Holding

Section 52(1) grants the Central Government a discretionary, permissive power to accept or reject property offered under the provision; it is not bound to accept.

Summary

The respondent, son of a deceased estate, was assessed estate duty of Rs 3,37,543.40. While his appeal against the assessment was pending, he applied under section 52(1) of the Estate Duty Act, 1953, offering a property valued at Rs 2,53,655 as part payment. The Central Board of Direct Taxes rejected the offer and proposed instalment payments, prompting the respondent to file a writ petition seeking a mandamus directing the Government to consider the application, negotiate a price and accept the property. The High Court held that the Government could not refuse the offer if a price was agreed, but did not decide whether the Government was bound to accept the property, and ordered a fresh disposal. The Supreme Court examined the language of section 52(1) and held that the provision confers a discretionary, permissive power on the Central Government to accept or reject the property; it is not a mandatory obligation. The Court affirmed that the discretion must be exercised bona‑fide and not arbitrarily, and upheld the High Court’s direction to dispose of the application afresh.

Issues considered

Whether section 52(1) of the Estate Duty Act, 1953 obliges the Central Government to accept property offered in satisfaction of estate duty.
Whether the discretion conferred by section 52(1) must be exercised in a bona‑fide, non‑arbitrary manner.

Legislation cited

Central Boards of Revenue Act, 1963s. 2(c)
Direct Taxes (Amendment) Act, 1964s. 52
Estate Duty Act, 1953s. 5, s. 51, s. 52

Subjects

Estate dutySection 52Discretionary powerAdministrative lawProperty settlementMandamusCentral Government

Judgment

576
A ASSISTANT CONTROLLER OF ESTATE DUTY & ORS.
v.
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 satisfac-
tion 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 applica-
tion 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
D 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
E balance of estate duty which was still payable by him under the order of assess-
ment. 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
F 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
G 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
H 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 A
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 B
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
c
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 D
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
E
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 F
have to be interpreted as compulsory where they amount to words clearly intend-
ed 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 G
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 Govern-
ment may at its discretion either accept th' property offered under section 52 or H
may not if the circumstances so wa_rrant. The accountable person cannot claim
578 SUPREME COURT REPORTS (1981] 3 S.C.R.

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.
c 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] ·
D
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.

F 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
G or any part of the duty payable under the Act at such price as may y
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.
H
On the death of Lala Beni Madho Agarwal which took place
on September 29,1964 his son Prayag Dass Agarwal, the respondent
ASSTT. CONTROLLER,' ESTATE v. PRAYAG DASS (Venkataramiah, J.) 579

herein· filed a statement of account under the Act of the estate A
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) of·the Act on February 15, 1971 to the Central Board B
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 c
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." , / D

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 E
@ 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 F
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 G
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 Govern- •
ment and the accountable person towards ·the duty payable. He H
further contended that the Central Government had no right to reflise
to accept the offer so made by the accountable person and that he
••
580 SUPREME COURT REPORTS [1981] 3 s.c.R.
A
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.

B 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 Govern-
ment to reject the offer.

The High Court held that if the accountable person exercised
c 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
D 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 accor-
dance with law. This appeal is filed against the said decision of the
High Court under Article 136 of the Constitution.
E
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
F 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
G 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
H (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
ASSTT. CONTROLLER, ESTATE v. PRAYAG DASS (Venkataramiah, J.) 581

section 85 of the Act deals with payment of estate duty. That Rule A
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
y- 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 B
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 c
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 amended- the 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 D
thus:

"56(1) The Commissioners may, if they think fit, on the
application of any person liable to pay estate duty or settle-
ment 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 F
(14th Editii>n) at pages 720-721 th us :

"D-Transfer of Property in Payment of Duty : -
(1) Real and leasehold property:-
G
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 H
may, if they think fit, on the application of any person
liable to pay any Death Duties, accept in satisfaction of the
S82 SUPREME COURT REPORTS [1981] 3 S.C.R.

A 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 Commis-
sioners 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
B 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
c 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
D will accept property under this provision, but the Chan-
cellor 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
E 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"
F to which the land may be L.:isferred. Particulars of pro-
perties 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 acquisi-
G tion 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
H 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
ASSTT. CONTROLLER, ESTATE v. PRAYAG DASS (Venkataramiah, J.) 583

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. B
(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- c
·--·__,,,.,,-.
(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). D
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-
E
(!) 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 F
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, inti-
mate the registering authority concerned accordingly ;
H
and the authority shall administer the property in such
manner as the Central Government may direct.
584 SUPREME COURT REPORTS (1981] 3 s.c.R.

A (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 -

B (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 ;

c (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 ;
n 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 :

E "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
F 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
G . 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
H 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
ASSTT. CONTROLLER, ESTATE v. PRAYAG DASS (Venkataramiah, J.) 585

Government, the section says that the Central Government 'may' A
accept the property offered in satisfaction of the estate duty at such
price as may be agreed upon between it and the accountable person.
y Section 52 of the Act does not say that the Central Government
I

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 B
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 c
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 D
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 F
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 G
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 accoun-
table person to discharge his liability in one or more ways mentioned
therein and there the Central Government is left with no choice
586 SUPREME COURT REPORTS [1981] 3 s.c.R.

A 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 II
B 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
c nature of an enabling provision which authorises the Central Govern-
ment 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 inter-
preted as compulsory where they amount to words clearly intended
to ;effectuate a legal right. But ordinarily such words are permissive
D 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
E 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 legisla-
tion 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
F 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
G
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
H more than the duty payable ? Then in every such case, the
Government would be compelled to acquire property by paying
ASSTT. CONTROLLER, ESTATE v. PRAYAG DASS (Venkataramiah, J.) 587

to the accountable person the amount which is in excess of the duty A
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 inten-
y tion 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 B
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 c
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 D
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 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. E
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)
F
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 G
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 H
(!) [1977] 108 I.T.R. 695.
588 SUPREME COURT REPORTS [1981] 3 S.C.R.

A dues, there is the duty cast on the Revenue to consider the applica-
tion 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
B 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
c 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
D which are relevant and bona fide. The price of the property is, how-
ever, left to be determined by agreement in the event of the Govern-
ment 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
E 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,
F 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
G 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
H-
obvious that the Board proceeded on the assumption that its discre-
tio!l was unfettered even by considerations relevant to administrative
ASSTT. CONTROLLER, ESTATE v. PRAYAG DASS (Venkataramiah, J.) 589

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.
B
The appeal is accordingly disposed of. No costs.

V.D.K.