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Union Of India And Others v. Hari Singh And Others
Factual and Procedural Background
The appeals arise out of writ petitions filed by landowners whose property was compulsorily acquired under the Land Acquisition Act, 1894. When disbursing the compensation and enhanced compensation, the Land Acquisition Collectors deducted tax at source (TDS) and deposited it with the Income Tax Department. The landowners challenged these deductions before the High Court, contending that Section 194-LA of the Income-tax Act, 1961 prohibits TDS on compensation for agricultural land. The High Court, in Risal Singh v. Union of India and Sant Ram v. Union of India, ordered the Income Tax Department to refund the deducted amount to the Collectors, directing the Collectors to decide whether the land was agricultural and whether TDS was permissible. The Union of India appealed to the Supreme Court against those directions.
Legal Issues Presented
- Whether tax deducted at source on compensation or enhanced compensation paid for compulsory acquisition of land should be refunded when the land acquired is claimed to be agricultural land.
- Which authority—the Land Acquisition Collector or the Income-tax Assessing Officer—has the statutory competence to determine the agricultural character of the land for the purpose of TDS under Section 194-LA of the Income-tax Act.
Arguments of the Parties
Union of India / Income Tax Department
- The High Court erred in directing the Land Acquisition Collectors to decide whether the land was agricultural; such determination must be made by the Income-tax Assessing Officer under the Income-tax Act.
- The definition of “agricultural land” in Section 2(14)(iii) of the Income-tax Act and other related provisions must guide the inquiry, which lies within the Assessing Officer’s jurisdiction.
- Cited the Kerala High Court decision in Nalini v. Deputy Collector to illustrate proper procedural safeguards, including prior notice to landowners and issuance of TDS certificates.
Landowners / Respondents
- In several cases the deducted tax has already been refunded, and therefore no further interference is warranted.
- Relied on a Circular dated 13-4-2011 issued by the Department of Land Resources, Ministry of Rural Development, arguing that it is binding on the Income Tax Department.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Risal Singh v. Union of India, 2010 SCC OnLine P&H 276 | Directed refund of TDS to Collector and required Collector to determine land character. | Supreme Court set aside these directions as inconsistent with the Income-tax Act. |
| Sant Ram v. Union of India, 2009 SCC OnLine P&H 9638 | Issued directions similar to Risal Singh. | Same directions were annulled by the Supreme Court. |
| Nalini v. Deputy Collector, 2006 SCC OnLine Ker 444 | Outlined procedural safeguards: prior notice to claimants, disclosure of TDS in award, option to seek exemption certificates. | Supreme Court mandated that Land Acquisition Collectors follow these modalities in future acquisitions. |
| Commissioner of Income Tax v. Ghanshyam (HUF), (2009) 8 SCC 412 | Clarified that interest under Section 28 of the Land Acquisition Act can constitute part of compensation. | Assessing Officers were directed to keep this ruling in mind when deciding refund claims. |
Court's Reasoning and Analysis
The Court accepted the Union of India’s submission that the Income-tax Act vests the power to assess the agricultural nature of land with the Assessing Officer, not with the Land Acquisition Collector. Because the Collectors had already deducted and deposited TDS, any challenge to that deduction must proceed through the statutory mechanism of filing returns and seeking refunds before the Assessing Officer.
The Court therefore:
- Held that landowners must file appropriate returns within two months claiming refund on the ground that their land was agricultural.
- Directed Assessing Officers to examine each claim, apply Section 28 of the Land Acquisition Act, and follow the test in Ghanshyam (HUF) regarding interest components.
- Set aside the High Court’s order requiring the Income Tax Department to refund the TDS to the Collector, noting that where refunds have already been made, the Department may act under the Income-tax Act.
- Allowed the Income Tax Department a two-month window to issue notices or make assessments without being barred by limitation, given the pendency of proceedings in the Supreme Court.
- Adopted the procedural guidelines from Nalini for future acquisitions, requiring Collectors to give advance notice of tax liability and issue detailed awards reflecting TDS.
Holding and Implications
DISPOSED OF – The appeals are allowed to the extent of setting aside the High Court’s directions; writ petitions and appeals stand disposed of with substituted directions.
Implications: The determination of whether compensation pertains to agricultural land must henceforth be made by Income-tax Assessing Officers through the regular assessment and refund mechanism. Land Acquisition Collectors must follow the procedural safeguards outlined in Nalini. The decision clarifies administrative responsibilities under Section 194-LA but does not create new substantive law; its primary impact is procedural and confined to the parties and future acquisition proceedings.
