2024 (11) TMI 251 - HC - Income Tax

Taxability of compensation - Land-losers relieved off from the levy of income tax on the compensation paid for the acquisition of their lands - relief has granted principally in terms of section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 - Scope of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (2013 Act) for tax exemption. HELD THAT - All the above being said, one cannot turn a Nelson s Eye to the apparent hostile discrimination of the persons losing land in acquisition process under the statutes other than 2013 Act, are put to Firstly, the benefit of package availing under the new Act 2013 Act are pretty attractive compared to those contemplated under State legislations such as Karnataka Industrial Areas Development Act 1966, inter alia providing for acquisition. In the new Act, the amount of compensation payable to the land-losers is much higher. Added to the above, under Section 96 of the 2013 Act, the compensation is exempted from the levy of income tax. There are other rehabilitatory facilities too. It is quite obvious that there is a lot of heart-burn in the class of persons who have lost lands in acquisitions accomplished under the statutes other than 2013 Act. As already mentioned above, ordinarily, land-losers in acquisition process, whichever be the statute, do constitute one homogenous class, at least viewed from the angle of recompense. It is high time that the Central Government addresses this aspect of the matter before long and thereby assuages the grievance of land losing farmers, consistent with the policy content laudable intent enacted in Section 96 of the new Act. Much is not necessary to specify. These Appeals are allowed and the impugned orders of the learned Single Judge are set at naught; the subject Writ Petitions of land-losers are liable to be and accordingly dismissed.

Issues Involved:

1. Applicability of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (2013 Act) for tax exemption.
2. Implied repeal of local statutes by the 2013 Act.
3. Legislative competence and the scope of fiscal legislation.
4. Classification of land-losers and the applicability of Article 14 of the Constitution.
5. Validity of Government Orders in altering tax liability.
6. Taxation of compensation under the Income Tax Act, 1961.
7. Refund of TDS and the impact on pending appeals.

Detailed Analysis:

1. Applicability of Section 96 of the 2013 Act:

The judgment primarily revolves around the interpretation of Section 96 of the 2013 Act, which exempts compensation from income tax only if the acquisition is made under the provisions of this Act. The court emphasized that the text of Section 96 is clear and applies strictly to awards or agreements made under the 2013 Act. The court rejected the argument that awards under other statutes should also be exempt, stating that such an interpretation would render the specific language of the statute meaningless.

2. Implied Repeal of Local Statutes:

The land-losers argued that the 2013 Act impliedly repealed local statutes like the Karnataka Highways Act, 1964. However, the court found this contention untenable, citing that the 2013 Act is not in derogation of existing laws but in addition to them, as explicitly stated in Section 103. The court highlighted the principle of harmonious construction to avoid conflicts between federal and state legislation, rejecting the notion of implied repeal.

3. Legislative Competence and Fiscal Legislation:

The court discussed the legislative competence concerning fiscal matters, emphasizing that the exemption from income tax is a policy decision within the legislative domain of the Parliament. The court noted that fiscal statutes must be construed strictly, and courts should not expand or restrict their scope through interpretation. The court reiterated that the legislative intent must be respected, and there was no room for reading down Section 96 to include acquisitions under other statutes.

4. Classification of Land-losers and Article 14:

The court addressed the argument that all land-losers should be treated as a homogenous class under Article 14 of the Constitution. It rejected this argument, stating that land-losers under the 2013 Act and those under other statutes do not constitute a homogenous class for tax exemption purposes. The court distinguished between the law relating to compensation and the law governing tax on such compensation, asserting that the latter is a separate matter.

5. Validity of Government Orders:

The court examined the Government Order dated 14.11.2014, which purported to apply the 2013 Act's provisions to acquisitions under the Karnataka Highways Act, 1964. The court found that such an order could not alter the tax liability, as legislative competence in this regard lies with the Parliament. The court emphasized that the executive power cannot override legislative provisions.

6. Taxation of Compensation under the Income Tax Act, 1961:

The court delved into the provisions of the Income Tax Act, 1961, particularly Sections 45(5) and 194LA, which deal with the taxation of compensation received from compulsory acquisition. It clarified that compensation is taxable as capital gains and that the primary liability to pay income tax lies with the recipient of the compensation. The court also discussed the mechanism for TDS and the conditions under which refunds can be processed.

7. Refund of TDS and Impact on Pending Appeals:

The court addressed the issue of TDS refunds, noting that the refunds were made under the threat of contempt proceedings and were extended to non-litigants on the principle of parity. The court held that the refund does not render the appeals infructuous, as compliance with a judgment under threat does not negate the right to appeal. The court emphasized that restitution would follow if the appeals succeed.

Conclusion:

The appeals were allowed, and the orders of the learned Single Judge were set aside. The court dismissed the writ petitions filed by the land-losers, emphasizing the need for legislative clarity and urging the Central Government to address the apparent discrimination faced by land-losers under different statutes. The court directed that a copy of the judgment be sent to the Ministry of Finance and the Law Commission of India.

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