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No—not under the Uttar Pradesh law considered by the Supreme Court in State of U.P. and Others v. Sri Narain. The Court held that the Zamindari Abolition Compensation Bonds at issue were not required or authorized to be accepted for payment of agricultural-income-tax dues. That conclusion concerns the statute and dispute before the Court; it is not a general ruling on every government bond or current tax-payment rules.
What the Supreme Court decided
In State of U.P. and Others v. Sri Narain, Civil Appeal No. 424 of 1963, decided on 22 February 1965, the Supreme Court of India held that section 6(d) of the U.P. Zamindari Abolition and Land Reforms Act and Rule 8-A did not provide for accepting the compensation bonds themselves as payment of agricultural income tax. The Court allowed the State’s appeal, set aside the Allahabad High Court’s order, and restored the Collector’s refusal to accept the bonds.
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The decision turned on the specific statutory scheme and facts before the Court. It should not be read as an answer to what payment methods tax authorities accept under current law.
What happened in Sri Narain’s case
Sri Narain, a former zamindar, owed Rs. 868 in agricultural-income tax and penalty. The assessment was for 1360 Fasli, corresponding to 1952–53, and was based on agricultural income for 1359 Fasli, corresponding to 1951–52. He tendered compensation bonds valued at Rs. 850 and offered the remaining Rs. 18 in cash. The assessing officer declined the bonds, and the Collector also refused them.
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The Allahabad High Court directed the Collector to decide Sri Narain’s application in accordance with law. The State appealed to the Supreme Court by special leave.
Why the bonds did not have to be accepted
Compensation had already been paid in bonds
The Court considered section 6(d), section 68, Rule 8-A and the compensation rules. It reasoned that delivery of bonds to the intermediary counted as payment of the compensation due. Once compensation had been paid in cash or bonds, that compensation was no longer payable. The provisions cited did not say that the bonds could then be used to discharge agricultural-income-tax dues.
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Negotiability is not legal tender
A negotiable bond may be transferred to a buyer willing to purchase it. But being transferable does not make it legal tender or oblige a creditor to accept it for a debt. As Raghubar Dayal, J., delivering the judgment, put it: “The fact that the Bonds are negotiable does not make them legal tender and does not make it obligatory on anyone including Government to accept them in payment of any dues.”
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What the ruling does—and does not—establish
- It establishes: under the provisions considered in this dispute, the authorities were not required or authorized to accept the Zamindari Abolition Compensation Bonds as payment of Sri Narain’s agricultural-income-tax dues.
- It does not establish: that every government-issued bond is unacceptable for every public liability, or what payment methods are permitted for taxes today. Those questions depend on the applicable law and rules.
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