TMI Blog2010 (8) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... ch compensation of Rs. 3,56,09,43,438 was paid as immovable properties other than agricultural land. 3.Under the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in treating the constructions and trees on the lands against which compensation of Rs. 38,29,74,373 was paid as immovable properties other than agricultural land and thus holding that the provisions of section 194LA would apply to that compensation. 4.Under the facts and circumstances of the case and in law, the Ld. CIT (Appeals) ought to have appreciated the fact that the appellant had acted under bona fide belief that the above compensation was not subject to TDS and thus ought to have held that the action of the ITO in invoking the provisions of section 201 without taking any recourse to the original assessees to whom the compensation was paid is incorrect." 2. The issue involved in this appeal is whether Special Land Acquisition Officer was required to deduct tax under section 194LA on the payments of compensation made by him to various persons on the acquisition of land, building and trees. 3. The ITO (TDS)-4, Surat noticed that Special Land Acquisition Officer Branch-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such land + compensation for trees on the said land in addition to compensation for acquisition of the land. It was explained by LAO that these lands were agricultural lands and residential houses thereon were that of farmers and were meant for agriculture activities. The value of the residential house was determined as assessed by the Executive Engineer of the State PWD on the basis of number of family members. The value of the trees standing on these lands were determined by the Forest Department of the State Government even though land falling under notified area is required to be treated as non-agricultural land but as per the provisions of section 194LA the land covered under the notified area is to be treated as agricultural land. Therefore according to LAO, no TDS is required to be made and accordingly no TDS was made. The Assessing Officer did not agree on the above contention and he held that provisions of section 194LA of the Act and definition of agricultural land mentioned therein is linked to the provisions of section 2(14)( iii )( a ) and ( b ) of the Act. According to the Assessing Officer provisions of section 194LA introduced with effect from 1-10-2004 is simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. Regarding the compensation paid on trees and constructed building etc., the Assessing Officer was of the view that once the land in question were not agricultural land then trees and buildings thereon could not be held to be part of agricultural land. According to Assessing Officer the trees and buildings which stand on agricultural land are not agricultural in India within the meaning of section 2(14)( iii ) of the Act. They constitute "property of any kind" mentioned in section 2(14) of the Act and are "capital asset" and profit arising from their sale would be assessable under section 45 of the Act as capital gains. He referred to the decision of Hon ble Kerala High Court in the case of Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314 in support of his reasoning. He, accordingly, held that Land Acquisition Officer was required to deduct tax and therefore, the assessee is in default and he accordingly worked out the liability of Rs. 8,42,85,887 as TDS and interest thereon. 5. When the matter came up before the Ld. CIT(A), he confirmed the order of Assessing Officer and dismissed the appeal of the Land Acquisition Officer by holding that land acquired was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra ) wherein various factors for determining whether land can be said to be agricultural land or not are given (at page 638 thereof as under):- "(1)Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (2)Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (3)Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement? (4)Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? (5)Whether the permission under section 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? (6)Whether the land, on the relevant date, had ceased to be put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d giving good yield is quite less. Submitted for information. Sd/- District Agriculture Officer, Zillah Panchayat, Surat." 9. On the basis of this letter, Ld. CIT(A) drew following inferences : "From the above letter it is clear that ( i )Only some survey numbers out of six hundred acres of land involved are cultivable. ( ii )The crops taken are such which are grown without cultivation, e.g., grass, jowar grass and fruit trees except that some of the fruit trees and vegetables were also there in certain survey numbers. ( iii )There is no irrigation facility and only kharif crops could be grown, ( iv )The sea water spreads on certain parts of the land during high tide. ( v )The land which could yield something is very less, ( vi )Certain parts of the land is barren and uneven." 10. Ld. CIT(A) finally gave following finding : "5.17.2 From the analysis of this letter, it is clear that the Agricultural Officer has not at all pointed out any area where the crops were being grown and agricultural activities were being carried out. The Agricultural Officer has stated that the certain parts of the land are uneven and barren. This means that these part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant has himself bifurcated the value of these capital assets. As discussed above, these are capital assets chargeable to tax. The Assessing Officer has pointed out that in the order of the SLAO dated 31-7-2007 the amounts found to be paid are consolidated whereas in another order dated 21-1-2008 the amounts for trees and construction have been mentioned separately. It is, therefore, clear that the sum paid for the acquisition of trees, buildings, construction etc., have been treated separately by the assessee. Since these buildings/constructions have been categorized as residential building by the assessee, the income from transfer of such buildings as per Explanation (2) of section 2( 1A )( c ) would be income chargeable to tax and not agricultural income. 