Compulsory acquisition of Land – Assessee not liable to deduct TDS u/s. 194LA on remittance to Competent Authority

ITAT KOLKATA BENCH ‘B’

Metro Railway Kolkata

Versus

Income -tax Officer (TDS)

IT Appeal Nos. 49 to 53 ( Kol. ) of 2012
[Assessment Years 2005-06 To 2009-10]

Date of Pronouncement – 26.03.2013

S.S. Gupta for the Appellant. K.N. Jana for the Respondent.

ORDER

Pramod Kumar, Accountant Member

These five appeals pertain to the same assessee, involve common issues, pertain to the same appellant, against the same consolidated order passed by the Assessing Officer, are set out on common set of facts and were heard together. Learned representatives before us fairly agree that whatever is decided in one appeal will apply mutatis mutandis to other four appeals as well. It is in this backdrop, and as a matter of convenience, that we are taking up all the five appeals together for disposal by way of this consolidated order.

2. We will take up ITA No. 49/Kol/2012, i.e. appeal against the order dated 28th October 2011 passed by the CIT(A) in the matter of demands raised on the appellant under section 201 r.w.s. 194 LA of the Income Tax Act, 1961, for the assessment year 2005-06, as the lead case and our decision on this appeal will apply to other assessment years as well.

3. Grievances raised by the appellant are as follows:

1. For that the learned C.I.T(A) was grossly unjustified in confirming the addition made by the assessing officer. Such action of the CIT(A) was arbitrary, opposed to requirement of law and bad in law.

2. For that the authorities below erred in determining the responsibility and authorities of the responsible person in connection with the deduction u/s. 19LA of the Act.

3. For that the authorities below had not properly dealt with the function of the learned Competent Authority in connection with the determination & payment of compensation to the land owners as per provision of the “The Metro Railway (Construction of Works) Amendment Act, 1987”.

4. For that the order of the authorities below in respect of the demand notice are not in accordance with the provision of the Act, invalid and void ab initio.

5. For that order of CIT(A) as well as the assessing officer in imposing of tax of Rs.17,17,886/- u/s 201(1) of the Act as well as Rs.9,27,647/- u/s 201(1A) of the Act are neither tenable in law nor in fact.

6. For that the appellant craves leave to amend, alter, add, delete or substitute any other grounds of appeal before or at the time of hearing of the appeal.

4. The material facts are not in dispute. The appellant before us is a part of the Government of India and is engaged in establishing and running metro railway network in the city of Kolkata. In the course of its functioning, the appellant has acquired land under the Metro Railways (Construction of Works) Act, 1978, and compensation for such compulsory acquisition of land has been paid to the landowners. When a survey under section 133 A was carried out at the premises of the appellant, it was noticed that while a compensation aggregating to Rs. 32.21 crores, over a period of five years beginning 1st April 2004, was paid as compensation for such compulsory acquisition of land, no tax deductions at source, as required under the provisions of Section 194 LA, were made from these payments. It was also noted that a payment of Rs. 1,68,41,828 was made in the relevant previous year itself. It was in this backdrop that the proceedings were initiated by the Assessing Officer TDS to examine appellant’s compliance with the tax withholding provisions under the Act. In response to the Assessing Officer’s requisition to show cause as to why action under section 201 r.w.s. 194 LA not be taken against the appellant, it was explained by the assessee that so far as the appellant was concerned, the appellant had to comply with the orders passed by the Competent Authority appointed under the Metro Railways (Construction of Works) Amendment Act, 1987, but the actual disbursement of compensation amount is being made by the said Competent Authority to the beneficiaries. It was submitted that the orders of the Competent Authority were binding on the appellant as much as court orders are, and, therefore, the appellant could not have deducted tax at source from the said disbursements to the Competent Authority. None of these submissions, however, impressed the Assessing Officer. He rejected these submissions and held appellant liable under section 201 r.w.s. 194 LA by observing as follows:

………..In clause 5 of their submission, it has been made clear that Metro Railway is duty bound to comply the Competent Authority’s order in terms of payment of compensation amount decided by him. Then, it cannot be denied that Metro Railway is paying the amount to the competent authority as per requirement who is actually disbursing the amount as per their Ministry’s Act, which is made for the facilitation of departmental activities.

