2008 (10) TMI 638 - HC - Income Tax

TDS u/s 194LA - compensation paid to the land owners which was arrived at based on negotiated settlements - Compulsory acquisition or not - acquisition of land initiated u/s 11 of the Land Acquisition Act, 1894 - land owners have executed sale deeds on the basis of negotiations in favour of the petitioner. HELD THAT - The sale deeds would constitute sale under the Transfer of Property Act and cannot be treated as a compulsory acquisition under the law for acquisition of immovable property. As already noticed, there was no divesting of the title of the land owners under Section 16 of the Land Acquisition Act, namely, passing of an award, and possession being taken thereunder or by possession being taken earlier under the urgency clause, namely Section 17. The mere issuance of notification under Section 4(1) does not have the effect of divesting of title of the land owner. Only if there were such divesting of the title of the land owner, and amounts were paid either as compensation or as enhanced compensation, could it be said that there is compulsory acquisition under the law for the time being in force. It may be true that when the notification under Section 4 was issued, the choice of action of the land owners became limited. Faced with the notification under Section 4 of the Land Acquisition Act, there are three courses of action, which can be contemplated. Land owner may prefer writ petition challenging the notification itself. Instead if he is so advised, he may decide to transfer his right to the Government. If neither of the two happens and the Government does not decide to withdraw from the notification, the proceedings may be continued under the Land Acquisition Act where it reaches the stage where an award is passed determining the compensation and unless possession is taken under the urgency clause earlier possession is taken and Government becomes the owner of the property. The title passed to the petitioner only on the strength of the sale deeds executed by the land owners concerned. A perusal of the sale deeds also would appear to clearly support the contention of the petitioner that there was a voluntary transaction entered into by a willing owner to transfer after a number of negotiations, which consumed considerable time. Even if the choice were limited, the question posed before me being whether there was a compulsory acquisition under the law in force, the answer can only be that there was no compulsory acquisition even though it may be true that, but, for the execution of the sale deeds, it may have led to compulsory acquisition under the Land Acquisition Act. Once a notification under Section 4 is effaced by way of withdrawal, the only way it can restart the acquisition proceedings, if so advised, is to issue a fresh notification. This means, in the facts of this case, that even though Government started out by issuing a notification under Section 4 of the Land Acquisition Act, it became unnecessary to proceed with the acquisition as the land owners had executed sale deeds in favour of the petitioner - There is no provision in the Land Acquisition Act which empowers or enables the execution of the sale deed as done in this case. There is no merit in the contention of the respondents that the sale deeds were executed in exercise of the incidental power. It may be true that the Land Acquisition Act does not prohibit a sale in favour of the Government or authority. In fact even after the notification is issued and till there is vesting of the title with the Government under Section 16 or under Section 17, there is no prohibition against a sale by a land owner. But the absence of a prohibition does not mean that the sale deed is executed in the exercise of incidental powers. There is no warrant or need to trace the right of the landowner to any such incidental power in the matter of an inter vivos transaction as a sale even after a notification under the Act or a declaration is not prohibited. Thus, invoking Section 194LA of the Income Tax Act in respect of cases where sale deeds were executed in favour of the petitioner was totally without jurisdiction. Ext.P4 palpably has no legs to stand on - petition allowed.

Issues Involved:
1. Scope of Section 194LA of the Income Tax Act, 1961.
2. Nature of transactions under the Land Acquisition Act, 1894.
3. Validity of Ext.P4 issued to the petitioner.

Detailed Analysis:

Scope of Section 194LA of the Income Tax Act, 1961:
The primary issue in this case is the interpretation of Section 194LA of the Income Tax Act, 1961, which mandates the deduction of tax at source on payments made as compensation for the compulsory acquisition of certain immovable property. The section specifies that any person responsible for paying such compensation must deduct 10% of the sum as income tax at the time of payment.

Nature of Transactions under the Land Acquisition Act, 1894:
The petitioner, a society established under the Travancore Cochin Societies Registration Act, 1955, argued that the transactions in question fall into two categories:
1. Sale deeds executed by landowners after negotiation.
2. Compulsory acquisition under the Land Acquisition Act.

The petitioner contended that the first category involves voluntary sales governed by the Transfer of Property Act and not compulsory acquisitions by the government. The petitioner highlighted the procedural differences between negotiated sales and compulsory acquisitions, emphasizing that the latter involves a series of statutory steps culminating in an award and possession by the government.

Validity of Ext.P4 Issued to the Petitioner:
Ext.P4 was issued to the petitioner advising compliance with Section 194LA for tax deduction at source on payments made for land acquisition. The petitioner sought to quash Ext.P4, arguing that the transactions were voluntary sales and not compulsory acquisitions, thus falling outside the scope of Section 194LA.

The respondent's counter-argument was that the sale deeds were executed under the compulsion of government notifications for land acquisition, making them compulsory acquisitions in essence. They argued that the element of compulsion was always present due to the ongoing land acquisition proceedings, and hence, Section 194LA applied.

Court's Analysis and Judgment:
The court analyzed the terms of Section 194LA and the nature of the transactions. It noted that the section applies to sums paid as compensation or enhanced compensation on account of compulsory acquisition under any law. The court found that the transactions in question, where sale deeds were executed after negotiation, did not constitute compulsory acquisitions under the law.

The court emphasized that the issuance of a notification under Section 4 of the Land Acquisition Act does not divest the landowner of title unless possession is taken under Sections 16 or 17, leading to vesting of title in the government. The court observed that the sale deeds were voluntary transactions entered into by willing landowners after negotiations, and not compulsory acquisitions under the Land Acquisition Act.

The court also referred to various precedents, including the Calcutta High Court's decision in Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-Tax, which distinguished between voluntary sales and compulsory acquisitions. The court concluded that the sale deeds executed in favor of the petitioner were not compulsory acquisitions and thus did not attract the provisions of Section 194LA.

Conclusion:
The court held that invoking Section 194LA of the Income Tax Act in respect of cases where sale deeds were executed in favor of the petitioner was without jurisdiction. Consequently, Ext.P4 was quashed, and the writ petition was allowed. The court emphasized that the transactions were voluntary sales and not compulsory acquisitions, thereby falling outside the scope of Section 194LA.

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