IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH MONDAY, THE 6TH OCTOBER 2008 / 14TH ASWINA 1930 WP(C).No. 10316 of 2008(C) -------------------------- PETITIONER(S): -------------------- INFOPARK KERALA, KAKKANAD COCHIN 682 030,REPRESENTED BY ITS CHEIF EXECUTIVE OFFICER, SRI RADHAKRISHNAN NAIR. BY ADV. SRI.B.S.KRISHNAN (SR.) SRI.K.ANAND (A.201) SMT.LATHA KRISHNAN BY SR. COUNSEL SRI. V. RAMACHANDRAN. RESPONDENT(S): ----------------------- 1. ASISTANT COMMISSIONER OF INCOME TAX (TDS) OFFICE OF THE COMMISSIONER OF INCOME TAX KOCHI C.R. BUILDING, I.S.PRESS ROAD, KOCHI-18 2. COMMISSIONER OF INCOME TAX (TDS) OFFICE OF THE COMMISSIONER OF INCOME TAX KOCHI C.R. BUILDING, I.S.PRESS ROAD, KOCHI-18 3. UNION OF INDIA, MINISTRY OF FINANCE REPRESENTED BY ITS SECRETARY DEPARTMENT OF REVENUE CENTRAL SECRETARIAT, NORTH BLOCK, NEW DELHI-110 001. ADV. SRI.ABRAHAM THOMAS, CGC FOR R3 SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 17/08/2008, THE COURT ON 06/10/2008 DELIVERED THE FOLLOWING: WPC. 10316/2008. APPENDIX PETITIONER'S EXTS: EXT. P1 : TRUE COPY OF GUIDELINES ISSUED BY THE GOVERNMENT. EXT. P2 : TRUE COPY OF NOTIFICATION UNDER SEC. 4 OF LA ACT AND SEC. 6(1) OF THE SURVEY & BOUNDARIES ACT. EXT. P3 : TRUE COPY OF SALE DEED. EXT. P4 : TRUE COPY OF NOTICE NO. ACIT(TDS)/SI-12/2007-08 DT. 17.3.2008. RESPONDENTS'S EXTS: EXT. R1(A) : FREE TRANSLATION OF EXT.P1 (7 TO 9) PROCEEDINGS OF THE COLLECTOR DTED 9.1.2006. EXT.R1 (B) :FREE TRANSLATION OF EXT.P3 – SPECIMEN SALE DEED EXECUTED BETWEEN THE PARTY AND AUTHORITY. K.M.JOSEPH, J. - - - - - - - - - - - - - - - - - - - - - - - - - WP.(C) No. 10316 of 2008 - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 6th day of October, 2008 JUDGMENT The question that falls for decision is the scope of Section 194LA of the Income Tax Act, 1961, which reads as follows: “194LA. Payment of compensation on acquisition of certain immovable property 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 percent of such sum as income-tax thereon.” Petitioner seeks to quash Ext.P4. Ext.P4 is issued to the CEO of the petitioner advising the petitioner to take immediate steps to ensure compliance with the statutory provisions for deduction of tax at source and remittance of the same to the Government account. 2. Petitioner is a Society established under the Travancore Cochin Societies Registration Act, 1955. It is managed by a Board WPC.10316/2008. 2 nominated by the Government of Kerala and it is set up with the objective of development of Information Technology Parks. Briefly put the case of the petitioner is as follows: As and when the land is identified, which is suitable for the project, Government issues notification under Section 4 of the Land Acquisition Act, 1894 notifying the lands. A notification is also issued under Section 6(1) of the Survey and Boundaries Act, 1961. The price of the land is determined by the District Level Purchase Committee, which consists of District Collector as Chairman. There is an assessment of the replacement value of the land and the recommendation of the District Level Purchase Committee is forwarded to the Empowered Committee for approval. The Empowered Committee consists of the Chief Secretary of the State as the Chairman. The other members are the Principal Secretary, Secretary (Finance), Secretary (PWD), Secretary (Law), Secretary (FTP) and any other member nominated by the Chief Secretary. It considers the proposal and would make necessary modifications. The title deeds are to be verified by the Land Acquisition Officer and there is a scrutiny of the title deeds by Advocates and on the basis of the opinion expressed by the counsel and the Land Acquisition Officer, recommendations are issued. It is the further case of the petitioner that the transaction entered into by the WPC.10316/2008. 3 petitioner for acquisition of land falls into two categories. The first category consists of those transactions where the land owners arrive at an agreement and they execute the sale deed in favour of the petitioner. The second category consists of cases where negotiated agreement is not arrived at and acquisition is done under the Land Acquisition Act. According to the petitioner, in the first category of transaction there is a sale of property, which is covered by the provisions of Transfer of Property Act and it does not consist of acquisition of property by the Government for the project. In a case where there is acquisition of property by the Government, the procedure involves issuance of a notification under Section 4, which constitutes a preliminary notification, declaration under Section 6 and direction under Section 7. Thereafter, the property has to be marked unless it is marked under Section 4. Under Section 9, the Collector issues notice to the parties to enable the making of claims, and inquiry has to be held and finally an award is to be passed under Section 11 of the Act. Section 48 of the Land Acquisition Act permits withdrawal of the Government from the acquisition except in a case covered by Section 36 of the Act, that is where possession has not been taken. Ext.P1 is produced as the guidelines issued by the Government. Ext.P2 is produced as copy of the notification under Section 4 of the Land Acquisition Act and Section 6 of the Survey and WPC.10316/2008. 