On relying upon the clause (3) of the said submission, the Competent Authority is only determining the amount to be paid as compensation and accordingly send the pay order on account of land owner to Central Government in which Metro Railway is allocating the funds as per the budget. So, in the instant case, the Competent Authority is acting as a coordinator who does not fall within the purview of tax deductor as per law and the beneficiary is obviously Metro Railway, Kolkata, which holds actually the title of the land. Moreover, the Competent Authority is doing nothing but facilitating the process of compulsory acquisition of land on behalf of Metro Railway Kolkata.

It has been deducted from the above facts and submission that it is Metro Railway who are, according to their budget allocation, paying the amount to Competent Authority for acquisition of land and it is the Dy. FA and CAO who is responsible for paying the amount to the Competent Authority to the first end, is liable to deduct tax at source from the payment of compensation on land acquisition under section 194 LA of the Income Tax Act, 1961, @ 10% with an arrangement with the office of the Competent Authority.

5. Accordingly, demands under section 201 r.w.s. 194 LA were raised on the appellant for non deduction of tax at source. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. After elaborately quoting from the assessee’s submissions and the order passed by the Assessing Officer, learned CIT(A), in his brief and rather cryptic operative portion of the order, observed as follows:

I have carefully considered the submission of the appellant. I have also gone through the assessment order passed by the AO. The AO has rightly held the appellant as assessee in default for failure to deduct TDS out of compensation amount because it is the Metro Railway who is responsible to make the payment of compulsory acquisition of the land through the Competent Authority, and it is the Metro Railway who will be owning the land after compulsory acquisition of land. Thus the appellant fails to get relief on this issue.

6. The appellant is not satisfied by the stand so taken by the CIT(A) and is in further appeal before us.

7. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.

8. Section 194 LA, which is at the core of dispute in appeal before us, provides as follows:

Payment of compensation on acquisition of certain immovable property

194LA. 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.

Explanation.—For the purposes 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.

9. A plain reading of the above legal provision shows that the tax withholding requirements under section 194 LA come into play when a payment is made to a resident “being in the nature of compensation ….. on account of compulsory acquisition, under any law for the time being in force, any immovable property (other than agricultural land)”. The crucial point of time when the tax withholding liability is invoked is thus the point of time when payment is made to a resident which is in the nature of compensation for compulsory acquisition of an immovable property, other than agricultural land. In this light, let us turn to the facts of the present case.

