INCOME TAX

Interest payments under the Land Acquisition Act, 1894--Deduction of tax at source under section 194A of the Income-tax Act, 1961--Authority responsible for deduction--Regarding

Circular No. NIL

Dated 21/9/1994

To

All Chief Commissioners of Income-tax

All Directors-General of Income-tax.

Sir,

I am directed to say that it had recently come to the notice of the Board that there was no uniform practice in vogue in the matter of deduction of tax at source from interest payments awarded by the courts of law in land acquisition cases. At certain places, such deduction was being made by the Land Acquisition Authority who was responsible for paying the compensation (along with interest) to the persons whose land had been acquired under the Land Acquisition Act, while at other places, such deduction was being made by the court of law which awarded the compensation (with interest), after the concerned authority had deposited the entire amount with the court, for payment to the concerned parties in accordance with the decree passed by the court. In the latter case, it is observed that certain courts were seeking assistance of the concerned Income-tax Authorities for effecting tax deduction at source.

2. It has now been decided in consultation with the Ministry of Law and Justice that the responsibility for making deduction of tax at source under section 194A of the Income-tax Act, 1961, should be that of the Collector (Land Acquisition) or any other authority empowered under the Land Acquisition Act, 1894, to acquire land for a public purpose as laid down by that Act. When the concerned parties, whose land has been acquired, go to the court of law, seeking higher compensation (with interest) and the court allows their claims, the concerned authority which had acquired their land, shall, while paying the compensation, deduct tax at source from the amount of interest forming part of the compensation, and deposit the remaining amount with the court of law, for disbursement to the successful litigants. The same authority shall also issue the TDS certificates to the concerned parties in the prescribed Form (16A).

3. An extract of the advice given by the Ministry of Law and Justice, in the matter, is also enclosed (see infra) for your perusal and guidance.

4. The Board, accordingly, desire you to bring the contents of this letter to the notice of all the Assessing Officers working under your respective jurisdictions and also to the notice of the various Land Acquisition Authorities holding office within your respective regions, so that the procedure outlined in para 2 above is uniformly followed by all of them.

5. Hindi version will follow.

Yours faithfully,

(Sd.) Rajesh Chandra,

Under Secretary,

Central Board of Direct Taxes.

Extract

The question for consideration is as to who is the person responsible for deduction of tax at source for the purpose of section 204 of the Income-tax Act, 1961, in the case of payment of compensation under the Land Acquisition Act.

A prima facie view was expressed by us in the matter on the assumption that the Collector, Land Acquisition, is the person making payment and as such he is responsible for making deduction at source in terms of section 204(iii) of the Income-tax Act. However, we had requested the Department to confirm the factual position from the Ministry of Rural Development.

The Department of Rural Development have stated that the person responsible for payment of compensation under the Land Acquisition Act is the Collector. In Baldeep Singh v. Union of India [1993] 199 ITR 628,  635, the Punjab and Haryana High Court held that "the court is not the person responsible for paying any income by way of interest. . . As per legal incidents, the real person responsible for paying income by way of interest is the Land Acquisition Collector who had the money in his possession and was responsible for making the payment of that income to the petitioners . . . The court is acting only as a conduit for getting the payment to the petitioner in execution of a decree passed in his favour." In view of the above, we confirm the views expressed by us earlier, referred to above.

The Administrative Department have stated that while there may be no objection to TDS being made by the Collector, in such cases a practical difficulty that may arise is that the Collector would be required by the court to deposit the entire amount of compensation and interest with it and if the Collector deducts tax from that amount it would be regarded as disobedience of the court's order.

In this connection the following observation made by the Supreme Court in Gupta (K.D.) (Lt. Col.) v. Union of India [1990] 181 ITR 530, 531 is considered very relevant.

"We see no justification to initiate any contempt proceeding against the respondents for withholding a sum of Rs. 1,20,000 out of the sum of Rs. 4 lakhs directed to be paid to the petitioner. Rs. 1,20,000 have been withheld on the plea that, under Chapter XVII of the Income-tax Act, 1961 (the Act), the Union of India has the obligation to deduct income-tax at source. The intention of the payer in the facts of the case for withholding the amount cannot be held to be either mala fide or is there any scope to impute that the respondents intended to violate the direction of this court."

If out of the decretal amount the Land Acquisition Officer pays the TDS amount to the Central Government and deposits only the balance amount with the court, in view of the aforesaid ruling, the court may not hold it as disobedience of its orders.

(Sd.) C. Achuthan,

Joint Secretary and Land Acquisition.