4 Boundaries Act. Ext.P3 is copy of the sale deed executed by the land owner. It is while so Ext.P4 is issued. Therein, Section 194 LA of the Income Tax Act is referred to and it is inter alia stated as follows: “From the enquiries conducted by this office, I am given to understand that acquisition of land for Infopark (Smart City Project) is being done on the strength of the notification issued by the Government. The mode of execution may have been through sale deeds after reaching a negotiated agreement on the amount to be paid as compensation, but the proceedings are carried out as a consequence of notification issued under the Land Acquisition Act, 1894, to acquire the specified land area. Once a particular area has been notified by Government for acquisition for a specified purpose, there is no option for the owners but to sell. The only difference in this case is that it has been brought under Fast Track Procedure to expedite the process of land acquisition, and consideration/compensation is decided through the medium of District Level Purchase Committee and Grievance Redressal Committees. This being the case, even if sale deeds are executed, it is, in effect, compulsory acquisition of land within the meaning of Section 194LA, and tax should therefore be deducted on all such payments. In respect of payments already made without deducting tax at source, proceedings under Section 201(1)/201(1A) are WPC.10316/2008. 5 separately being initiated.” Consequently advice is given to act in accordance with the statutory provisions. 3. A counter affidavit is filed by the first respondent inter alia stating as follows: The sale deed is being executed in pursuance of Government notification for land acquisition and Kerala Gazette Notification dated 15.10.2004. It is not an ordinary sale deed as it is understood in normal property transaction where land is sold by free will and agreed consideration. Here, the land owner has no choice. Either he agrees to the negotiated price, enters into a sale deed and hands over the land or urgency clause as per Section 17 of the Land Acquisition Act is further invoked and the land is taken possession of by the authorities concerned. In any case, it is stated that the end result is that he has to hand over the land to the project. The element of compulsion is always present. It is clear that this is nothing but compulsory acquisition and upto the execution of the sale deed, there is a factor of compulsion, because proceedings under the Land Acquisition Act are on going. Upon the completion of acquisition of property no proceedings are necessary under the Act and the proceedings are to be withdrawn. Withdrawal under Section 48 is stated to be a formality as the WPC.10316/2008. 6 land has already been acquired and passed into the hands of the project implementing authority. It is stated that after conducting enquiries, issuing notice under Section 201(1), hearing the petitioner and calling for details and materials on record, a letter was sent directing the petitioner to prevent future defaults in tax deduction at source on such payments yet to be made. It is stated that the letter was rather a written direction to prevent future default as already committed. Action under Section 201(1) has to be taken on the assessee in default, that is the petitioner in this case and it is not to be construed as a threat but as a statutory proceeding as provided in Section 201(1) and 201(1A) of the Income Tax Act. Had there been no notification and invoking of land acquisition proceedings, the sale deed would not have been executed. The execution of sale deed expedites the process of land acquisition but since its very genesis is in the notification for acquisition, it cannot be termed a completely voluntary act on the part of the seller. The provisions of Section 194 LA apply to all cases of compulsory acquisition of immovable property regardless of the instrument used to transfer the property. There would be no hardship to the petitioner to deduct tax at source. The fact that the project is of prime importance does not absolve the concerned authorities from dispensing their duty to deduct tax at source from payments covered by Section 194 LA. Respondents have also WPC.10316/2008. 7 produced an annexure to the counter affidavit. 4. Reply affidavit is also filed, wherein it is inter alia stated as follows: Sale deeds satisfied the requirements of a contract distinct from a compulsory acquisition. The price is agreed on the basis of negotiation. There is negotiation and the price is finally arrived at and the sale deed is executed on the basis of the agreed price. These situations are completely lacking in a compulsory acquisition. Reference is placed on the guidelines. The mere issuance of notification does not necessarily result in the subsequent steps being taken particularly in so far as there are a number of further steps to be taken to complete the process of compulsory acquisition even after the issuance of the notification. The sale deed cannot be equated to a compulsory acquisition. Even without a notification, there could have been a negotiated agreement of price and an execution of a sale deed. 5. A rejoinder affidavit is filed to the reply affidavit by the first respondent essentially reiterating the stand in the counter affidavit. 6. I heard learned Senior Counsel Sri. V.Ramachandran, appearing on behalf of the petitioner and Sri. P.K.Raveendranatha Menon, learned Senior Counsel appearing for the Income Tax Department. WPC.10316/2008. 