Order
1. 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 the 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 194-LA 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 in Risal Singh v. Union of India 2010 SCC OnLine P&H 276, (2010) 321 ITR 251 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 Para 8 of Writ Petition No. 9912 of 2009 decided on 11-1-2001, 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 the Income Tax Department to take such action as may be permissible under the law.”
Similar directions in Sant Ram v. Union of India 2009 SCC OnLine P&H 9638 are given in the other case as well.
4. 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.
5. The learned Additional Solicitor General has also drawn our attention to the judgment of the Kerala High Court in Nalini v. Collector 2006 SCC OnLine Ker 444, ILR (2006) 4 Ker 229 wherein the High Court spelled out the following modalities which should be undertaken in such cases: (SCC OnLine Ker paras 7 & 8)
“7. 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 issued. It is not disputed by the learned Senior Government Pleader that at present no notice is issued by the Land Acquisition Officer to the claimant informing him about the liability to pay income tax. I am of the view that it is only just and proper that the parties are given advance notice regarding the liability to pay income tax. The Land Acquisition Officer can note this fact also, in the notice issued to the claimant under Section 9 of the Land Acquisition Act. The claimant shall be informed about this fact during award enquiry stage. In the award, the income tax deducted shall be separately shown.
8. If the claimants are told about their liability to pay income tax before deducting the same they will have an option to get a certificate of exemption from payment of tax, reduced rate of tax, etc. from the competent officer under Section 197 of the Income Tax Act. So, it is only just and proper that the State Government issues necessary directions to the Land Acquisition Officer to give notice regarding the liability of the claimants to pay income tax even before passing of the award.”
6. The learned counsel appearing on behalf of the respondents have submitted that in some of the cases tax which was deducted has already been refunded to them. They have also referred to the Circular dated 13-4-2011 issued by the Department of Land Resources, Ministry of Rural Development, Government of India, on this subject and submitted that this Circular is binding on the Income Tax Department.
7. We find force in the submission of the learned Additional Solicitor General insofar as the challenge to the direction given to the Land Acquisition Collector to determine as to whether the land in question is agricultural land or not. Since the Land Acquisition Collector had already deducted tax at source and deposited with the Income Tax Department, in such circumstances, better course of action, which is in consonance with the provisions of the Income Tax Act, is for the respondents to approach the assessing officer(s) concerned and to raise the issue that no tax is payable on the compensation/enhanced compensation which is received by them as their land was agricultural land. Once such an issue is raised before the assessing officer(s), it is for the assessing officer(s) to examine the facts of each case and then apply the law as contained in the Income Tax Act to determine the aforesaid question. Insofar as these cases are concerned, we allow these appeals by setting aside the directions contained in Para 7 and substitute the same with the following directions:
7.1. The respondents shall file appropriate returns before the assessing officer(s) in respect of assessment years in question within a period of two months from today in case they feel that the compensation in respect of land belonging to them which had been acquired was agricultural land, and claim refund of the tax which was deducted at source and deposited with the Income Tax Department. On the filing of these returns, the assessing officer(s) shall go into the aforesaid question and wherever it is found that the compensation was received in respect of agricultural land, the tax deposited with the Income Tax Department shall be refunded to these respondents.
7.2. While determining as to whether the compensation paid was for agricultural land or not, the assessing officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in CIT v. Ghanshyam (2009) 8 SCC 412 in order to ascertain whether the interest given under the said provision amounts to compensation or not.
7.3. The direction to refund the amount of tax deducted at source (TDS) to the Land Acquisition Collector is, accordingly, set aside. However, in those cases where the amount has already been refunded, no interference is called for and it will be for the Income Tax Department to proceed in accordance with the provisions of the Income Tax Act.
7.4. Where such notices have not already been issued or assessments have not already been made, if such an action is taken within a period of two months from today, issue of limitation would not come in the way of the Income Tax Department. This order is passed having regard to the fact that the present proceedings were pending in this Court because of which it was not possible for the Income Tax Department to issue these notices earlier.
7.5. In future, the Land Acquisition Collectors shall follow the procedure as stipulated by the High Court of Kerala in Nalini case 2006 SCC OnLine Ker 444, ILR (2006) 4 Ker 229, which is reproduced above.
8. All these appeals and writ petitions are disposed of with the aforesaid observations.
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