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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI ABRAHAM P GEORGE
In this appeal filed by the assessee against an order dated 31-07- 2013 of CIT(A), Hubli, it has taken the following grounds;
“1. The order of the CIT(A), Hubli is opposed to law and facts of the case.
2. The CIT(A) ought to have held that the provisions of Sec.201 and 201(!A) are not applicable in the facts and circumstances of the case.
3. The CIT(A) ought to have held that there was no statutory obligation on the assessee to deduct the tax on the compensation paid to the no-agricultural land owners.
4. Without prejudice and in the alternative, assuming there was a default on the part of the assessee, the act of non- deduction is attributable to a bona-fide error on the part of the assessee.
5. The CI(A) ought to have appreciated that there were serious ambiguities, confusion and doubt regarding liability to deduct tax necessitating legislative interference.
6. Alternatively ad without prejudice the CIT(A) ought to have reduced to the extent of the amount collected from the land owners and remitted to the Government account and also to the extent of income declared b y the land owners in their return of income.
7. The quantification of liability u/s 201 and 201(1A) is not in accordance with law.
2. The assessee has also filed set of additional grounds which reads as under;
“1. The above named assessee craves for leave to add the following additional grounds; a) From the tenor and contents of the impugned order it is clear that the AO has proceeded against the Karnataka Industrial Area Development Board represented by the SLAO and levied penalty and interest under section 201(1) & 201(1A) on the specific ground that the Karnataka Industrial Area Development Board has clearly violated the provisions of 194LA whereas the land here in question is as per the provisions of the Karnataka Industrial Aras Development Act and the Sections there under and the Notifications issued for the purpose of acquisition, payment of compensation were all made by the State Government and therefore, the order is unsustainable.
2. This additional ground is only amplification by way of abundant caution to Ground no.2.
3. The failure to adopt these grounds in the original was neither willful nor deliberate. It does not require any fresh investigation into facts apart from looking into the material already on record. Principles for admission of additional grounds have been laid down repeatedly by Courts and we may refer only to few of those decision in 229 ITR 383 (SC), 187 ITR 688(SC) 199 ITR 351 (Bom.FB) 193 ITR 624 (Ker.). Being unaware of the correct position in law and the same has not been brought to my knowledge by my counsels. We may add here that the very additional aground no.3 is only an alternative ground. Hence, it is prayed that the above ground may be entertained and disposed of in accordance with law”.
3. Facts apropos are that the assessee a State Government undertaking was subject to a survey proceeding under the Act. During the course of survey proceedings, it was noticed that the assessee had acquired certain pieces of land from non-agricultural landowners and effected payment without deducting tax at source, as required u/s 194LA of the IT Act, 1961. A notice was issued to the assessee whereupon Shri H.D.Nagavi, Manager appeared before the AO. It was explained by the assessee that deduction u/s 194 LA of the IT Act, was not made by it on disbursements effected for acquiring non-agricultural land in and around the village Tarihal. As per the assessee the acquisition was for Airport Authority of India (AAI), Hubli. For non-deduction of tax, assessee had relied on Circular issued by the revenue department of Bangalore, on 20- 05-2008. As per the assessee it had not deducted tax on compensation paid during the period May 2010 to April 2011. The AO was of the opinion that reliance placed by the assessee on the Circular issued by their higher authorities would not absolve it from its duty to deduct tax at source. He held that the assessee had failed to deduct tax at source u/s 194LA of the IT Act, on compensation of Rs.144,48,16,687/- paid to various persons for acquiring the non-agricultural land and the assessee was treated as ‘one in default’ and also held liable for interest u/s 201(1A) of the IT Act, 1961.
4. Aggrieved the assessee moved in appeal before the CIT(A). As per the assessee the Circulars from its Head Office, clearly indicated that there was no liability to deduct tax at source on amounts paid for acquisition of non-agricultural land during the period May 2010 to April 2011. As per the assessee the obligation to deduct tax at source was on the person responsible for deducting such tax. The person responsible was defined u/s 204 of the Act. As per the assessee, person responsible for paying in its case was the State Government and not the assessee. Reliance was also placed on amendment to Sec.204 of the IT Act, effective from 01-07- 2012, through which Drawing & Disbursement Officer (DDO) of a State Government or Central Government was included in the definition of person responsible for paying.
