2015 (11) TMI 180 - AT - Income Tax

Non deduction of tds u/s 194LA - compensation paid to various persons for acquiring the non-agricultural land - Held that - It is clear that the question of compulsory acquisition will arise only where the compensation cannot be determined by agreement. Sub-sec.3 & 4 will come into play only when there is a failure to determine the compensation through negotiation between State Government and the land owners. When the compensation is based on an agreement between State Government and owner of the land, no more can we say that it is a compulsory acquisition. Especially so, in view of the elucidation of law by the Hon ble Chattisgarh High Court in the case of Naya Raipur Development Authority. Once the acquisition is not considered as compulsory, Sec.194LA of the IT Act will not be applicable. Thus, in our opinion, if the compensation paid by the assessee for acquisition of land were all through agreements similar to the one entered by the assessee with Smt.Sumitra Shivanand Keeliputti, pertinent parts of which have been re-produced by us above, then these would not fall within the definition of compulsory acquisition. However, we are of the opinion, that the acquisition whether the acquisitions for which assessee had not deducted tax at source were based on agreements similar to the one produced by the assessee before us or in other words whether in all such compensation amounts were fixed in accordance with Sec. 29(2) of the KIA Act require verification by the lower authorities. We therefore, set aside the orders of the authorities below and remit the issue back to the file of the AO for verifying the agreements to reach a conclusion whether acquisitions fell under compulsory acquisition or not. Learned AO shall proceed as per law declared by Hon ble Apex Court and elucidation given by Hon ble Chattisgarh High Court which we have reproduced above. Since we have remitted the question regarding nature of acquisition back to the file of the AO, the other question as to the failure of machinery provision for applying Sec.194LA is kept open at this juncture. - Decided partly in favour of assessee for statistical purposes.

Issues Involved:
1. Applicability of Sections 201 and 201(1A) of the IT Act.
2. Obligation to deduct tax on compensation paid to non-agricultural landowners.
3. Bona fide error in non-deduction of tax.
4. Ambiguities and confusion regarding tax deduction liability.
5. Reduction of liability based on amounts collected and income declared by landowners.
6. Quantification of liability under Sections 201 and 201(1A).
7. Definition of "person responsible for paying" under Section 204.
8. Nature of acquisition: whether it was compulsory or not.

Detailed Analysis:

1. Applicability of Sections 201 and 201(1A) of the IT Act:
The assessee argued that the provisions of Sections 201 and 201(1A) were not applicable, asserting that there was no statutory obligation to deduct tax on compensation paid to non-agricultural landowners. The CIT(A) and AO disagreed, holding the assessee liable for non-deduction of tax at source under Section 194LA.

2. Obligation to Deduct Tax on Compensation Paid to Non-Agricultural Landowners:
The assessee contended that it was not required to deduct tax on compensation paid for non-agricultural land acquisition, relying on a Circular from the revenue department. The AO and CIT(A) maintained that the Circular did not absolve the assessee from its duty to deduct tax under Section 194LA.

3. Bona Fide Error in Non-Deduction of Tax:
The assessee claimed that any failure to deduct tax was due to a bona fide error. However, the CIT(A) did not find this argument tenable, emphasizing that the assessee had violated Section 194LA.

4. Ambiguities and Confusion Regarding Tax Deduction Liability:
The assessee argued that ambiguities and confusion regarding the liability to deduct tax necessitated legislative interference. The CIT(A) dismissed this argument, stating that the obligation to deduct tax was clear under Section 194LA.

5. Reduction of Liability Based on Amounts Collected and Income Declared by Landowners:
The assessee suggested that the liability should be reduced to the extent of amounts collected from landowners and income declared by them. This argument was not addressed in detail by the CIT(A) or AO.

6. Quantification of Liability Under Sections 201 and 201(1A):
The assessee contended that the quantification of liability under Sections 201 and 201(1A) was not in accordance with the law. The CIT(A) upheld the AO's quantification, which treated the assessee as "one in default" for failing to deduct tax at source.

7. Definition of "Person Responsible for Paying" Under Section 204:
The assessee argued that the person responsible for paying, as defined in Section 204, did not include an Officer of the Central or State Government prior to 01-07-2012. The CIT(A) and AO did not accept this argument, holding the assessee liable under Section 194LA.

8. Nature of Acquisition: Whether It Was Compulsory or Not:
The assessee argued that the acquisitions were not compulsory, relying on agreements with landowners and provisions of the Karnataka Industrial Areas Development Act (KIADA). The Tribunal noted that for an acquisition to be compulsory, the price must be fixed by statute without room for negotiation. The Tribunal remitted the issue back to the AO to verify whether the acquisitions were based on agreements similar to the one presented by the assessee, which would determine if they fell under "compulsory acquisition."

Conclusion:
The Tribunal set aside the orders of the lower authorities and remitted the issue back to the AO for verification. The AO was directed to determine whether the acquisitions were compulsory and proceed according to the law as elucidated by the Hon'ble Apex Court and the Hon'ble Chattisgarh High Court. The appeal was partly allowed for statistical purposes.

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