5.18.2 As discussed above in respect of the trees, the compensation for the trees has been made separately. This compensation would not amount to agriculture income. In this regard, the decision of the Hon ble Kerala High Court in the case of Travancore Tea Estates Co. Ltd. ( supra ) is very clear wherein the Hon ble High Court stated as under : "The principle that what is attached to land belongs to the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any place even in urban area. The Ld. A.R. submitted that as per above judgment definition contained in section 2(14) is for the purpose of determining whether any capital gains would arise on transfer of capital asset and what asset would be capital asset for this purpose and to determine whether agricultural land could be capital asset or not. 12. The Ld. A.R. then referred to the decision of Hon ble Kerala High Court in Nalini s case ( supra ) as referred to by the Ld. Assessing Officer and by Ld. CIT(A) and submitted that this judgment is in different contest. It is held therein that the test to determine whether land described as agricultural land in revenue record is agricultural land or not, is to determine whether it is put to non-agricultural use. So long as there is no non-agricultural activity carried on, on the land, it continues to be agricultural land. He also referred to various judgments as referred to by Land Acquisition Officer before the Ld. CIT(A) to emphasis the point that reference of the land as agricultural land in revenue records is of prime importance for determining by Land Acquisition Officer whether the particular land is agricultural land or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to the order of Land Acquisition Officer wherein it is mentioned that crops are taken in kharif season. He particularly referred to following paragraphs from the order of Land Acquisition Officer dated 21-1-2008 in LAQ/1/Case No. 6/05 (Hazira) through which the above lands were acquired for Hazira Steel Plant. Some of the paragraphs relied by the Ld. A.R. were as under : "As crop is standing on the land and construction is found existing upon the land valuation of the crops is carried out by the Agriculture Officer, District Panchayat, Surat and the valuation of the house has also been carried out by the Executive Engineer (Road Building Department), Surat and thereby the amount of compensation has been paid. ** ** ** On the date of declaration of consent award any standing crop or existing trees and houses are not found upon the land under acquisition hence, the question of paying the amount of compensation of the standing crops and existing trees does not arise at all. ** ** ** Waste land is also included in the land under acquisition but as this is a consent award hence, there is no question of payin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural purpose, they are situated adjoining to the road, hence, violation of urban development rules can be committed hence, presently the above land are utilized as agricultural land only. ** ** ** Regarding the land under acquisition the Hazira Area Development Authority had made a Hazira development plan under its development scheme and taking the same for consideration it is included in Industrial Zone. Besides, land of some of the survey numbers are under reservation of the G.I.D.C. in Green Strip and utility corridor by G.I.D.C, they are very small numbers besides, some of the lands are also coming under the agricultural zone. In some of the survey number land a road of 60 metres width is also passing. ** ** ** Trees are found in the land under acquisition, compensation of the same is to be paid as mentioned in the compensation statement enclosed herewith. ** ** ** Wells are found in the land under acquisition, compensation of the same is to be paid as mentioned in the compensation statement enclosed herewith." 15. The ld. A.R. then referred to some judgments relied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n also. Regarding trees he submitted that they are sold along with the land and therefore they are part and parcel of the agricultural land. The Land Acquisition Officer was justified in not deducting tax thereon also. 19. Against the above ld. D.R. submitted that the deductor has to apply his mind whether it is agricultural land or not and it is expected of him to physically verify and give a finding whether agricultural operations were carried out on such land or not in the near past. For the proposition that such verification is required to be done by the LAO. Ld. D.R. relied on the decision in the case of CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC) wherein it is held that if property is classified in the revenue records as agricultural land it would not be conclusive and such entries could raise only a rebuttal presumption. The LAO was not expected to superficially accept that land being acquired by him is agricultural land particularly, when it is personally seen it is found that there are lot of pits, land is saline and surrounded by industries and it is not worthy of agriculture operations and grass is growing thereon and trees of babool, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t grass, vegetable, babool and some trees of mangoes and chiku are grown on that land and that in certain part of land tide water of sea spreads and certain parts are uneven