5. However, the learned CIT(A) was not impressed by the above argument. According to him, the Circular issued by the higher authorities of the assessee Board, was irrelevant when it was not in accordance with Sec.194LA of the IT Act. Further, as per the learned CIT(A) that assessee s violated the said section and the explanation given by the assessee was not tenable. He confirmed the order of the AO.
Now before us, learned AR strongly assailing the orders of the CIT(A), submitted that the acquisitions were made by the State Government and the assessee was only a conduit. It was the State Government which was responsible for making the payments for the acquisition of the land.
Just because an Officer of the assessee made the payments as per the learned AR, assessee could not be visited with the obligations stipulated u/s 194LA of the IT Act, 1961. Relying on Sec.2(2) of the Karnataka Industrial Areas Development Act, 1966 (KIADA) learned AR submitted that the Board meant Industrial Area Development Board established under the said Act. Relying on Sec.5 of the KIADA Act, the learned AR submitted that the Board was a body corporate with perpetual succession and common seal. As per the learned AR u/s 28(1) of KIADB Act, the State could acquire land when the State was of the opinion that land was required for the purpose of development by the assessee Board. The land vested with the State Government and not with the Board. Relying on sub-section of 8 of Sec.28, the learned AR submitted that the State Government after it had taken possession of the land acquired by it, transferred the land to the Board, only where such land was required by the Board. As per the learned AR Sec.29 of the KIADB Act, clearly specified that it was for the State Government to pay for the acquisition. As per the learned AR where the compensation was determined by agreement between the State Government and owner of the land, it ceased to be compulsory acquisition.
Only in those cases where an agreement could not be reached between the parties, the question of compulsory acquisition arose. Reliance was placed on an English translation of an agreement executed by one Smt.Sumitra Shivanand Keeliputti, placed at paper book page nos.49 -51 which reads as under;
“ This agreement has been executed on this day of ……………….April, 2011 by me namely Smt. Sumitra Shivanand Keeliputti being the owner, beneficiary, legal heir, successor and right holder of Land situated under the Survey No.636B, Plot No.16, Square Area, 0.01.03.75 situated at Unkal Village Talkuk Hobali in Dharwad Dist. As per the directions issued on behalf of the Hon’ble Governor of Karnataka in favour of Authorities including the following terms and conditions of the said agreement which are as under;
Subject to my below mentioned right, the land situated under Survey No.636B, Plot No.16, Square Area: 0.01.03.75 situated at Unkal Village Taluk Hobali in Dharwad Dist. Has been acquired in full or part under Karnataka Industrial Area Development Board Act, 1966 or the purpose of Industrial Development.
According to the Sec.28(6) of the said Act, the Govt. has acquired the said land & in this regard the Notice has been served to the land owners & right holders & to successors & to us to make payment of land compensation amount u/s 29(2) & accordingly further the land compensation amount has also been fixed & determined & thereby, we the land owners & the Govt. have mutually agreed for payment of land compensation to us & accordingly I am being the holder of the land & beneficiary for the land compensation amount, have submitted an application for claiming land compensation amount.
Therefore, I have agreed as a land owner to receive the land compensation amount to be paid to the such owners fixed by the KIADB & to be collected from the said Board of Rs.920791/- in full by executing the Indemnity Bond.
As per the said Agreement the total compensation amount of Rs.9,20,791/-(Rs.Nine lakh twenty thousand seven hundred & ninety one only) (including land compensation, building & other ownership rights and relinquishment of right compensation amounts) has been paid to me & I have received the same. Further, I have noted that there is a prevention to make appeal to the Civil Court for higher compensation amount over and above the compensation amount paid to me. I am also bound by & I have agreed that the land compensation amount included for all the ownership rights & building situated in the said land.
In case, in future, if it is provided that I am not the true & original owner of the acquired land, then I am bound by and omitted to refund the entire compensation amount obtained by me & I will indemnify the losses and cost to the Board or to the Govt. immediately.
Further, in case the compensation amount is not refunded by me to the Govt. or to the true & original land owners & if I retained the compensation amount illegally, then, the said amount may be recovered from me legally as land revenue arrears as agreed under this said agreement.
I witness thereof, I have signed this agreement including above terms & conditions, before the following wit nesses. Sd/- S.S.Keeliputti Land Owners
Learned AR submitted that the consideration for land was fixed u/s 29(2) of the Act. As per the learned AR all the agreements through which land was acquired were typically worded as the one reproduced above, none of the acquisition could be termed as compulsory acquisition.
