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IN THE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
V. Ramasubramanian and J. Uma Devi, JJ.
C. Nanda Kumar, S/o Sri. Conjeevaram Lakshman Rao - Petitioners
Vs.
Union of India, Rep. by its Secretary, Ministry of Finance, New Delhi and others - Respondents
Writ Petition Nos. 7874, 9423 and 44382 of 2016
Decided On : 13-03-2017
Constitution of India - Article 265 - Income Tax Act, 1961 - Sections 194LA, 96 - Collector to deduct tax at source from out of the compensation payable under the Land Acquisition Act or aggrieved by the action of the Land Acquisition Officer in deducting or attempting to deduct tax at source from out of the compensation payable under the Land Acquisition Act the petitioners have come up with the present writ petitions - Learned counsel appearing for the petitioners and learned Standing Counsel appearing for the Income Tax Department - Petitioners in these writ petitions owned certain lands - Those lands were acquired by the Government for the proposed Viaduct and Stations Alignment of Metro Rail under the Metro Rail Project - Admittedly acquisition was in terms of the provisions of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act - Competent authority started disbursement of compensation without deducting tax at source under Section of the Income Tax Act - Tax was not deducted at source in view of Section - District Collector calling upon him to deduct tax at source while making payment of compensation under the Act on the ground that as per the decision of the High Court in Kochi Metro Rail Ltd. v. Union of India Section of the Act would not override the provisions of Section 194LA of the Income Tax Act - Challenging the said Circular of the Commissioner of Income Tax dated the land owners have come up with the first two writ petitions - Held, Department and in the latter case, he acts on behalf - Irrespective of the nature of the role played by the payer Section would operate as a bar since one of the 3 components of the levy is taken away by Section merely because section of the Act confers a benefit upon the landowner/assessee/payee and section 194LA of the Income Tax Act imposes an obligation upon the payer, it cannot be concluded that the former cannot control the latter - Compensation but also to make provisions for the rehabilitation and resettlement of the families of the land losers. The preamble to the Act shows that the Act was intended to look at land losers as persons who can become partners in the development of the country. Section of the Act was intended to be a tool towards securing the laudable objectives of the 2013 Act it can never be contended that Section of the Income Tax Act will make into the welfare provision contained in the Land Acquisition Act - There is no use in giving effect to the provisions of Section of the Act by first asking the Land Acquisition authority to deduct tax under Section 194LA and then driving the poor land losers from pillar to post to get a refund of the amount from the Income Tax Department. An interpretation that will lead the farmers and land losers to go from the Collectorate to the Income Tax Officer is antithetic to the objects and reasons of the Act - Second contention of the learned standing counsel for the Department is liable to be rejected - Accordingly it is rejected - petitions are allowed.
Certainly. Here are the key points derived from the provided legal document:
The core issue concerns whether tax should be deducted at source from compensation paid under the Land Acquisition Act when the acquisition is governed by the 2013 Act, which exempts such compensation from income tax (!) (!) .
The landowners challenged Circulars issued by the Income Tax Department that mandated deduction of tax at source, arguing that the exemption provisions of the 2013 Act should prevail over the Income Tax Act provisions (!) (!) .
The acquisition was carried out under the 2013 Act, which aims to provide fair compensation, rehabilitation, and resettlement, and intends to treat land losers as partners in development, with provisions that exempt certain awards from income tax (!) (!) (!) .
The Department's Circular and the provisions of the Income Tax Act, specifically Section 194LA, impose a duty on the payer to deduct tax at source, but this duty conflicts with the exemption granted by Section 96 of the 2013 Act, which bars income tax on awards made under the Act (!) (!) (!) .
The Court clarified that Section 96 of the 2013 Act provides a statutory exemption from income tax for compensation awards, and this exemption overrides the obligation to deduct tax at source under Section 194LA, unless the acquisition falls under specific exceptions such as Section 46 (!) (!) .
The Circular issued by the Central Board of Direct Taxes clarifies that compensation exempted under the 2013 Act is not taxable, further supporting the position that no tax deduction is required in such cases (!) (!) .
The Court emphasized that the scheme of the Income Tax Act is designed for the collection and recovery of tax on income, and if the compensation is exempt from tax under the 2013 Act, then the obligation to deduct tax under Section 194LA does not apply (!) (!) .
