2017 (4) TMI 662 - HC - Income Tax

Liability to deduct u/s 194LA despite the provisions of Section 96 of the Central Act 30 of 2013 - Held that - Section 96 mandates that no income-tax shall be levied on any award made under the Act except under Section 46. Section 46 deals with the purchase of land by a person other than a specified person through private negotiations. The benefit of Section 96 is not available when a land is purchased through private negotiations by a person other than a specified person under Section 46(1). Therefore, in cases other than those covered by Section 46 of the 2013 Land Acquisition Act, the levy of income-tax is barred by Section 96 and as a consequence, the deduction or collection under Section 194LA of the Income Tax Act, 1961, is impermissible. Section 194LA uses the expression any sum and not the expressions income, payment or amount. The primary object of Section 194LA is to oblige the payer of a sum of money to deduct something towards income-tax. Therefore, the expression any sum is actually controlled by the expression income-tax. Section 96 of the 2013 Act was intended to be a tool towards securing the laudable objectives of the 2013 Act. Therefore, it can never be contended that Section 194LA of the Income Tax Act will make in roads into the welfare provision contained in the 2013 Land Acquisition Act. There is no use in giving effect to the provisions of Section 96 of the 2013 Act by first asking the Land Acquisition authority to deduct tax under Section 194LA and then driving the poor land losers from pillar to post to get a refund of the amount from the Income Tax Department. An interpretation that will lead the farmers and land losers to go from the Collectorate to the Income Tax Officer, is antithetic to the objects and reasons of the 2013 Act. Writ petitions are allowed and there shall be a direction to the respondents not to deduct tax at source, whenever any compensation is paid for the acquisition of a land under the 2013 Land Acquisition Act, except those covered by Section 46 of the 2013 Act. In cases where by way of an interim order the tax deducted at source was directed to be kept in a Fixed Deposit in the name of the Registrar (Judicial) of this Court, the Registry shall either liquidate the deposit and transfer the funds to the account of the petitioners or makeover/transfer the Fixed Deposit in the name of the concerned petitioners to enable them to encash the same

Issues Involved:

1. Whether income tax is liable to be deducted at source under Section 194LA of the Income Tax Act, 1961, despite the provisions of Section 96 of the 2013 Land Acquisition Act.
2. Validity and implications of the Circulars issued by the Commissioner of Income Tax (TDS) and the Central Board of Direct Taxes (CBDT).
3. Interpretation and precedence of Special Law over General Law in the context of tax deduction at source.
4. The impact of Article 265 of the Constitution of India on the collection of tax.
5. The binding nature of CBDT Circulars on the revenue.

Issue-wise Detailed Analysis:

1. Income Tax Deduction at Source under Section 194LA vs. Section 96 of the 2013 Land Acquisition Act:

The petitioners challenged the deduction of tax at source from compensation awarded under the 2013 Land Acquisition Act, asserting that Section 96 of the 2013 Act exempts such compensation from income tax. The court noted that the primary question was whether tax should be deducted at source under Section 194LA of the Income Tax Act, despite the exemption provided by Section 96 of the 2013 Act. The court concluded that Section 96 of the 2013 Act, which exempts compensation from income tax, makes Section 194LA inapplicable to such compensation. The court emphasized that the nature of the deduction under Section 194LA is income tax, and since Section 96 exempts the compensation from income tax, no deduction at source is permissible.

2. Validity and Implications of Circulars:

The Commissioner of Income Tax (TDS) issued a Circular directing the deduction of tax at source, which was contested by the petitioners. Subsequently, the CBDT issued Circular No. 36/2016, clarifying that compensation exempt under Section 96 of the 2013 Act is not taxable under the Income Tax Act. The court highlighted that the CBDT Circulars are binding on the revenue, but noted that Circular No. 36/2016 did not specifically address the interplay between Section 96 of the 2013 Act and Section 194LA of the Income Tax Act. Therefore, the court held that the CBDT Circular did not resolve the issue at hand.

3. Interpretation and Precedence of Special Law over General Law:

The petitioners argued that Section 96 of the 2013 Act, being a later and special law, should prevail over the earlier general provision of Section 194LA of the Income Tax Act. The court, however, found that this contention did not arise because the Income Tax Department did not claim that income tax was payable on the compensation despite Section 96. The court clarified that the issue was about the deduction of tax at source, not the liability to pay tax, and thus, the principle of special law overriding general law was not directly relevant.

4. Impact of Article 265 of the Constitution of India:

The petitioners contended that under Article 265, no tax shall be levied or collected except by authority of law, and since there was no levy on the compensation under the 2013 Act, its collection was unconstitutional. The court rejected this argument, stating that Section 194LA, which mandates the deduction of tax at source, is authorized by law. The court further explained that the TDS regime, which came after the decision in Bhawani Cotton Mills Ltd., allows for the collection of tax at source, and thus, the deduction under Section 194LA is lawful and not violative of Article 265.

5. Binding Nature of CBDT Circulars on the Revenue:

The petitioners argued that the CBDT Circular No. 36/2016 should resolve any doubt regarding the taxability of compensation, as CBDT Circulars are binding on the revenue. The court acknowledged the binding nature of such Circulars but pointed out that Circular No. 36/2016 did not explicitly address the interaction between Section 96 of the 2013 Act and Section 194LA. Therefore, the court concluded that the Circular did not provide a clear resolution to the issue.

Conclusion:

The court allowed the writ petitions, directing the respondents not to deduct tax at source from compensation paid under the 2013 Land Acquisition Act, except in cases covered by Section 46 of the Act. The court emphasized that the welfare objectives of the 2013 Act should not be undermined by requiring land losers to seek refunds from the Income Tax Department. The court ordered the return of any tax amounts already deducted and kept in fixed deposits, to the petitioners.

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