2014 (11) TMI 638 - AT - Income Tax

TDS liability u/s 194LA - voluntary surrender of land - value of development rights There was no compulsory acquisition and was no payment of any monetary consideration Accourding to AO The transfer of land to BBMP though is stated to be free of cost but in reality the owner gets DRCs. The question of determining consideration for transfer can be resolved by valuing the DRCs and for this purpose the best way to determine the value is to rely on the provisions of Sec.50-C of the Act and value the land surrendered as per the guideline values fixed by subregistration for stamp duty valuation and registration. Held that - Assessee rightly contended that the application of Sec.194LA is purely a legal issue which can be decided on the basis of facts on record - the process of surrender of land for public purpose by owners of land and issue of CDRs has no element of Compulsory Acquisition which is necessary to attract application of the provisions of Sec. 194LA of the Act - The meaning of the term compulsory acquisition is that land should be taken under statutory powers without the agreement of the owner - the surrender of land by owners was voluntary and in exercise of option under a notification laying down conditions for grant of TDR in exercise of powers u/s.14-B of KTCP. BBMP wherever owners did not respond to offer of CDRs, BBMP has resorted to compulsory acquisition proceedings in accordance with the provisions of the Land Acquisition Act, 1894 - the provisions for deducting tax at source and paying it over to the Government on behalf of the recipient of the payment is in the nature of vicarious liability - But where neither there is quantification of the sum payable in terms of money nor actual payment in monetary terms, it would be unfair to burden a person with the obligation of deducting tax at source and exposing him the consequences of such default - the liability to pay tax is that of a third person and not that of BBMP and the spirit behind the provisions of Sec.190 of the Act has been totally lost sight of by the Revenue - the provisions of Sec.194LA of the Act were not applicable because there was no compensation paid towards compulsory acquisition under any law in force and therefore the order u/s.201(1) & 201(1A) of the Act is set aside. The provisions of Sec. 194LA of the Act would apply only when there is monetary payment - provisions of Sec. 194LA of the Act applies only when the person making payment should make payment of a sum of money which clearly indicates that the provisions of Sec.194LA of the Act are applicable only when payment is made in terms of money - The expression any sum used in Sec.194LA of the Act is a clear indication that those provisions are applicable only when payment is of consideration in terms of money - the general word in Sec.194LA of the Act is payment of such sum and the mode of payment qualified is cash, issue of cheque or draft or by any other mode - The expression any other mode has therefore to be confined only to payment of any sum in a mode other than cash, cheque or draft and not to a case where DRCs are issued - Even on this ground the order u/s.201(1) & 201(1A) of the Act is to be set aside thus, the provisions of Sec.194LA of the Act are not applicable and the orders u/s.201(1) & 201(1A) of the Act as upheld by the CIT(A) are held to be bad in law Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 194LA of the Income Tax Act, 1961.
2. Nature of the transaction involving Development Rights Certificates (DRCs).
3. Interpretation of "compulsory acquisition" under Section 194LA.
4. Determination of monetary consideration for tax deduction at source.
5. Application of the rule of "Ejusdem Generis" in statutory interpretation.

Issue-wise Detailed Analysis:

1. Applicability of Section 194LA of the Income Tax Act, 1961:
The primary issue was whether BBMP was liable to deduct tax at source under Section 194LA of the Income Tax Act, 1961, for issuing Development Rights Certificates (DRCs) to landowners who surrendered their land. Section 194LA mandates tax deduction on compensation for compulsory acquisition of immovable property. The tribunal concluded that Section 194LA was not applicable because the transaction did not involve monetary payment but the issuance of DRCs, which do not constitute a "sum of money."

2. Nature of the Transaction Involving Development Rights Certificates (DRCs):
The tribunal examined whether the issuance of DRCs could be considered a form of monetary compensation. BBMP argued that DRCs represent a right to construct additional floor area and are not issued in lieu of money. The tribunal agreed, stating that DRCs do not result in immediate income or monetary gain for the recipients and therefore, do not fall under the purview of Section 194LA, which requires a "sum of money" to be paid.

3. Interpretation of "Compulsory Acquisition" under Section 194LA:
The tribunal analyzed whether the surrender of land by owners to BBMP under the DRC scheme constituted "compulsory acquisition." It was determined that the process lacked the elements of compulsory acquisition, such as statutory powers, lack of owner agreement, and formal compensation procedures. The tribunal noted that BBMP resorted to compulsory acquisition under the Land Acquisition Act, 1894, only when owners did not voluntarily surrender land under the DRC scheme. Therefore, the tribunal concluded that the surrender of land under the DRC scheme was voluntary and did not meet the criteria for compulsory acquisition under Section 194LA.

4. Determination of Monetary Consideration for Tax Deduction at Source:
The Assessing Officer (AO) had determined the value of DRCs based on the guideline value for stamp duty and registration, treating it as monetary compensation. However, the tribunal found this approach incorrect, emphasizing that DRCs are not issued based on such valuations and have no direct monetary value. The tribunal highlighted that the provisions of Section 50C of the Act, used to determine the value of land for capital gains, were not applicable in this context.

5. Application of the Rule of "Ejusdem Generis" in Statutory Interpretation:
The tribunal applied the rule of "Ejusdem Generis," which states that general words following specific words should be interpreted in the context of the specific words. In Section 194LA, the phrase "any sum" should be interpreted to mean monetary payments similar to cash, cheque, or draft. The tribunal concluded that DRCs do not fit within the meaning of "any sum" as used in Section 194LA, reinforcing that the section applies only to monetary payments.

Conclusion:
The tribunal held that the provisions of Section 194LA were not applicable to the issuance of DRCs by BBMP as there was no monetary payment or compulsory acquisition involved. Consequently, the orders under Sections 201(1) and 201(1A) of the Income Tax Act, treating BBMP as an "Assessee in Default" for not deducting tax at source, were quashed. The appeals filed by BBMP were allowed, and the stay petitions became infructuous.

Final Judgment:
The appeals by BBMP were allowed, and the orders under Sections 201(1) and 201(1A) were quashed. The stay petitions were dismissed as infructuous. The judgment was pronounced on November 14, 2014.

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