2018 (3) TMI 1934 - HC - Income Tax

TDS u/s 194LA - amount deducted by the Special Land Acquisition Officer from the compensation amount shown in the award prepared by the Special Land Acquisition Officer - petition is filed under Articles 226 and 227 of the Constitution of India for giving direction to the respondents to release 10 per cent amount deducted from the compensation amount awarded to the petitioners under the provisions of the Land Acquisition Act by the Special Land Acquisition Office and this amount is deducted as income tax deducted at source - HELD THAT - Admittedly agricultural land was acquired and the relevant record in that regard is produced. The learned counsel for the Income Tax Department submitted that such amount is not received by it and in view of that circumstance the other possible defences available to the Income Tax Department need not be considered in the present matter - Income Tax Department has placed reliance on the observations made by the Apex Court in the Dr. Sham Lal Narula 1964 (4) TMI 10 - SUPREME COURT and he submitted that at least on the interest amount income tax is deductable. As the income tax was not credited in the account of the Income Tax Department as per the submissions made and as there is new provision showing that on the awarded amount no tax is payable this Court holds that direction needs to be given to respondent Nos.1 and 2 to refund the amount as they have allowed deduction of 10% amount from the total compensation amount which was payable to the petitioners. Under the Land Acquisition Act the petitioners are entitled to get 15% interest on the compensation amount and in view of the aforesaid circumstances this Court holds that the respondents need to be made liable to pay interest at the rate of 15% per annum on the amount which is wrongly deducted by them from the compensation amount which was payable to the petitioners. Writ petition is allowed. The amount deducted by the Special Land Acquisition Officer from the compensation amount shown in the award prepared by the Special Land Acquisition Officer as income tax is directed to be returned by the respondent Nos.1 and 2 to the petitioners with interest at the rate of 15 per cent per annum and the interest will be chargeable from the date of deduction i.e. 20-7-2010 till the date of realisation. The amount is to be returned within three months from the date of this order. Liberty to the State to go against Income Tax Department if the state has paid the amount to Income Tax Department for recovery of the amount which the State is required to pay under this order.

Summary

Issues:
1) Whether the deduction of 10% amount as income tax from the compensation amount awarded under the Land Acquisition Act is valid.
2) Whether the petitioners are entitled to a refund of the amount deducted as income tax.
3) Whether the petitioners are entitled to interest on the wrongfully deducted amount.

Analysis:
1) The petitioners filed a petition under Articles 226 and 227 of the Constitution of India, seeking direction to release the 10% amount deducted as income tax from the compensation awarded for the acquisition of their agricultural land for an irrigation project. The Special Land Acquisition Officer deducted Rs. 48,183 as income tax at source, which the petitioners contested as they believed they were not liable to pay tax on agricultural land. The petitioners argued that the deduction was not valid based on previous court judgments and provisions of the Income Tax Act. The Special Land Acquisition Officer contended that the tax was deposited in the Treasury, but the Income Tax Department claimed they did not receive the amount.

2) The petitioners provided evidence to support their claim, including documents submitted to the Income Tax Department, certificates showing the tax deduction, and references to court decisions stating that income tax deduction on agricultural land compensation is not permissible. The petitioners also highlighted the hardship faced by farmers in dealing with such tax deductions and the need for refunds. The Income Tax Department did not file a reply affidavit to counter the petitioners' contentions, further strengthening the petitioners' case.

3) The Court referred to previous judgments, including one by the Kerala High Court, which held that income tax deduction on compensation for agricultural land is not valid. The Court also considered the provisions of the Land Acquisition Act and the Income Tax Act, emphasizing that no tax is payable on compensation for agricultural land. Given the circumstances and the failure of the Income Tax Department to receive the deducted amount, the Court ruled in favor of the petitioners. The Court directed the respondents to refund the deducted amount with 15% interest per annum, starting from the date of deduction. The respondents were given three months to comply with the order, with the State having the liberty to recover the amount from the Income Tax Department if necessary.