2015 (10) TMI 2184 - HC - Income Tax

Non deduction of TDS under Section 194LA - land so surrendered by the land owner in favour of BBMP - whether there is compulsory acquisition of land? - ITAT deleted addition - Held that - The provisions of Section 194LA would be applicable only in case of compulsory acquisition, whereas, the lands acquired by BBMP was not by way of compulsory acquisition, but had been surrendered by the land owner under Section 14B of KTCP Act. In the present case, neither there is compulsory acquisition of the land, nor there is any process adopted for quantification or determination of value of land acquired by BBMP which is voluntarily surrendered by the land owner, for which CDRs were given to the land owner. As such, we are in agreement with the finding recorded by the Tribunal that provisions of Section 194LA of I.T. Act would not be attracted in the present case. Even otherwise, the Tribunal has rightly observed that the provisions of deducting tax at source and paying it over to the Government on behalf of the recipient of payment, is in the nature of vicarious liability. When there is neither quantification of the sum payable in terms of money nor any actual payment is made in monetary terms, it would not be fair to burden a person with the obligation of deducting tax at source and exposing him to the consequence of such default. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 194LA of the Income Tax Act regarding tax deduction at source (TDS) in the case of land acquisition by a municipal corporation under Section 14B of the Karnataka Town and Country Planning Act, 1961.
2. Applicability of Section 194LA in the absence of cash transaction or payment to the landowner by the municipal corporation.
3. Determination of whether the municipal corporation is liable to deduct and deposit TDS under Section 194LA when issuing Certificate of Development Rights (CDRs) in exchange for voluntarily surrendered land.

Analysis:
1. The judgment revolves around the application of Section 194LA of the Income Tax Act concerning tax deduction at source (TDS) in a scenario where a municipal corporation acquires land under Section 14B of the Karnataka Town and Country Planning Act, 1961. The court emphasizes the distinction between compulsory acquisition and voluntary surrender of land, highlighting that Section 194LA applies to compensation paid in cash or any other mode in case of compulsory acquisition. In this case, the land was voluntarily surrendered, and no cash transaction occurred between the municipal corporation and the landowner.

2. The court delves into the interpretation of Section 194LA, noting that the provision mandates TDS when a sum of money is paid as consideration for compulsory acquisition of immovable property. Since no monetary transaction took place between the municipal corporation and the landowner in this instance, the court concurs with the Tribunal's finding that Section 194LA does not apply. The absence of quantification or actual payment in monetary terms precludes the imposition of TDS obligations on the municipal corporation.

3. Furthermore, the judgment elucidates the concept of vicarious liability in tax deduction at source, emphasizing that such obligations arise when a payment is made in cash, cheque, or similar modes. The court provides a detailed example to illustrate that in the absence of a monetary transaction, the requirement to deduct and deposit TDS does not arise. The court highlights that TDS is linked to payments made in terms of money and cannot be enforced when no monetary consideration is involved, as in the case of issuing Certificate of Development Rights (CDRs) for voluntarily surrendered land.

In conclusion, the court upholds the Tribunal's decision, ruling that the municipal corporation is not liable to deduct and deposit TDS under Section 194LA due to the absence of cash transactions or payments in the land acquisition process. The judgment clarifies the legal interpretation of tax deduction at source in the context of voluntary surrender of land for development purposes, affirming that TDS obligations are contingent on monetary transactions and do not extend to non-monetary exchanges such as the issuance of development rights.