LAND ACQUISITION OFFICER, URBAN ESTATE vs. ASSISTANT COMMISSIONER OF INCOME TAX, TDS CIRCLE

Facts

The petitioner, the Land Acquisition Officer (LAO), Urban Estate, Panchkula, is challenging the imposition of a liability of Rs. 1,28,19,35,845/- under Section 201(1) and 201(1A) of the Income Tax Act, 1961. This liability arose from the alleged failure to deduct tax at source (TDS) on interest components of enhanced compensation paid to landowners for acquired land. The LAO had stopped deducting TDS on such interest after October 2012, following High Court judgments that interpreted interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894, as part of the compensation and not liable for TDS. The Income Tax Department initiated proceedings after a survey under Section 133A in 2015, leading to the impugned orders.

Held

The High Court allowed the writ petitions, quashing and setting aside the orders dated 22.03.2016 and 31.03.2016 passed by the Assistant Commissioner of Income Tax, TDS Circle. The Court held that the Land Acquisition Officer (LAO) could not be made to suffer on account of orders passed by the Court. It was noted that the LAO had stopped deducting TDS after October 2012 based on legal advice and various High Court judgments, including those that restrained such deductions. The Court found that the LAO was acting under a genuine belief, following the advice of the District Revenue Officer and the legal opinion of the Additional District Attorney, which was based on court directions. While acknowledging that some of these directions might not have been in conformity with other High Court orders, the Court emphasized that the LAO was not privy to those other orders and was bound by the directions provided to him. Therefore, the action of the LAO in releasing the interest amount without deducting TDS could not be considered wrongful or illegal, and the penalty imposed under Sections 201 and 201(1A) of the Act was unjustified. If any amount had been deposited, it was to be refunded to the petitioner along with interest at 6% per annum.

Key Issues

1. Whether the Land Acquisition Officer (LAO) was liable for non-deduction of Tax Deducted at Source (TDS) on interest paid on enhanced compensation, and consequently, liable under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, for the assessment year 2015-16. Assessee's Arguments: The petitioner (LAO) contended that it acted in bonafide belief, relying on legal opinions from the Additional District Attorney and various High Court judgments, including CIT vs. Ghanshyam (HUF) and orders in cases like Jagmal Singh vs. State of Haryana, which held that interest on enhanced compensation was not subject to TDS. The petitioner also cited orders from other courts that restrained TDS deduction and subsequent review applications. The LAO argued it cannot be penalized for acting on legal advice and court orders. Revenue's Arguments: The respondent (Income Tax Department) argued that the LAO was debarred from withholding tax on compulsorily acquired land and was required to deduct TDS. The department also submitted that it was not a party to the cases cited by the petitioner and that some High Court orders were interim or later reviewed. The department relied on judgments like Attar Singh vs. State of Haryana, CWP No. 10125 of 2015, to support its claim that the LAO was liable.