The Court rejected the Department’s argument that the obligation to deduct tax at source is independent of the exemption provisions, affirming that the exemption under Section 96 of the 2013 Act takes precedence and renders the deduction unnecessary (!) (!) .
The Court also noted that the object of the 2013 Act is welfare-oriented, and requiring deduction and subsequent refunds would be contrary to the Act’s purpose and could cause undue hardship to landowners (!) .
As a result, the Court allowed the petitions, directing that no tax should be deducted at source from compensation paid under the 2013 Act, except in cases explicitly covered by specific provisions such as Section 46 (!) .
For the interim, any tax deducted was to be deposited with the Court and kept in fixed deposits, which should be liquidated or transferred to the petitioners upon order (!) .
The overall conclusion affirms that the exemption provisions of the 2013 Act, combined with the clarifications in Circular No. 36/2016, establish that compensation under the Act is not subject to income tax or TDS under Section 194LA, unless specific exceptions apply (!) .
Please let me know if you need further analysis or specific legal advice based on these points.
V. RAMASUBRAMANIAN, J.
Either aggrieved by a Circular issued by the Commissioner of Income Tax (TDS) directing the District Collector to deduct tax at source from out of the compensation payable under the 2013 Land Acquisition Act or aggrieved by the action of the Land Acquisition Officer in deducting or attempting to deduct tax at source from out of the compensation payable under the 2013 Land Acquisition Act, the petitioners have come up with the present writ petitions.
2. Heard Mr. Anand Kumar Kapoor and Mr. K.S Murthy, learned counsel appearing for the petitioners and Ms. K. Mamata, learned Standing Counsel appearing for the Income Tax Department.
3. The petitioners in these writ petitions owned certain lands. Those lands were acquired by the Government for the proposed Viaduct and Stations Alignment of Metro Rail under the Hyderabad Metro Rail Project. Admittedly, the acquisition was in terms of the provisions of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, hereinafter referred to as the 2013 Act.
4. After awards were passed, the competent authority started disbursement of compensation, without deducting tax at source under Section 194LA of the Income Tax Act, 1961. Tax was not deducted at source in view of Section 96 of the Act 30 of 2013.
5. But the Commissioner of Income Tax (TDS) issued a Circular dated 05-11-2015 to the District Collector calling upon him to deduct tax at source while making payment of compensation under the 2013 Act, on the ground that as per the decision of the Kerala High Court in Kochi Metro Rail Ltd. v. Union of India, Section 96 of the 2013 Act would not override the provisions of Section 194LA of the Income Tax Act, 1961. Therefore, challenging the said Circular of the Commissioner of Income Tax (TDS), dated 05-11-2015, the land owners have come up with the first two writ petitions, namely, W.P Nos. 7874 and 9423 of 2016.
6. At the time when notice was ordered in the above writ petitions, this Court granted a limited interim order directing the District Collector to deposit with the Registrar (Judicial) of this Court, the tax already deducted at source, with a further direction to the Registrar (Judicial) to keep the amount in an interest bearing cumulative fixed deposit.
7. Subsequently, the Central Board of Direct Taxes (CBDT) issued a Circular bearing No. 36/2016, dated 25-10-2016, clarifying that the compensation received under an award exempted from the levy of income tax under Section 96 of the 2013 Act shall not be taxable, even if there is no specific provision for exemption under the Income Tax Act, 1961. Therefore, one set of land owners whose lands were acquired have come up with the 3rd writ petition W.P No. 44382 of 2016 seeking a mandamus not to deduct tax at source, in terms of the Circular of the CBDT.
8. The short question that arises for consideration in these writ petitions is as to whether income-tax is liable to be deducted at source under Section 194LA of the Income Tax Act, 1961 despite the provisions of Section 96 of the Central Act 30 of 2013.
9. Assailing the claim of the Income Tax Department, it is contended by Mr. Anand Kumar Kapoor, learned counsel for the petitioners in the first two writ petitions
(a) that since Section 194LA of the Income Tax Act, 1961 was incorporated in the year 2004, the latter law namely Section 96 of the 2013 Act will prevail over the same,
(b) that the provisions of Section 96 of the 2013 Act should be taken to be Special Law vis-vis Section 194LA of the Income Tax Act and hence the principle that Special Law overrides the General will apply,
(c) that the decision of the Single Judge of the Kerala High Court in Kochi Metro Rail Ltd. has already been overturned by the Division Bench of the Kerala High Court,
(d) that there can be no tax liability in law if there is any ambi
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