2023 (6) TMI 622 - HC - Income Tax

TDS u/s 194LA - compensation amount paid on account of acquisition of land - distinguish acquisition of agricultural land and non-agricultural land - HELD THAT - As per Section 194LA any person responsible for paying to the resident any sum being in the nature of compensation or enhanced compensation, or consideration or enhanced consideration on account of compulsory acquisition of immovable property other than agricultural land at the time of payment of such sum, has to deduct an amount equivalent to 10% as income tax and deposit the same with the concerned authority to the account of the assessee. A perusal of Section 96 of the Act of 2013 would make it abundantly clear that no income tax or stamp duty shall be levied on any award or agreement made under the Act except under Section 46. A reading of Section 46 of the Act of 2013 would indicate that it relates to purchase of land through private negotiations, which necessarily means otherwise than through acquisition. This being so since the purchase price is fixed as per private negotiation and not by fixing of compensation under an award to be passed by following the parameters laid down under the Act of 2013. Thus, any land acquired and compensation paid in terms of an award passed under the Act of 2013, in terms of Section 96 of the Act of 2013, the compensation payable thereunder would not attract any income tax or stamp duty in terms of Section 96 of the Act of 2013 which is reinforced by the second proviso to Section 194LA of the IT Act. In the light of Section 96 of the Act of 2013 read with Second proviso to Section 194LA of the IT Act would categorically indicate that no such distinction could be made and that all lands which are acquired and the award passed in terms of the Act of 2013, is exempted from payment of income tax. When the compensation itself is exempted from income tax, the question of deducting tax at source on such exempted income would also not arise. Hence, looked at from any angle, as long as the award is made under the Act of 2013, the compensation paid would not be liable for any tax. It is not in dispute in the present matter that the an Award has been passed under the Act of 2013. This aspect has been completely missed out by the SLAO in his letter to the court, and the court, without looking into the provisions and appreciating the import thereof, has passed the impugned order, requiring this court to intercede and correct the injustice caused. ORDER The entire compensation amount payable to the petitioner is directed to be paid to the petitioner without deduction of any tax at source. The Additional Registrar General of this Court is directed to forward a copy of this order to all the Courts which are handling land acquisition matters including the compensation thereto for necessary compliance.

Summary

Issues involved:
The issues involved in the judgment are related to the deduction of tax at the source on the compensation amount paid for the acquisition of land under the Income Tax Act, 1961, and the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013.

Details of the Judgment:

Issue 1: Land Acquisition and Compensation
The petitioner claimed ownership of land proposed for acquisition by the respondent. The compensation amount was determined by the Court, and the State defaulted on payment, leading to the petitioner filing an Execution Petition for the same.

Issue 2: Tax Deduction on Compensation
The dispute arose when the Special Land Acquisition Officer stated that tax deductions were required on the compensation amount. The petitioner argued that no tax should be deducted as the compensation was exempted from income tax under Section 96 of the Act of 2013.

Judgment Summary:
The Court examined Section 194LA of the Income Tax Act, which mandates a 10% deduction on compensation for immovable property other than agricultural land. However, the second proviso exempts payments covered under Section 96 of the Act of 2013 from tax deductions, regardless of the type of land acquired.

The Court clarified that Section 96 of the Act of 2013 prohibits income tax or stamp duty on awards or agreements made under the Act. Therefore, compensation paid under such awards is not subject to income tax, as reinforced by the second proviso to Section 194LA of the IT Act.

The Additional Government Advocate's argument to distinguish between agricultural and non-agricultural land was dismissed. The Court emphasized that all lands covered by an award under the Act of 2013 are exempt from income tax. The Court concluded that as long as the award is made under the Act of 2013, the compensation paid would not be liable for any tax.

In the final order, the Court allowed the Writ Petition, quashed the order for tax deduction on compensation, and directed the full compensation amount to be paid to the petitioner without any tax deduction. The Court also instructed relevant authorities to comply with the order in all land acquisition matters.

This judgment clarifies the tax implications on compensation for land acquisition under the Income Tax Act and the Act of 2013, ensuring that compensation awarded under the Act of 2013 is exempt from income tax deductions.