amount, which is in the nature of a negotiable instrument, was deposited with the State Bank of India who is an agent of the Reserve Bank of India within six months of the sale. So, the sale consideration had been deposited for acquiring a new asset, i.e., the Bonds, There has thus been a compliance with the provisions of Section 54E of the Act. The form of application prescribed by the notification is not sacrosanct. It is mentioned in sub-para. (3) of para. 11 of the notification that the form of application may be varied to suit the circumstances of each case.

12. Thus, the form of the application is not the fundamental thing. A form has been prescribed for the facility of the parties. Simply because a column could not be filled in the form, will not warrant a conclusion that it was no application. The vital information was furnished by entry in column 5. The notification does not provide that any incomplete application will be rejected or will be treated to be no application. If the concerned authorities had some doubt, or wanted further information, they could have sent for the petitioner or asked for the requisite information.

13. After all, it was for the I.T. Dept. to grant the exemption. This function was not to be performed by the Reserve Bank of India. They had only to issue the Bonds on behalf of the Central Govt., in accordance with the provisions of the I.T. Act and the notification. It seems that the authorities of the Reserve Bank of India are also not clear regarding their stand. In reply to para. 5 of the writ petition, it has been averred as under :

'I further submit that in case the Reserve Bank had accepted the application and issued the said Bonds and if the Income-tax Department had later on rejected the claim of the petitioner for the benefit under Section 54E of the Income-tax Act, then, in that case, the petitioner would have contended that his application was acted upon for issuing the said Bonds by the Reserve Bank of India as the agent of the Central Government and, therefore, the Central Govt. would be estopped from contending that the petitioner was not entitled to the benefits under Section 54E of the Act.'

14. Even the authorities of the Reserve Bank of India are of the view, and rightly so, that ultimately it is the I.T. Dept. who has to accept or reject the claim of a person for exemption from capital gains tax.

15. The authorities of the Reserve Bank of India have taken a highly technical view which cannot be supported on the language of Section 54E of the Act and the notification dated June 22, 1979 (see supra p. 22), issued thereunder. This view is not in consonance with the settled principles regarding the interpretation of statutory provisions relating to procedure. I can do no better than to quote a passage from the judgment of their Lordships of the Supreme Court in Kalipada Das alias Mahanto v. Bimal Krishna Sen Gupta [1983] 1 SCC 14; AIR 1983 SC 876. The facts of that case are that the appellant-tenants, during pendency of their appeal before the High Court, twice failed to comply with the order of the High Court to supply copies of paper-books to it within a fixed period. The High Court thereupon dismissed the appeal on ground of non-compliance with its order. The Supreme Court allowed the appeal and observed : 'A procedural step is in aid of justice and is not substantive justice itself. Therefore, penalty on failure to comply with the court's order providing a procedural stage must be commensurate with or proportionate to the gravity of the lapse or omission. A procedural step which facilitates hearing of the appeal cannot impede access to justice. Supplying paper-books is a procedural requirement and the omission or lapse arising out of non-compliance with the court's order regarding supply of paper-books was not of such a serious gravity as to dismiss the appeal. If the High Court felt that the appellants were trying to delay the hearing of the appeal and that on account of this dilatory tactics the respondent-landlords who had obtained a decree would suffer, it was open to that court to direct the respondents to get the paper-books prepared and impose the cost of the same on the appellants. It was also open to the High Court to create a sanction behind its order by providing that if the paper-books were not supplied in time the interim stay of dispossession would be vacated. Instead of these permissible modes of achieving the end, thwarting the access to justice by imposing a disproportionate penalty of dismissal of the appeal by the High Court was not justified and, therefore, must be interferred with. '

16. For the foregoing reasons, I allow this writ petition and quash the order dated May 22, 1981 (annex. P-6), and direct that respondent No. 1 shall issue the Bonds to the petitioner in the amount he is entitled to own them on his application which was received by the State Bank of India on January 28, 1981, treating that application to be a valid and competent application. No costs.


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