2006 (8) TMI 165 - HC - Income Tax

TDS on enhanced compensation - agricultural land - liability to pay income-tax from the amount of compensation awarded by the Land Acquisition Officer - HELD THAT - Rule 31 of the Income-tax Rules enjoins that the claimants in land acquisition proceedings are entitled to get a tax deduction certificate in Form No. 16A within one month from the end of month during which the credit has been given or the sums have been paid or, as the case may be, a cheque or warrant for payment. The Land Acquisition Officer shall issue tax deduction certificate within one month from the end of the month in which the amount was deposited. It is advisable that the Land Acquisition Officers consult the Income-tax Officers in such matters and ascertain the rate of income-tax to be deducted from the compensation and interest. In the case at hand, the petitioner claims exemption from the liability to pay income-tax on the ground that as per the revenue records, the land acquired was agricultural land. The land acquisition court has no jurisdiction to decide that issue and that is a matter to be decided by the Income-tax Officer. So the order passed by the court below is correct. The remedy available to the petitioner is to get the TDC from the Land Acquisition Officer and claim refund from the Income-tax Officer. In the result the civil revision petition is dismissed. There will be a direction to the Land Acquisition Officer to issue TDC to the petitioner in accordance with law as expeditiously as possible.

Summary

Issues Involved:
1. Deduction of income-tax at source from compensation awarded for land acquisition.
2. Classification of land as agricultural land for tax exemption.
3. Procedural requirements for issuing tax deduction certificates (TDC).
4. Compliance with statutory obligations under the Income-tax Act.

Detailed Analysis:

1. Deduction of Income-Tax at Source from Compensation Awarded for Land Acquisition:
The decree holder in E.P. No. 493 of 1999 sought realization of the enhanced compensation awarded for property acquired for public purposes. The Land Acquisition Officer deducted Rs. 22,398/- towards income-tax from the compensation amount. The petitioner objected, arguing that the acquired property was agricultural land, hence exempt from income-tax. The executing court overruled this objection, emphasizing the statutory duty of the Land Acquisition Officer to deduct income-tax at source, referencing the decision in State of Kerala v. Mariyamma [2006] 280 ITR 225 (Ker).

2. Classification of Land as Agricultural Land for Tax Exemption:
The petitioner contended that the land was agricultural, thus exempt from income-tax under the Income-tax Act. The court clarified that the determination of whether land is agricultural must align with the definition provided in section 2(14)(iii)(a) and (b) of the Income-tax Act. The court emphasized that the competent authority to decide on the taxability of compensation is the Income-tax Officer, not the land acquisition court.

3. Procedural Requirements for Issuing Tax Deduction Certificates (TDC):
The petitioner argued that there was no practice of notifying parties about income-tax deductions or issuing TDCs. The court acknowledged this procedural lapse and directed that claimants should be informed about their tax liabilities in advance, ideally during the award enquiry stage. It was mandated that the Land Acquisition Officer should issue TDCs within one month from the end of the month in which the amount was deposited, as stipulated under section 203(1) and rule 31 of the Income-tax Rules.

4. Compliance with Statutory Obligations under the Income-tax Act:
The court highlighted several statutory duties under the Income-tax Act, including:
- Section 194A: Deduction of income-tax on interest exceeding Rs. 5,000/-.
- Section 194LA: Deduction of income-tax on compensation exceeding Rs. 100,000/- for non-agricultural land.
- Section 203A: Obtaining a Tax Deductor's Accounting Number (TAN).
- Section 272A(1): Penalty for failure to issue TDCs.

The court also noted the procedural requirements for depositing deducted tax, issuing TDCs, and the penalties for non-compliance, including imprisonment for failure to pay deducted tax.

Conclusion:
The civil revision petition was dismissed, affirming the executing court's decision. The petitioner was advised to obtain the TDC from the Land Acquisition Officer and seek a refund from the Income-tax Officer. The court directed the Land Acquisition Officer to issue the TDC expeditiously and instructed the Registry to forward the order to the Chief Secretary for dissemination to relevant authorities for compliance.