In any case, according to him, person responsible for paying as defined in Sec. 204 did not include the Disbursing Officer or a person acting on behalf of the Central Government or State Government prior to 01-07- 2012. Hence, according to him, even if it was held that Sec.194LA of the Act, applied to the assessee, the machinery provisions for making it effective, viz.
Sec.204 could not be applied to it. Thus, according to him, assessee was not liable to deduct tax at source u/s 194LA of the IT Act, 1961. Reliance was placed on the judgment of the Hon’ble Supreme Court in the case of Sundar Vs Union of India AIR 2001 Supreme Court 3516 and that of Hon’ble Chattisgarh High Court in the case of Naya Raipur Development Authority, Raipur (TCA 36-2013 dated 11-07-2014.
Per contra, learned DR strongly supported the orders of the authorities below and submitted that clause-iv added to sec.204 by Finance Act, 2012 was clarificatory in nature and this was explicitly stated in the Memorandum explaining the provisions in the Finance Bill, 2012. Being clarificatory, according to the learned AR it had to be given retrospective effect.
Further, as per the learned DR, the Board was only an arm of the State and hence, the assessee was trying to wriggle out of its liability to deduct tax u/s 194LA of the IT Act, citing technicalities. The Board was established only for facilitating the acquisition of land for industrial development and therefore, to say that payment effected by such Board for acquisition of land would not come within the provisions of Sec.194LA of the IT Act, was incorrect.
We have perused the orders and heard the rival submissions. There is no dispute that assessee had not deducted tax at source on payment effected by it for acquisition of non-agricultural land during the months of May 2010 to April, 2011. Arguments of the assessee can be divided in to two. The first limb of argument is that definition of person responsible for paying given in Sec.204, as it stood at the relevant point of time did not include an Officer of the Central Government or State Government and hence, computation provision failed. The second limb of its argument is that the acquisitions for which payment were effected were not compulsory in nature.
We deem it appropriate to first to deal with the second line of argument taken by the assessee. Section 194LA of the IT Act, is reproduced hereunder;
“ 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 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 percent 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. (two) hundred thousand rupees. Explanation….For the purpose 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)..
A reading of the above section clearly indicates that it applies only when there is a compulsory acquisition under law. Hon’ble Apex Court had an occasion to consider what could be a compulsory acquisition in the case of Sunder Vs Union of India (Supra). The question before the Hon’ble Apex Court was whether solatium on account of compulsory acquisition forms part of compensation. At para-22 of its judgment their Lordship’s explained what could be considered as compulsory acquisition in the following words;
“22. Compulsory nature of acquisition is to be distinguished from voluntary sale or transfer. In the latter, the land owner has the widest advantage in finding out a would be buyer and in negotiating with him regarding the sale price. Even in such negotiations or haggling normally no landowner would bargain for any amount in consideration of his disinclination to part with the land. The mere fact that he is negotiating for sale of the land would show that he is willing to part with the land. The owner is free to settle terms of transfer and choose the buyer as also to appoint the point of time when he would be receiving consideration and parting with his title and possession over the land. But in the compulsory acquisition the land owner is deprived of the right and opportunity to negotiate and bargain for the sale price. It depends on what the Collector or the Court fixes as per the provisions of the Act. The solatium envisaged in sub-section (2)”in consideration of the compulsory nature of the acquisition” is thus not the same as damages on account of the distinction to part with the land acquired”.
How far the above meaning could be applied in relation to interpretation of Sec.194LA of the IT Act, 1961 had come up before the Hon’ble Chattisgarh High Court in the case of Naya Raipur Development Authority (Supra). The question before the Lordship was as under;
“ Whether the land acquired b y agreement by the assessee under the Chattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973 (The Nivesh-Act) is compulsory acquisition within the meaning of Sec.194LA of the Income-tax Act, 1961 (the IT Act) or not?.”
Their Lordship held as under, at page-32 of its judgment;
“ 13. The word compulsory acquisition is not defined in the IT Act or for that matter in any other statute. However, it is expropriation or is done in exercise of ‘eminent domain’ the word, which was coined by 17th Century Jurist Grotius. 14. Halsbury’s Laws of England, Vol.8(1), 4th Edition explains that “where land on an interest in land is purchased or taken under statutory powers’ without the agreement of the owner’. It is said to have been compulsorily acquired”.
