2010 (1) TMI 108 - HC - Income Tax

Deduction of tax at Source under section 194LA Compensation for Agricultural Land The petitioners received compensation for acquisition of their agricultural land. While disbursing the compensation, the collector made deduction of tax at source and remitted the amount to the revenue. The petitioners raised a plea that this was permissible only in the case of non-agricultural land. In this case Karnataka High Court-allow the petition and direct the Income-tax Department to refund the amount to the Collector within one month from the date of receipt of a copy of this order. Thereafter, the Collector will deter mine whether compensation paid is for property other than agricultural land or otherwise and whether deduction of tax at source was permissible under any provision of law. Whether deduction is permissible or not will be decided by the Collector within two months from the date of receipt of a copy of this order. If deduction is found not permissible, the amount will be refunded to the petitioners not later than three months from receipt of a copy of this order. Decision in favor of assessee against the revenue.

Summary

Issues:
Quashing of TDS certificates for agricultural land compensation under section 194LA of the Income Tax Act.

Analysis:
The petitioners sought the quashing of TDS certificates issued by the Land Acquisition Collector Sonipat for deducting tax at source under section 194LA of the Income Tax Act. The petitioners argued that their agricultural land was acquired, and the compensation received had tax deducted, which is only permissible for non-agricultural land. The Income-tax Department contended that the petitioners could seek a refund through the assessment process and justified the deduction made by the Collector. The Collector stated that the deduction was done on the instructions of the Haryana Urban Development Authority (HUDA).

The court examined the provisions of section 194LA of the Income Tax Act, which mandates tax deduction for compensation paid for the acquisition of immovable property other than agricultural land. The court noted that there is no authority to deduct tax from compensation for agricultural land. It was emphasized that the Collector could not make deductions without determining whether the compensation was for non-agricultural land. The court found the deduction of tax at source without establishing this jurisdictional fact as unjustified and illegal, especially since the amount was remitted to the Income Tax Department.

Consequently, the court allowed the petition, directing the Income-tax Department to refund the deducted amount to the Collector within a month. The Collector was instructed to ascertain whether the compensation was for non-agricultural land and whether the deduction of tax at source was permissible under the law within two months. If the deduction was deemed impermissible, the amount was to be refunded to the petitioners within three months. The court clarified that its order did not impede the Income-tax Department's right to take further lawful actions.

In conclusion, the petition was disposed of, upholding the petitioners' claim and emphasizing the necessity for proper jurisdictional determination before deducting tax at source for compensation related to agricultural land acquisitions.