and barren and it is only a small proportion of land gives good yield, then it was imperative on the part of Land Acquisition Officer to divide the land into two parts one which is really used for agricultural purposes and giving yield and other which is not used for agricultural purpose. He should have atleast deducted tax on that part of the land which is not at all used for agricultural purposes, which is uneven and barren and which is facing high tide water of sea or where grass or babool is grown. The presumption as such arising from entries in the revenue record is rebutted by the record of State Government itself in the form of the letter from District Agricultural Officer and therefore, the Land Acquisition Officer should have either physically inspected and classified the land into agricultural and non-agricultural or in the matter of doubt should have consulted the revenue authorities. The mere fact that Land Acquisition Officer chose to distribute compensation without deducting tax showed that he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of compensation paid to the land owners. A part of the compensation was paid whose details are also given above. This compensation was further augmented by 12 per cent enhanced price and 30 per cent solatium. This also included compensation for trees standing on the land and compensation for residential houses constructed on these lands. Out of the total compensation found payable the value of land was determined at Rs. 30.08 crores and Rs. 36.95 crores in two types of awards. The value of trees and construction put together was determined at Rs. 26.18 crores and Rs. 55.20 crores. The case of the LAO for non-deducting the tax as required under section 194LA was that he was under bona fide belief that land acquired for giving to Hazira Steel Plant was agricultural land as per Land Revenue record, therefore, he was not required to deduct any tax under section 194LA. In respect of trees the case put forward was that they are part of the agricultural land and therefore, no TDS is required to be made on payment in respect of them. Similarly in respect of residential houses the case sought to be made out was that they are part and parcel of agricultural land, being used by the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of Agricultural land as contained in section 2(14)( iii ) on which Assessing Officer has heavily relied. It reads as under : "2(14) ( iii ) agricultural land in India, not being land situate : ( a )in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or ( b )in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item ( a ), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette." 26. On the other hand, section 194LA reads as under : "194LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property given in section 194LA is specific and limited to the purpose of deduction of tax on compensation paid by the LAO once role of LAO is over this definition cannot be imported to influence the definition of capital asset given in section 2(14)( iii ). In fact the definition of immovable property given in section 194LA, and the definition of agricultural land given therein is specific to the activity of deduction of tax. Specific enacted for specific purpose should alone be invoked. Generalia specilabus non derogant is the proposition which can be applied under such circumstances. This principle embodies a rule of construction and can be invoked when general and specific provisions occupy the same field. We derive support in our view by Hon ble Delhi High Court in CIT v. Prasar Bharati (Broadcasting Corpn. of India) [2007] 292 ITR 580 and Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 (SC). It is held by Apex Court in the above case that any matter for which a provision is made in the Income-tax Act, 1961, is to be governed by it, notwithstanding anything different or to the contrary contained in the general law relating to that matter. Special Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue whether TDS is required to be made from part of the compensation claimed to be paid for acquisition of houses. Apparently from a reading of section 194LA it appears that TDS is required to be made from the compensation/enhanced compensation paid on acquisition of any immovable property other than agricultural land. And further that no deduction shall be made if aggregate amount of payments does not exceed one hundred thousand rupees. The explanation defined agricultural land as well as immovable property. Thus, out of the entire group of immovable properties in respect of which compensation is paid on their acquisition only agricultural land has been excluded where no TDS is required to be made. The question now arises whether agricultural land would include any other immovable property attached or standing thereon and whether the scope of meaning of agricultural land can be extended and that of meaning of immovable property be reduced so as to exclude trees and residential houses standing thereon. 29.1 In this regard also we are of the view that the Land Acquisition Officer was fully justified that the compensation paid by him on acquisition of land along with houses thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her market rate. But, because, the State Government had decided to pay uniformly at a fixed rate of compensation to all the land owners whose lands were acquired and comprised in a bigger chunk of land for being used for establishing an industry, the valuation of the houses was considered as a safe mode to pay higher amount of compensation to such land owners who had better market rate for their land. We tend to agree with this argument because what was acquired by the Land Acquisition Officer was a big chunk of land, some having good agriculture value, better yield, better crop and others had only a barren land near sea. Some part of the land was nearer to the existing plant could certainly fetch a very high price to their land owners as compared to the one which was mostly filled with back waters and it became infertile due to consequential salinity. 