15. In Sunder Vs Union of India (2001) 7(SCC 211) the question involved before the Supreme Court was whether the State liable to pay interest on the amount envisaged under section 23(2) of the Land Acquisition Act, 1894 (LA Act) or not. While deciding this question, the Court observed,
“(1) In the compulsory acquisition the land owner is deprived of the right and opportunity to negotiate and bargain for the sale price. It depends on what the Collector or the Court fixes as per the provisions of the LA Act”.
16. It is clear that in case of compulsory acquisition, the seller has no option. He can neither refuse to sell his land nor can he negotiate the price. The price is fixed by the statute itself. The conditions that must be satisfied before a purchase can be said to be compulsory acquisition are as follows; (i) The seller has no option but to sell the land. (ii) The seller cannot negotiate the price. It is fixed by the statute or determined under the principles mentioned therein.
There are many examples of such statutes. The Zamindari Abolition Acts, Ceiling Acts, Nationalism Acts are examples of such compulsory acquisition but the most prominent law regarding compulsory acquisition of immovable property is the LA Act”.
Thus, it is clear that for an acquisition to be considered compulsory the price has to be fixed by the statute and there should be no room for negotiation. The compensation that is to be given is confined to the market value of the property on the date of notification under the land acquisition Act.
At this juncture, it is required to re-produce para-2 of the agreement entered by the assessee with Smt.Sumitra Shivanand Keeliputti which has reproduced by us at para-6
“ According to the Sec.28(6) of the said Act, the Govt. has acquired the said land & in this regard the Notice has been served to the land owners & right holders & to successors & to us to make payment of land compensation amount u/s 29(2) & accordingly further the land compensation amount has also been fixed & determined & thereby we he land owners & the Govt. have mutually agreed for payment of land compensation to us & accordingly I am being the holder of the land & beneficiary for the land compensation amount, have submitted an application for claiming land compensation amount”.
It is clear from the above that the compensation was fixed in accordance with Sec.29(2) of the KIA Act. Sec.29 of the KIA Act is re-produced here under;
“ 29. Compensation: (1) Where any land is acquired by the State Government under this Chapter, the State Government shall pay for such acquisition compensation in accordance with the provisions of this Act. (2) Where the amount of compensation has been determined by agreement between the State Government and the person to be compensated, it shall be paid in accordance with such agreement”.
(3) Where no such agreement can be reached, the State Government shall refer the case to the Deputy Commissioner for determination of the amount of compensation to be paid for such acquisition as also the persons to whom such compensation shall be paid (4) On receipt of a reference under sub-section (3), the Deputy Commissioner shall serve notice on the owner or occupier of such land and on all persons known or believed to be interested herein to appeal before him and state their respective interests in the said land”.
It is clear that the question of compulsory acquisition will arise only where the compensation cannot be determined by agreement. Sub-sec.3 & 4 will come into play only when there is a failure to determine the compensation through negotiation between State Government and the land owners. In other words when the compensation is based on an agreement between State Government and owner of the land, no more can we say that it is a compulsory acquisition.
Especially so, in view of the elucidation of law by the Hon’ble Chattisgarh High Court in the case of Naya Raipur Development Authority. Once the acquisition is not considered as compulsory, Sec.194LA of the IT Act will not be applicable. Thus, in our opinion, if the compensation paid by the assesee for acquisition of land were all through agreements similar to the one entered by the assessee with Smt.Sumitra Shivanand Keeliputti, pertinent parts of which have been re-produced by us above, then these would not fall within the definition of compulsory acquisition. However, we are of the opinion, that the acquisition whether the acquisitions for which assessee had not deducted tax at source were based on agreements similar to the one produced by the assessee before us or in other words whether in all such compensation amounts were fixed in accordance with Sec. 29(2) of the KIA Act require verification by the lower authorities. We therefore, set aside the orders of the authorities below and remit the issue back to the file of the AO for verifying the agreements to reach a conclusion whether acquisitions fell under ‘compulsory acquisition’ or not. Learned AO shall proceed as per law declared by Hon’ble Apex Court and elucidation given by Hon’ble Chattisgarh High Court which we have reproduced above. Since we have remitted the question regarding nature of acquisition back to the file of the AO, the other question as to the failure of machinery provision for applying Sec.194LA is kept open at this juncture.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 23-09-2015.