Interest on delayed receipt of compensation on land acquisition is liable to TDS

HIGH COURT OF MADHYA PRADESH

Rameshwar

v/s.

Ujjain Development Authority

WRIT PETITION NO. 2153 OF 2011(O)

FEBRUARY 28, 2012

ORDER

This order shall also govern disposal of W.P.Nos.2155/2011, 2183/2011, 2184/2011, 2186/2011, 2188/2011, 2189/2011 and 2190/2011 as the question involved in all the petitions is identical in nature.

1. Being aggrieved by the order dated 27.11.2010 passed by 9th Addl. District Judge, Ujjain in execution cases filed by the petitioners for recovery of compensation awarded in Land Acquisition cases, present petitions have been filed.

2. Short facts of the case are that in all the petitions, execution cases were filed by the petitioners, wherein prayer was that respondent No. 1 be directed to pay compensation along with interest and other benefits. Respondent No. 1 deposited the amount payable to the petitioners and submitted that as per section 194-LA of the Income-tax Act a sum of Rs. 34,95,833/- has been deposited by the respondent No. 1 in all the execution petitions on 10.6.2009 with the Income-tax Department. It is submitted that thus the execution petitions be dismissed in full satisfaction. After hearing the parties learned Court below dismissed the execution petitions in full satisfaction against which present petitions have been filed.

3. Shri A.S. Kutumbale, learned senior counsel appearing on behalf of the petitioners in all the petitions, submits that impugned order passed by the learned Court below is illegal, incorrect and deserves to be set aside. Learned counsel submits that no amount could have been deducted by the respondent No. 1 on account of TDS. It is submitted that Section 194-LA has been amended vide amendment Act No.2 of 2004 w.e.f. 1.10.2004, which reads as under :-

“194LA – Payment of Compensation on Acquisition – 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 per cent 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 one hundred thousand rupees.”

4. Learned counsel submits that since the property, which was acquired by respondents No. 2 and 3 at the instance of respondent No. l, was the agricultural land, therefore, respondent No. l was having no authority to deduct the TDS. Learned counsel placed reliance on a decision in the matter of Mysore Urban Development Authority v. ITO [2008] 175 Taxman 307 (Kar.) wherein Karnataka High Court had an occasion to consider the word “agricultural land” within the meaning of Section 194LA and has observed that in a case of compensation for acquisition of agricultural land main part of Section 194LA itself excludes agricultural land from the immovable property covered by Sec. 194LA as the words in the brackets i.e. ‘other than agricultural land’ indicate that there is no obligation cast on a person to deduct tax while distributing compensation for agricultural land located at any place including in an urban agglomeration. Learned counsel further placed reliance in the matter of Risal Singh v. Union of India [2010] 321 ITR 251 (Punj. & Har.). Learned counsel submits that learned executing Court committed error in observing that since respondent No. 1 has deposited entire amount of compensation after deducting TDS and is also ready to give certificate of it so that petitioners can take it back from Income-tax Department, hence the proceedings stands dropped in full satisfaction. Learned counsel submits that while making this observation learned Court below has completely overlooked the provisions of Section 194LA of the Income-tax Act, which excludes the deduction of TDS on agricultural land. It is submitted that petitions be allowed and impugned order be set aside.

5. Shri Prahlad Sharma, learned counsel appearing on behalf of respondent No. 1, submits that no illegality has been committed by the learned Court below in passing the impugned order. It is submitted that before learned Court below respondent No. 1 requested the petitioners to submit permanent account number (in short PAN), so that the amount can be paid to the petitioners, but in spite of request PAN was not submitted, therefore, respondent No. 1 deposited the amount with the Income-tax Department. Learned counsel, placed reliance on the departmental Circular dated 5.12.2008 of the Income-tax Act based on Supreme Court ruling according to which “Interest payment made under the Land Acquisition Act is covered by the provisions of Section 194A and hence tax will have to be deducted at source under this Section from the interest payments made to the public under the Land Acquisition Act.”

6. Learned counsel submits that Ujjain Development Authority was duty bound to deposit the TDS failing which the consequences are laid down under Section 271-C of the Income-tax Act, which reads as under :-

“271C. Penalty for failure to deduct tax at source

(1) If any person fails to –

(a)  deduct the whole or any part of the tax as required by or under the provisions of Chapter XVIIB; or

(b)  pay the whole or any part of the tax as required by or under, –

(i)  sub-Section (2) of Section 115-0; or

(ii)  second proviso to Section 194B, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.

