The main legal point established in the judgment is that the Assessing Officers are responsible for determining whether compensation for compulsory land acquisition, particularly in cases involving agricultural land, is subject to tax deduction at source. The court emphasized the application of relevant provisions in the Land Acquisition Act and the Income Tax Act, along with the interpretation provided in Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) [2009 (8) SCC 412].

ORDER :

Leave granted.

In all these appeals the short question of law which needs consideration is as to whether the tax at source is to be deducted on the amounts which are paid as compensation or enhanced compensation, etc., on account of compulsory acquisition of land under the provisions of Land Acquisition Act, 1894.

2. An admitted fact which is common in all these appeals is that while disbursing the compensation, the Land Acquisition Collector had deducted the tax at source and deposited the same with the Income Tax Department. These appellants preferred the writ petition in the High Court stating that no such deduction at source was permissible in view of the provisions of Section 194LA of the Income Tax Act, 1961, since the land which was acquired was agricultural land and this provision categorically mentions that in respect of agricultural land, tax at source is not to be deducted.

3. There is no quarrel about the position of law mentioned above. After examining this provision, the High Court had passed an order directing the Income Tax Department to refund the amount to the Collector with a direction to the Collector to determine whether the compensation is paid for property other than agricultural land or otherwise and whether deduction of tax at source was permissible under any provision of law. The manner in which the Land Acquisition Collector has to proceed further after determining the aforesaid issue is contained in paragraph 8 of Writ Petition No. 9912 of 2009 decided on 11.01.2001, which is reproduced below:

“8. Accordingly, we allow this petition and direct the Income Tax Department to refund the amount to the collector within one month from the date of receipt of a copy of this 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. Whether deduction is permissible or not will be decided by the Collector within two months from the date of receipt of a copy of this 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 this 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.”

Similar directions are given in the other case as well. It is submitted by Mr. Maninder Singh, learned Additional Solicitor General, that the direction to refund the amount and calling upon the Collector to determine as to whether the compensation paid is for property other than agricultural land or not, is not in accordance with the provisions of the Income Tax Act. He submitted that the matter should have been remitted to the Assessing Officer to decide the nature of the land acquired in each case, inasmuch as, it is the Assessing Officer who is to come to the conclusion whether the land is agricultural land or not keeping in view the definition thereof as contained in Section 2(14)(iii) of the Income Tax Act and other incidental provisions.

He has also drawn our attention to the judgment of the Kerala High Court in the case of 'Nalini v. Dy. Collector, Land Acquisition' [2006 (4) ILR Kerala 229] wherein the High Court spelled out the following modalities which should be undertaken in such cases.

“6. The learned counsel appearing for the petitioner has argued that at present there is no practice of giving notice to the party regarding his liability to pay income tax from the amount of compensation awarded by the Land Acquisition Officer. It is argued that the parties are not even aware of any such deduction and there is no practice of issuing Tax Deduction Certificate by the Land Acquisition Officer under the relevant rules. It is argued that even when the enhanced compensation is awarded by the court the parties are not informed about the quantum of income tax deducted and also no certificate is iss