NO TDS ON COMPENSATION for agricultural land an analysis in view of recent judgment of Punjab and Haryana High Court pointing out clear case of harassment of public by public servants.

[C.A. DEV KUMAR KOTHARI]

Public servants and harassment- general:

Most of authorities or officers or other employees of government working under any law are generally considered as 'public servants'. Officers of land departments and tax departments are also not exceptions-means they are also public servants. They are supposed to work as per law and in public interest. However, real scenario and ground realities are very much different and opposite. Most of public servants consider themselves much above the public and do not care to sincerely and honestly work for the public. Generally wherever they find scope to harass public, they will prefer to harass and not to help the public.

TDS from compensation paid under any law:

We find provisions for deduction of tax at source from the amount of compensation or additional compensation by way of enhancement etc. when certain capital assets are compulsorily acquired under any law. The provisions provide circumstances and conditions for TDS. We find that S.194L (operative up to 31.05.2000) is for TDS from compensation of any capital asset (which could be movable or immovable property). Operation of this section was suspended w.e.f. 01.06.2000 and a new section that is S. 194LA was inserted w.e.f. 01.10.2004 in respect of immovable property (other than agricultural land). Thus S.194L was wider to cover any capital asset whereas S. 194LA covers only immovable properties (other than agricultural land).

Agricultural land:

Agricultural land can be a capital asset in some circumstances and may not be a capital asset in other specified circumstances as per exclusions provided in definition of 'capital asset' in section 2(14).

Provisions for TDS:

Sections 194L as it stands now read as follows (with highlights added by author for analysis):

[194L. Payment of compensation on acquisition of capital asset

Any person responsible for paying to a resident any sum being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any capital asset shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein:

Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed one hundred thousand rupees:]

[Provided further that no deduction shall be made under this section from any payment made on or after the 1st day of June, 2000.]

Sections 194LA as it stands now read as follows (with highlights added by author for analysis):

[194LA. Payment of compensation on acquisition of certain immovable property

Any person responsible for paying to a resident any sum, being in the nature of compensation or the enchanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon:

Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed one hundred thousand rupees.

Explanation. - For the purposes of this section, -

(i) "agricultural land" means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;

(ii) "immovable property" means any land (other than agricultural land) or any building or part of a building.]

Change in scheme for TDS:

We notice that after making section 194L non operational w.e.f. 01.06.2000 vide the Finance Act, 2000 new section 194LA was inserted w.e.f. 01.10.2004 vide the Finance (No.2) Act, 2004. New section is restricted to compensation etc. payable in respect of immovable property, other than agricultural land. There is no doubt or ambiguity that in case the property is any agricultural land then TDS is not required. This is clear in the language of section wherein in bracket 'other than agricultural land' is mentioned, this is also mentioned vide Explanation (ii) to the section. Any agricultural land is excluded, it is not a case that the agricultural land should not be a 'capital asset'. Whether agricultural land is capital asset or not will make no difference.

Harassment of public as indicated by facts of a recent case before Punjab and Haryana High Court:

On reading of the section 194LA it is very clear that compensation in respect of agricultural land is not subject to TDS. However, it appears that agricultural lands were acquired in pursuance of notifications dated 9-11-1992, under section 4 and 6-11-1993, under section 6 of the Land Acquisition Act, 1894 and award in respect thereof was passed on 5-11-1995. While disbursing the compensation, the Collector illegally made deduction of tax at source and remitted the same to the Income-tax Department which is permissible only in the case of non-agricultural land.

Harassment by land acquisition authorities:

It seems that though compensation was awarded on 05.11.1995, however, disbursement was made much late (at least after 01.10.2004- the date when S.194LA came into force to require TDS). Thus there was harassment of land owners first by way of acquisition, then disputes in respect of compensation, and then by delay in payment and that too after deducting tax where tax wax not deductible.  

In the reply the Collector stated that deduction has been made on instructions of the Haryana Urban Development Authority (HUDA). Therefore, HUDA is also a part of causing harassment.

Harassment by Tax department:

It appears that the Income-tax Department argued that alternative remedy is available to the petitioners to seek refund after getting assessment done. And that the Collector was bound to make deduction and was, thus, justified in doing so. Thus the tax department confirms to illegal and wrong actions of the Collector in deducting tax and further want that assessee should get assessed and claim refund. When law does not require to deduct tax from compensation on agricultural land, then what is purpose of deducting tax, putting land owners to assessment and sources of harassment etc.

Analysis of High Court's observation as to facts of the case and arguments of parties:

A bare perusal of the provisions clearly shows that TDS is required in respect of compensation paid for acquisition of immovable property other than agricultural land. That is no TDS is required for compensation for agricultural land , there is no jurisdiction to deduct tax from compensation for agricultural land.

The stand of the Income-tax department that since there is remedy of getting the assessment done and to receive refund, the writ petition was not maintainable, cannot be accepted in view of (a).

Deduction of tax at source, without determining the plea of the petitioner that the land was agricultural land, was not justified.

The amount is said to have been remitted to the Income-tax Department which is illegal.

Analysis of High Court's observation as to facts of the case and arguments of parties:

The writ petition was accordingly allowed.

The Income-tax Department to refund the amount to the Collector within one month from the date of receipt of a copy of the order.

Thereafter, the Collector will determine whether compensation paid is for property other than agricultural land or otherwise and whether deduction of tax at source was permissible under any provision of law. This will be decided by the Collector within two months from the date of receipt of a copy of the order.

If deduction is found not permissible, the amount will be refunded to the petitioners not later than three months from receipt of a copy of the order.

It is made clear that this order will not affect the right of Income-tax Department to take such action as may be permissible under the law.

Authors view on the facts and order:

As per observations and arguments advanced before the High Court, it appears that apparently there is no doubt that the land was agricultural land. Neither the Collector nor the income tax Department appears to have taken the plea that the impugned compensation was for immovable property which was not agricultural land. The case is old, land was acquired long ago, it may be difficult to conclusively prove that the land was agricultural land. In any case the income tax department, as usual, is likely to dispute such facts. Therefore, it is likely that in terms of the order of the High Court, the Collector taking a play safe approach again hold that the tax is deductible. Thus, the order of the high Court is likely to create another set of harassment and litigation.

Better approach to avoid harassment and serve purposes:

With due respect to the court, the author feels that the court could have directed the income Tax Department to refund money to the Collector and in turn the Collector to refund money to land owners from whose compensation tax was wrongly deducted. The income tax department could examine the list of compensation paid match such list from income tax returns received from land owners and in case of need issue notices to land owners to file return of taxable income.

 

Risal Singh & Anr. v. UOI & Ors. [2010 -TMI - 75720 - PUNJAB AND HARYANA HIGH COURT]