(2) Any penalty imposable under sub- Section (1) shall be imposed by the Commissioner:”

7. Learned counsel placed reliance on a decision in the matter of Karnail Singh v. State of Haryana [2009] 184 Taxman 257 (Punj. & Har.), wherein Division Bench of Punjab & Haryana High Court while considering Section 194A of the Income-tax Act has held that land belonging to the petitioner, which has been acquired under the Land Acquisition Act, 1894, is agricultural land and the same is excluded under Section 194LA, however, the interest accrued on delayed payment is regarded as revenue receipt exigible to tax, therefore, tax is to be deducted under Section 194A in respect of such interest income. Further reliance is placed on a decision in the matter of Bikram Singh v. Land Acquisition Collector [1996] 89 Taxman 119 (SC) wherein the Hon’ble Apex Court has held that interest is not included as out of compensation and also is not consideration for acquisition. It was further held that interest is given to the land owner for the deprivation of the use of the money representing the compensation for the land acquired. This interest under Section 34 of the Land Acquisition Act is thus paid for the delayed payment of the compensation amount and, therefore, a revenue receipt liable to tax under the Income-tax Act. Leaned counsel submits that to save the respondent No. 1 Authority from the consequences of Section 271C of the Income-tax Act, the amount was deposited by respondent No. 1 on 10.6.2009. It is submitted that petitions have no merit and the same be dismissed.

8. Ms. Veena Mandlik, counsel for the Income-tax Department, submits that no illegality has been committed by the Ujjain Development Authority in deducting the Tax at Source (in short TDS) as it is deducted only on the amount of interest paid to the claimants and not on the compensation. Learned counsel submits that in the matter of Risal Singh (supra) wherein the deduction was made by the Collector on the amount of compensation, Punjab & Haryana High Court allowed the writ petition and remitted the case holding that since the land was agricultural land, therefore, no tax can be deducted at source. It is submitted that in the present case the situation is different. Learned counsel submits that this Court also in the matter of Union of India v. Ramlal 2011(2) JLJ 178, while dealing with the case of compensation payable by the Insurance Company dealing with Section 194-A of the Motor Vehicles Act has held that the interest on such compensation has to be calculated on yearly basis and lump sum amount as interest could not be calculated for the purpose of deduction of Income-tax. It is submitted that, the compensation, which is being paid under Motor Vehicles Act has no application to the present case because in the Income-tax Act for compensation, which is payable under the Motor Vehicles Act, the tax is exempted up to Rs. 50,000/-, but such type of provision is not available for the interest, which is being payable under the Land Acquisition Act. Reliance is also placed on a decision in the matter of Sant Ram v. Union of India [2010] 328 ITR 77 (Punj. & Har.) wherein Division Bench of Punjab & Haryana High Court after taking into consideration the law laid down by the Hon’ble Apex Court in the matter of Bikram Singh (supra) had held that interest paid on delayed payment for acquisition of agricultural land is recorded as revenue receipt exigible to Income-tax, hence tax is to be deducted under Section 194-A of Income-tax Act in respect of such interest income. It is submitted that petition be dismissed.

9. The amount, which was payable to each of the petitioners on account of interest out of which the amount deducted towards TDS and the amount paid to each of the petitioner is shown in the chart hereinbelow.

10. The acquisition is of the year 2001 while the compensation has been paid somewhere in the year 2009. Keeping in view the law laid down by the Hon’ble Apex Court in the matter of Bikram Singh (supra) this Court is of the view that interest received on delayed payment is a revenue receipt exigible to Income-tax. Since the amount has already been deposited by the respondent Ujjain Development. Authority and the deduction is in accordance with Section 194-A of the Act therefore, this Court finds that no illegality has been committed by the learned Court below in upholding the action taken by respondent Ujjain Development Authority in deducting the amount. However, since the award was passed on 7.9.2001 and the compensation was paid somewhere in the years 2009, therefore, the interest, which is paid is on account of delayed payment of compensation in the years 2001 to 2009, therefore, keeping in view the law laid clown by the Hon’ble Apex Court in the matter of Rama Bai v. CIT [1990] 181 ITR 400/[1991] 54 Taxman 416 where their Lordships, following the earlier decisions have held and clarified that the interest cannot be taken to have accrued on the date of order of Court granting enhanced compensation but has to be taken as having accrued year after year from the delivery of the possession of the land till the date of such order and in the case of K.S. Krishna Rao v. CIT [1990] 181 ITR 408/[1991] 54 Taxman 334 (SC) it was held that where a compensation awarded under the Land Acquisition Act or on further appeals, interest on enhanced compensation cannot be taxed all in a lump sum as having accrued on the date on which the Court passes order for enhanced compensation; the interest has to be spread over on annual basis right from the date of delivery of possession till the date of order on a time basis, petition filed by the petitioner is disposed of with a direction that respondent Ujjain Development Authority shall issue Form No. 16-A to the petitioners upon receipt of Permanent Account Number (PAN) by the petitioners forthwith upon submission of return by the petitioner, Income-tax Department shall while assessing the liability of tax of the individual assessee shall take into consideration the fact that the interest received is from the years 2001 to 2009. With the aforesaid observations petition stands disposed of. Let copy of this order be kept in the record of all the connected cases. No order as to costs.