2022 (6) TMI 525 - HC - Income Tax

TDS on the compensation paid to the petitioner by the respondent No.1 for the acquisition of land - acquisition of land through direct purchase and private negotiations - distinction is made between the compulsory acquisition resorting to the provisions of the Act, 2013 by issuing notification or by an acquisition through an agreement - petitioner submits that Section 96 read with Section 46 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 specifically exempts payment of income tax on an amount of compensation paid under the award and/or agreement - HELD THAT - Section 96 of the Act, 2013 unequivocally provides that no income tax or duty shall be levied on any award or agreement made under the Act except under Section 46. Section 46 would not be attracted in the present case. Section 46 would apply to the specified persons. The specified persons includes any person other than (i) Appropriate Government (ii) Government Company, (iii) Association of persons or Trust or Society as registered under the Societies Registration Act, wholly or partially aided by the appropriate Government or controlled by the Appropriate Government. The respondent no.1 is not a specified person within the meaning of Section 46. In view of that, as the exemption under Section 96 would squarely apply, no income tax can be levied in the present matter for the amount of compensation, inter alia respondent No.1 could not have deducted amount of TDS from the amount of compensation paid to the petitioner. Manner in which the TDS as deducted by respondent No.1 can be refunded to the petitioner - The petitioner has relied upon Rule 37BA of the Income Tax Rules, 1962 (hereinafter referred to as the Rules, 1962 ) which provides that credit for tax deducted at source and paid to the Central Government in accordance with provisions of Chapter XVII shall be given to the person to whom payment has been made or credit has been given. (hereinafter referred to as deductee ) on the basis of information relating to deduction of tax furnished by the deductor to the Income Tax Authority. Rule 37BA (3) (i) of the Rules, 1962 further provides that the credit for tax deducted at source and paid to the Central Government shall be given for the assessment year for which such income is assessable. Proviso to Section 200(3) of the IT Act provides that the person may also deliver to the prescribed Authority the correction statement for rectification of any mistake in the statement delivered under the said subsection in such form and verified in such manner as may be verified by the Authority. Clause (d) of Sub-section (1) of Section 200A of the IT Act inter alia provides for determination of the sum payable by, or the amount of refund due to, the deductor. It is the case of the petitioner that her income is exempted from tax and as such she cannot fill Schedule TDS-2 and hence cannot make an application under Section 199 of the IT Act read with Rule 37BA (3)(i) of the Rules, 1962 whereas according to the respondent, the petitioner has to file an income tax return and claim refund. The return would be assessed. Reference is made by the respondent to Section 139 of the IT Act to submit that the refund can be claimed only through fling of return of income within the time prescribed under Section 139. In the present matter, we are not aware whether the petitioner is liable to file return as required under Section 139 of the IT Act. There are various instances under Section 139 wherein a person is required to file return. All those circumstances and instances enumerated therein are not before the Court. In absence thereof, it is not possible for this Court to arrive at a conclusion as to whether the petitioner is required to file return or not before the Income Tax Department. As already held that the income received by the petitioner on account of the property acquired by respondent No.1 by private negotiations and sale deed is exempted from tax. The respondent No.1 has already deducted the TDS which it ought not to have deducted. ORDER (i) The respondent shall file correction statement as provided under provisio to Sub-Section (3) of Section 200 of the IT Act, 1961 within a period of one month from today to the effect that the TDS deducted by the respondent No.1 was not liable to be deducted. (ii) The Income Tax Department shall process the statement including the correction statement that may be filed under Section 200A more particularly Clause (d) thereof. (iii) The parties shall thereafter take steps for refund of the amount in accordance with the provisions of Income Tax Act and Rules.

Summary

Issues:
1. Whether the respondent No.1 was justified in deducting income tax at source from the compensation paid to the petitioner for the acquisition of land?
2. Whether Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 exempts payment of income tax on compensation paid under an award or agreement?
3. Whether the petitioner is entitled to a refund of the tax deducted at source by the respondent No.1?

Analysis:
1. The petitioner challenged the deduction of income tax at source by the respondent No.1 from the compensation paid for land acquisition. The petitioner argued that the deduction was not justified as per Section 96 of the Act, 2013, which exempts income tax on compensation paid under an award or agreement. The respondent No.1 contended that the compensation received by the petitioner pursuant to the agreement was taxable, as the acquisition was through direct purchase and not compulsory acquisition under the Act, 2013.

2. The Court analyzed the provisions of Section 96 of the Act, 2013, which exempts income tax on compensation paid under an award or agreement. The petitioner relied on judgments and a CBDT Circular to support the exemption claim. The Court noted that the Act recognizes acquisition through an agreement and observed that the exemption under Section 96 would apply, as the respondent No.1 was not a specified person under Section 46. The Court also referred to relevant case laws to support the exemption claim.

3. Regarding the refund of tax deducted at source, the Court examined Rule 37BA of the Income Tax Rules, 1962, which provides for crediting tax deducted at source to the deductee. The Court directed the respondent No.1 to file a correction statement stating that the TDS was not liable to be deducted. The Income Tax Department was instructed to process the statement for refund, and the parties were directed to take necessary steps for refund in accordance with the Income Tax Act and Rules.

In conclusion, the Court held that the income received by the petitioner for land acquisition was exempt from tax, and the respondent No.1 should not have deducted TDS. The Court ordered the respondent to file a correction statement, and the Income Tax Department to process the refund for the petitioner.