2024 (8) TMI 761 - HC - Income Tax

Liability u/s 201 - non deduction of TDS on compensation received for acquisition of agricultural land - HELD THAT - It cannot be said that the LAO was at fault. He was genuinely following the advice given to him by his superior officer who was a District Revenue Officer, whose directions of not deducting TDS were based on legal advice. The legal advice was given on the basis of the directions of this Court. While this Court may have passed order which was not in conformity with some other orders passed by the High Court, it was not available for the LAO to ignore or flout the Court s orders, which are to be presumed to be correct till they are set aside in appeal. Thus, no fault can be attributed on the LAO or on his officials. In the absence of there being any fault and there being a genuine belief based on judgment of the High Court that TDS was not required to be deducted on the interest paid, the action of the LAO cannot be said to be wrongful or illegal. The action of releasing the interest amount without deducting TDS therefore, cannot be a reason for imposing penalty in terms of Section 201 and 201 (1A) of the Act, 1961 and cannot be justified. The Land Acquisition Officer cannot be made to suffer on account of the orders passed by the Court. Penalty imposed on him by the Assistant Commissioner of Income Tax, TDS Circle vide its orders dated 22.03.2016 and 31.03.2016 are liable to be set aside. Accordingly, these writ petitions are allowed. The orders passed by Assistant Commissioner of Income Tax, TDS Circle are quashed and set aside.

Summary

Issues:
Challenge to imposition of tax liability under Section 201 of Income Tax Act for failure to deduct tax at source on interest on enhanced compensation under Land Acquisition Act.

Analysis:

1. The petitioner, a Land Acquisition Officer, challenged the tax liability imposed under Section 201 of the Income Tax Act for not deducting tax at source on interest on enhanced compensation paid under Section 28 of the Land Acquisition Act, 1894. The petitioner contended that until 2012, tax was deducted on enhanced compensation and interest, but based on court judgments, TDS was stopped after October 2012.

2. The petitioner's argument was supported by the Supreme Court's decision in CIT vs. Ghanshyam (HUF) and orders of the High Court restraining TDS deduction on interest disbursed on enhanced compensation. The petitioner claimed a bona fide belief in not deducting TDS based on legal opinions and court orders.

3. The Income Tax Department conducted a survey in 2015, raising queries on non-deduction of TDS on interest payments. The petitioner explained the cessation of TDS deduction based on court orders and legal opinions, including directions from the District Revenue Officer.

4. The Revenue argued that the LAO was required to deduct TDS under the Income Tax Act and cited judgments holding additional compensation and interest as taxable. The Revenue contended that the LAO wrongfully decided to withhold tax, leading to penalties under Section 201 of the Act.

5. The Court noted that various High Court orders restrained TDS deduction, and the LAO followed legal advice in not deducting TDS. The LAO's actions were deemed not wrongful or illegal, given the genuine belief based on court orders and legal advice.

6. Ultimately, the Court held that the LAO could not be penalized for following court orders and set aside the penalties imposed by the Revenue. The writ petitions were allowed, quashing the orders imposing tax liability, and directing refunds if any amount was deposited.

7. The principle of "Actus Curiae Neminem Gravabit" was applied, emphasizing that no party should suffer due to the act of the Court. The Court concluded that the LAO should not be penalized for complying with court orders, and the penalties were unjustified.