2003 (11) TMI 17 - HC - Income Tax

Land acquisition by mistake Land Acquisition Authority disbursed entire compensation to petitioner - In view of section 194L 10 per cent, of the amount of compensation awarded should have been withheld towards income-tax and the balance amount alone should have been disbursed to the party - Section 194L was in the Income-tax Act for a period from June 1, 1999, till June 1, 2000. In view of the proviso added to section 194L, no deduction need be made from the amount with effect from June 1, 2000 - When the notice was issued for return of the amount in view of the proviso which has come into effect from June 1, 2000, the amount need not be recovered also. In view of the above provision, I do not think that it would be competent for the Land Acquisition Officer to demand return of the amount already disbursed. But it would be the option of the Income-tax Department to recover the amount towards income-tax or not.

Summary

Issues:
1. Whether the Land Acquisition Officer had the authority to demand the return of 10% of the compensation amount for income tax.
2. Interpretation of Section 194L of the Income-tax Act regarding the withholding of income tax on compensation amounts.
3. Validity of the notice issued by the Land Acquisition Officer for the return of the amount.

Analysis:
1. The petitioner's property was acquired, and an award was passed fixing the compensation at Rs. 3,85,468, with 10% of the amount to be withheld for income tax as per Section 194L of the Income-tax Act. However, the entire compensation amount was inadvertently disbursed to the petitioner. Subsequently, the Land Acquisition Officer issued a notice demanding the return of 10% of the amount and surcharge, which was challenged by the petitioner.

2. Section 194L of the Income-tax Act mandates that 10% of compensation amounts should be withheld towards income tax, and only the remaining balance disbursed to the party. The provision was in force from June 1, 1999, to June 1, 2000. The Land Acquisition Officer's failure to withhold the required amount was due to an oversight of this legal requirement, leading to the issuance of the notice for the return of the amount.

3. The judgment emphasized that the Land Acquisition Officer did not have the authority to demand the return of the disbursed amount, as per the provisions of Section 194L. The court noted that the Income-tax Department had the discretion to recover the income tax amount or not. Consequently, the notice issued by the Land Acquisition Officer was set aside, allowing the Income-tax Department to decide whether to proceed against the petitioner for the recovery of the income tax amount in accordance with the law.

4. In conclusion, the court quashed the notice issued by the Land Acquisition Officer, directing the authorities to inform the Income-tax Department of the failure to recover the amount, and granting the Income-tax Department the liberty to take appropriate legal action if they choose to recover the income tax amount from the petitioner.