29.5 We observe from the part of compensation paid that the State Government has determined a uniform rate to every chunk of land so acquired which in fact could not be a market reality, therefore, farmers houses standing on the land which could fetch a higher price in the market was considered for payment of higher amount to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... griculture land. Firstly, as stated above, the composite compensation was paid for acquiring agriculture land, the trees and farmers houses standing thereon, even though their valuation was done separately. Secondly, it was only the land which was to be handed over to the Industrialist for establishing Industry thereon and houses and trees have no use for the purposes for which the land was being acquired. Thirdly, the State Government had as a policy, decided to pay uniform rate of compensation for the chunk of land so acquired but in fact they had varying market rates and the houses were used as a mode of paying higher amount of compensation to such farmers whose land could fetch higher market value. Based on these reasonings, the Land Acquisition Officer adopted a view which now contradicts with the view the Assessing Officer intends to adopt. 29.9 The view advanced by the Department in support of their stand is equally possible that the buildings standing on the agriculture land should be given a different treatment as compared to agriculture land as immovable property separately so mentioned in Explanation to section 194LA of the Income-tax Act, 1961 and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid and justified reason and had prima facie satisfaction for not deducting TDS, then his order has to be upheld even if the Department does not finally agree with him. The order of the Land Acquisition Officer does not put any fetters on the powers and the jurisdiction of the Assessing Officer in levying the capital gains on compensation paid to the land owners if according to him such capital gains is actually leviable. But so far as the TDS is concerned, it is only the view of the Land Acquisition Officer which has to be only justified on the basis of material available before him and by the reasoning and logic adopted by him and whether he was prima facie satisfied thereon. If his view is justifiable then it has to be upheld. The Hon ble Special Bench in Prasad Production Ltd. s case ( supra ) has only upheld this view that it is the prima facie satisfaction of the payer as to the taxability of an amount paid by him to the payee that is relevant and important for determining whether he should make TDS on the payment to the payee. If on a particular issue there is already an authority that particular payment made by the payer is chargeable to tax and then the payer doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be destructive of judicial discipline. Thus in view of this we cannot add words "building or part of building" within the parenthesis along with the words "agricultural land" so as to allow exemption to buildings on such agricultural land merely because in ordinary sense building standing on agricultural land are treated as houses appurtenant to land. Such concept of houses appurtenant to land cannot be brought into the provision of section 194LA so as to create the favourable interpretation for the LAO. 31. It is necessary to refer to them so as to narrow down and then to resolve the controversy. (1) In Risal Singh v. Union of India [2010] 321 ITR 251 (Punj. Har.) High Court - The Collector deducted tax from the compensation paid on acquisition of agricultural land. The tax deduction was challenged before the Hon ble Punjab Haryana High Court. It was held that once compensation is paid for acquisition of agricultural land then as per section 194LA, no TDS is required to be made. Further, the jurisdiction of Collector to deduct tax would come only when property acquired is not agricultural land and without determining the character of land acquired as non-agricultu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue was as to when tax is required to be deducted. It was also held that liability to pay Income-tax is with the LAO who initiated proceedings under the Land Acquisition Act and actually pays the compensation and interest to the claimants. (4) In Madhabhai H. Patel s case ( supra ) thirteen criteria have been laid down as referred to above for determining whether land can be said to be agricultural land or not. (5) In Sercon (P.) Ltd. s case ( supra ). The issue was whether capital gains would be chargeable on sale of agricultural land. It was contended on behalf of the revenue that land was laying fallow for nearly 17 years and no agricultural operations was carried out thereon. It was held that non user of the land for more than 17 years or its users in last couple of years is not determinative factor and if the land is shown as agricultural land in revenue records and permission for non agricultural use under section 65 of Bombay Land Revenue Code has not been obtained then it should be treated as agricultural land. This Judgment apparently refers to determination of character of land at the time of levying capital gains by the Assessing Officer and does not lay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y cannot be avoided on ground of non-taxability of recipient), a judgment of a non-jurisdictional High Court need not be followed where there are conflicting High Court judgments or where the judgment is rendered per incuram ( Kanel Oil Export Inds. Ltd. v. Jt. CIT (Asst.) [2009] 121 ITD 596 (Ahd.) (TM) or where the correct legal position was not brought to the notice of the High Court [ Lalsons Enterprises v. Dy. CIT [2004] 89 ITD 25 (Delhi) (SB)]. Apart from the judicial conflict. The alternative TDS procedure as per the CBDT Circulars was not brought to the attention of the High Court. Consequently, the judgment of the Special Bench in Mahindra Mahindra Ltd. v. Dy. CIT [2009] 30 SOT 374 (Mum.) [which held that section 195(1) did not apply if the payment was not chargeable to tax] has to be followed in preference to that of Samsung Electronics Ltd. ( supra ). A bare reading of above ratio indicates that decision of Hon ble Spl. Bench in Prasad Production Ltd. s case ( supra ) would not be applicable to the facts of the case as decision in Prasad Production Ltd. s case ( supra ), was given in the context of section 195(1) whereas the issue in the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all. On the other hand, the observations of the Court make it clear that the liability to deduct tax at source arises only when the sum payable to the non-resident is chargeable to tax; ( ii )Even in the plain language of section 195 shows that the tax at source is to be deducted on the "sum chargeable under the provisions of the Act". One can, therefore, reasonably say that the obligation to deduct tax at source is attracted only when the payment is chargeable to tax in India; ( iii )The determination by the Assessing Officer under section 195(2) of the Act is tentative in nature. In case it is ultimately found in the assessment proceedings relating to the recipient that he was not liable to pay any tax on the sums received, the assessee cannot be treated in "default" inasmuch as section 195(1) of the Act casts an obligation to deduct the tax at source on the sum chargeable under the provisions of this Act ; ( iv )As regards Samsung Electronics 185 Taxman 313 (Kar.), the context was different. The assessees wanted to show in their own assessment proceedings that the amount paid by them was not assessable to tax at the hands of recipient. No doubt, they would be precluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein; ( v ) permission under section 65 of the Bombay Land Revenue Code for change of user, and when and by whom it has been obtained; ( vi ) cessation of the agricultural use and converting the land to non-agricultural purposes; ( vii ) non-use for agricultural purpose of the land though listed in revenue records as agricultural land; ( viii ) its situation, physical characteristics and development in the vicinity; ( ix ) permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, and when and by whom; ( x ) price of the land on sale, and whether the value was determined as a unit of the land or on yardage or on acreage basis?" This authority also lays down criteria for determining character of a land for chargeability of capital gains by the Assessing Officer. It does not help LAO as to how he should proceed to decide whether tax is to be deducted or not. But one inference can certainly be drawn that Land Revenue Record and entries therein do create a presumption in favour of the land being agricultural land. (10) In Maganlal Morarbhai s case ( supra ). The issue was when land sold for non agriculture purposes ceased to be agricultural land. The per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural land with standing trees does not involve transfer of capital asset. (16) In Rajagiri Rubber Produce Co. Ltd. s case ( supra ). The issue was also the same as in the case of Alanickal Co. Ltd. ( supra ). If agricultural land is sold along with trees then trees cannot be treated as separate asset. (17) In M. Ramaiah Reddy s case ( supra ). There was compulsory acquisition of agricultural land with trees thereon. Land and trees were valued separately and compensation was paid. It was held that acquisition of land and acquisition of trees do not constitute two separate transactions. (18) In Syed Rafiqur Rahman v. CWT [1970] 75 ITR 318 (Pat.). The issue was inclusion of agricultural land for the purposes of Wealth-tax Act. It was held that the question whether a land is agricultural land or not does not depend upon the intention of the owner to use the land or not or on the fluctuating or ambulatory intention of the owner when integrated activity of agriculture is undertaken and performed on any land then land can be called agricultural land. (19) In Officer-in-Charge (Court of Wards) v. CWT [1969] 72 ITR 552 (AP). The issue for the purpose of wealth ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings. (8)In absence of any provision in section 194LA Assessing Officer cannot enter to influence the view of LAO on the character of a land acquired by him if he has prima facie evidence in support of the view he has framed. There is also no provision to give any opportunity to the Assessing Officer for rebutting the presumption in the Court of Land Acquisition Officer against the presumption raised by him. (9)The ratio laid down in M/s. Prasad Product Ltd., is not fully applicable to section 194LA because that judgment was rendered in the context of section 195(1) where language used is different than the language used in section 194LA. (10)The definition of agricultural land contained in section 2(14)( iii )( a ) and ( b ) cannot be imported for determining the land as agricultural land because such definition is separately given in section 194LA. Further definition given in section 2(14)( iii )( a ) and ( b ) are for the purpose of determining whether capital gains would be chargeable or not on the land sold and for that purpose whether the land in question would be agricultural land or not. That definition can be applied when the question of levy of capital gai ..... 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