10. In the present case, there is no dispute, as evident from the observations made by the Assessing Officer himself, that the payment is made by the Metro Railways to the Competent Authority, appointed under section 16 of the Metro Railways (Construction of Works) Act, 1978, and the Competent Authority, in turn, makes the payment to the person whose land is acquired as per the requirements of Metro Railways. The scheme of payment is also evident from a look at the Metro Railways (Construction of Works) Act 1978. As we do so, it is also important to bear in mind the fact that Metro Railway Kolkata is not an independent entity but a part of the Government of India i.e. Central Government itself. Section 13 of the said Act provides that “Where any land, building, street, road or passage is acquired under this Act, there shall be paid an amount which shall be determined by an order of the Competent Authority”. Section 14 (1) further provides that “the amount determined under section 13 shall be deposited by the Central Government ( i.e. Metro Railway Kolkata, in the present context) in such manner as may be prescribed with the Competent Authority within such time as may be fixed by the Competent Authority”. Section 14(2) then provides that “…………. the Competent Authority shall, on behalf of the Central Government, pay the amount to the person or persons entitled thereto”. Section 15 provides that the “…the Competent Authority shall have, for the purposes of this Act, all the powers of a Civil Court….”, while Section 16 provides for the mechanism of appointment of Competent Authority, by way of Gazette Notification, and that “a person shall not be qualified for appointment as a competent authority unless he is holding, or has held, a judicial office, not lower in rank than that of a subordinate judge”. It is thus clear that the competent authority is a statutory authority, through appointed for Metro Railway Kolkata, and the payment to the beneficiary, which are in the nature of compensation for compulsory acquisition of property, is made only by the Competent Authority, Metro Railways Kolkata. So far as payment by Dy FA and CAO, Metro Railways Kolkata, to Competent Authority Metro Railways Kolkata, are concerned, these are in the nature of remittances to enable Competent Authority , Metro Railways Kolkata, to discharge his functions of making payments to the beneficiaries whose lands have been acquired. The tax deduction at source liability comes into play only when the payments are made by the Competent Authority, Metro Railways, Kolkata to the actual beneficiaries of compensation as it is this amount which can be termed as payment, in the nature of compensation for compulsory acquisition of land under a law in force, to a resident. The authorities below were thus clearly in error in proceeding on the basis that the payments made by Dy FA and CAO Metro Railways, Kolkata, to Competent Authority Metro Railways Kolkata, attracted the tax deduction at source liability under section 194 LA, and that the TDS compliance was required to be made by the Dy FA and CAO, Metro Railways, Kolkata, and not the Competent Authority, Metro Railways, Kolkata. It is, however, altogether a different matter that both the authorities are of Metro Railways Kolkata and since, as stated by the officers of Metro Railways Kolkata present in our court room at the time of hearing, all the establishment and related costs of even the Competent Authority Metro Railways Kolkata, are borne by the Metro Railways Kolkata itself, it would not really make much of any financial difference whether demand under section 201 (1) is raised on the Competent Authority of Metro Railways Kolkata or Dy FA and CAO of Metro Railways Kolkata. That aspect of the matter is not really relevant to us.

11. When we put the above proposition to the learned Departmental Representative, it was stated that the provisions of section 201 (1) are also time barring provisions now, in view of insertion of insertion of sub section 3 to Section 201(1). It was submitted that interests of the revenue will unreasonably suffer due to this hyper technical point regarding the specific authority, within the appellant organization, on which the demands can be raised. Whatever be the merits of a legal course being rejected only because of interests of revenue getting prejudiced, this plea is technically incorrect in any case. Section 201(4), which was brought on to the statute along with insertion of Section 201(3), specifically provides that the provisions of Section 153(3)(ii) shall also apply to the time limits under section 201(3), and Section 153(3)(ii), inter alia, provides that where reassessments or re computations are being made in consequence to, or to give effect to findings or directions contained in an order under section 254, such an exercise can be completed at any time. Therefore, irrespective of the time limit set out in Section 201(3), an order under section 201 can be raised at any time as long as the same is done to give effect to “findings or directions contained” in an order, inter alia, under section 254.

12. In the light of the above analysis, let us revert to the facts of the present case once again. Earlier in this order, we have given a finding that the tax deduction at source obligations were to be fulfilled at the point of time when Competent Authority of Metro Railways Kolkata made payments to the actual beneficiaries whose properties are acquired, and, therefore, the tax deduction at source obligations did not arise when payments were made by the Dy FA and CAO to the Competent Authority. It is on this basis that the appeal has been decided on merits, and this finding was the basis of the decision on this issue. Therefore, the findings so given were necessary to decide the issue before us. It is this kind of a finding which is the ‘finding’ relevant for the purpose of Section 153(3) as evident from the following observations made by Hon’ble Supreme Court in the case of RajinderNath v. CIT (120 ITR 14):

……………….The question, therefore, is whether s. 153(3)(ii) can be invoked. It is not contended on behalf of the assessees that they are not covered by the expression ” any person ” in s. 153(3)(ii) of the Act. The only contention is that there is no “finding” or “direction” within the meaning of s. 153(3)(ii) of the Act in the order of the Aac in consequence of which or to give effect to which the impugned assessments have been made.

