2015 (10) TMI 540 - HC - Income Tax

Liability to deduct tax at source - payments of compensation to the persons from whom land was acquired in connection with the project - case of the petitioner that, as per the provisions of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and in particular Section 96 therein, there is an exemption envisaged from income tax in respect of amounts by way of compensation received by landowners - Held that - The provisions under the Income Tax Act, that govern tax deduction at source in connection with payment of amounts as compensation for acquisition of land, is governed either by the provisions Section 194LA or in other cases by Section 194IA. In both these provisions, the liability to deduct tax at source is on any person responsible for paying any sum by way of consideration/compensation to another, in connection with acquisition/transfer of immovable property. It is significant to note that, in neither of these provisions is the mandate of deduction of tax at source qualified by the requirement that the amount paid by way of compensation/consideration should constitute an income of the recepient under the Income Tax Act. Therefore, not impressed with the submission of counsel for the petitioner that the provisions of Section 96 of the 2013 Act would come to his aid in exempting him from the requirement of deducting tax at source from compensation/ consideration amounts paid to persons, from whom immovable property was either acquired or obtained through negotiated purchase. The petitioner, as a person responsible for making payments, contemplated under either Section 194IA or under Section 194LA of the Income Tax Act, would be obliged to deduct tax at source in accordance with the said provisions under the Income - The upshot of the above discussion is that the prayers sought for in the writ petition cannot be granted. The writ petition, therefore, fails and is accordingly dismissed. - Decided against assessee.

Summary

Issues: Liability to deduct tax at source from compensation amounts paid for land acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (2013 Act) vis-a-vis provisions of the Income Tax Act.

In this judgment, the petitioner, a company involved in building a metro rail system, sought exemption from deducting tax at source from compensation amounts paid to landowners under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (2013 Act), relying on Section 96 of the Act. The petitioner argued that the Income Tax Act provisions on tax deduction at source should be read down to exempt them from deducting tax based on the exemption under the 2013 Act. The petitioner cited judgments from the High Courts of Karnataka and Gauhati to support their contention that if income is exempt from taxation, there is no requirement to deduct tax at source. However, the court noted that the provisions governing tax deduction at source for compensation amounts paid for land acquisition are under Section 194LA or Section 194IA of the Income Tax Act. The court highlighted that these provisions do not require the compensation amount to be taxable income for the deduction of tax at source. The court held that the petitioner, as the party responsible for payments, must deduct tax at source as per the Income Tax Act provisions, irrespective of the tax-exempt status of the compensation amount under the 2013 Act. The court dismissed the petitioner's argument that the exemption under the 2013 Act should exempt them from deducting tax at source, emphasizing that individual assessments of recipients for income tax exemption do not affect the petitioner's obligation to deduct tax at source under the Income Tax Act provisions.

The court also considered a counter affidavit stating that even without compulsory acquisition under the Land Acquisition Act, the provisions of Section 194IA of the Income Tax Act would apply for tax deduction at source. The court found that since there was no acquisition under the Land Acquisition Act in this case, Section 96 of the 2013 Act might not strictly apply. After hearing arguments from both sides, the court concluded that the petitioner's plea for exemption from deducting tax at source for compensation amounts paid for land acquisition cannot be granted. Therefore, the writ petition was dismissed.