The expressions “finding” and “direction” are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A’s income. A finding respecting B is intimately involved as a step in the process of reaching the ultimate finding respecting A.

13. It is thus clear that the nature of finding that we have given in the process of reasoning that the impugned demand cannot be sustained in law was a finding necessary for disposal of appeal. Accordingly, in our considered view, the apprehensions raised by the learned Departmental Representative and time barring provisions under section 201(3) will not come into play in the present case.

14. In the light of the above discussions, we need not really give our adjudication on the plea raised by the Departmental Representative. This plea does not call for any adjudication in the light of our above observations.

15. As a result of the foregoing discussions, while we quash the impugned demand under section 201 r.w.s 194 LA, the Assessing Officer is clearly at liberty to initiate such action, as he may take in accordance with the law, for ascertainment of liability under section 201 r.w.s. 194 LA at the point of time of payment of compensation to the actual beneficiaries by the Competent Authority of Metro Railways, Kolkata.

16. Learned counsel for the assessee has also raised issue that in certain cases the payment was for compensation of acquiring agricultural land, and, therefore, the provisions of Section 194 LA did not come into play at all. Given the fact that the matter is, in effect, only going back to the file of the Assessing Officer for fresh exercise, it is not really necessary to deal with this issue. Learned counsel, however, is at liberty to take up any issue before the Assessing Officer in connection with ascertainment of tax withholding obligations under section 201(1) r.w.s. 194 LA, if and when so required.

17. Learned Departmental Representative has also invited our attention to a judgment of Hon’ble MP High Court in the case of State of MP v. Parwatibai (128 Taxman 751) wherein it is held that when payment is made by the Court, the tax is not required to be deducted by the Court but by the person who actually acquires the land i.e. Land Acquisition Office or the Collector who, to quote the words of Their Lordships, “had money in his possession and was responsible for making the payment of that income to the assessee.” By the same logic, according to the learned Departmental Representative, the tax ought to have been deducted by the Dy FA and CAO of Metro Railways Kolkata to the Competent Authority, which is a judicial authority.

18. We see no support to revenue’s cause by the aforesaid judicial precedent. In the present case, the payment to the actual beneficiary is made by the Competent Authority of Metro Railways Kolkata and not by the Dy FA and CAO of Metro Railways Kolkata. No doubt, the tax deduction obligations are on the person who makes payment to the beneficiary, and it was an undisputed position that the payment for land acquisition was made by the Land Acquisition Officer. In this matter, Hon’ble Court also observed that the tax deduction obligation are on the person who “had money in his possession and was responsible for making the payment of that income to the assessee (i.e. actual beneficiary of compensation in this case).” It is important to bear in mind the fact that the assessee is this case was the person receiving the compensation in his own right and not in any fiduciary capacity. Therefore, even going by this principle, the tax deduction liability is on the Competent Authority of Metro Railways Kolkata who makes the payment to the person receiving compensation.

19. For the reasons set out above, as also bearing in mind entirety of the case, we uphold the grievance of the assessee in principle but in effect remit the matter back to the file of the Assessing Officer for fresh adjudication in accordance with the law, by way of a speaking order and after giving a fair and reasonable opportunity of hearing to the person concerned, i.e. Competent Authority of Metro Railways Kolkata.

20. In the result, ITA No 49/Kol/2012, i.e. assessee’s appeal for the assessment year 2005-06 is allowed for statistical purposes and in the terms indicated above.

21. In view of the above, the other four appeals filed by the assessee (i.e. ITA Nos. 50 to 53/Kol/2012) are also allowed for statistical purposes and in the terms indicated above, and the observations made in the order herein above will also apply mutatis mutandis on these appeals as well. To sum up, all the appeals are allowed for statistical purposes in the terms indicated above. Pronounced in the open court today on 26th day of March, 2013.