8 7. Learned counsel for the petitioner reiterates the contentions raised in the writ petition. He would submit that the land in question was acquired under the fast track procedure, in respect of which guidelines have been issued and which have been produced along with Ext.P1. He would submit that it contemplates negotiation. In this case, it is pointed out that there was negotiation. The matter was taken up before the Empowered Committee and ultimately many of the land owners agreed for selling their properties and accordingly they entered into sale deeds with the petitioner and the petitioner became the owner of the said properties. On the strength of the said title deeds it is submitted that it is inconceivable as to how the petitioner can be saddled with the liability under Section 194LA of the Act to deduct 10% of the sale consideration. He reiterated his contentions, which I have already referred to. He also points out that there are practical difficulties in calling upon the petitioner to comply with the provisions of Section 194LA of the Act. It is stated that most of the land owners would have no income as to render them liable to pay tax. He also relies on the following decisions: State of Madhya Pradesh v. Vishnu Prasad Sharma (AIR 1966 SC 1593), Sreenivasa Shenoy v. State of Kerala (AIR 1968 Kerala WPC.10316/2008. 9 325), Jai Narain v. The Land Acquisition Collector, Delhi (AIR 1976 Delhi 166), Jasraj v. State of Rajasthan (AIR 1977 Rajasthan 150), The Special Tahsildar v. Sri.Pethavanallur Mayuranathasami Temple (AIR 1978 Madras 406), Special Land Acquisition Officer v. M.s. Godrej and Boyce (AIR 1987 SC 2421) and Abdul Majeed Sahib v. District Collector, Kollam (AIR 1994 Kerala 171). 8. Per contra, learned counsel appearing on behalf of the respondents 1 and 2 reiterated his contentions and pointed out that once a notification is issued under the Land Acquisition Act, there is no choice for the land owner, whose lands are covered by the notification. His lands are frozen. If he does not negotiate and sell the land by way of transfer, certainly his lands would come to be acquired under the Land Acquisition Act. To call a transaction sale, there must be a real choice available to the owner of the land in the first place as to whether he wishes to sell the land to anyone. He submits that in a case as the present, where a notification is issued under the Land Acquisition Act, the land owners may have entered into sale deeds in the shadow and the threat of the land acquisition proceedings being taken to their logical conclusion. Even if the land owner may have had the freedom in the matter of the price of the land and may have negotiated, he is unlike a land owner, who has the freedom either to WPC.10316/2008. 10 sell the land or not to sell the land. This fundamental factor may not be lost sight of , it is submitted. In this context, he relied on the decision of the Calcutta High Court in the decision reported in Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-Tax (Vol.XIX ITR 406). He also submits that Section 194 LA is a provision geared to collection of amounts towards tax payable and also he submits that the petitioner has only to collect the tax and remit it to the Government. 9. In this case, I am concerned with those transactions where the land owners have executed sale deeds on the basis of negotiations in favour of the petitioner. In this case, it is an admitted fact that Government have issued proceedings under Section 48 withdrawing from the acquisition in respect of properties where the land owners have executed sale deeds in favour of the petitioner. The effect of withdrawal of the Government from the notification has been noticed in various decisions. The effect of withdrawal under Section 48 is the effacement of the notification issued under Section 4(1) of the land Acquisition Act. (See AIR 1977 Rajasthan 150). 10. As in every other case, the primary duty of the court is to glean the intention of the law maker. In decoding any legislative device the first duty cast on the court is to understand the intention of the legislature WPC.10316/2008. 11 by looking at the plain meaning of the words used in the provision. Departure from the plain meaning of the provision would be justified if there is some ambiguity which arises in the interpretation of the provision. No doubt, if the literal meaning produces a palpable absurdity or manifest injustice, the court would strive to place an interpretation which has the effect of avoiding of the said effect. 11. Section 194 LA falls in Chapter 17, which relates to collection and recovery of tax. Section 190 reads as follows: “190.Deduction at source and advance payment (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction (or collection) at source or by advance payment (or by payment under sub-section (1A) of section 192, as the case may be, in accordance with the provisions of this Chapter. (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.” Coming to the terms of Section 194LA, the heading of the section itself refers to payment of compensation on acquisition of certain immovable property. WPC.10316/2008. 12 12. The crucial words in Section 194LA are “any person responsible”, “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.” No doubt, the words 'any person' supports the case of the Department that Section 194 LA would apply even to the petitioner at first blush. But I find myself unable to accept the interpretation canvassed by the department on considering the other parts of the section. The sum payable must be in the nature of compensation or enhanced compensation or the consideration or enhanced consideration on account of compulsory acquisition. The words 'compensation' and 'enhanced compensation' are concepts which are apparently taken from the provisions of the Land Acquisition Act. Section 9 of the Land Acquisition Act provides that the Collector shall give notice in regard to claims to compensation for all interests in such land may be made to him. Sub section (2) also referred to the word 'compensation'. Section 11 also referred to the word 'compensation'. Section 11 enjoins that the Collector must hold an inquiry and pass an award. The award must provide for the compensation which, in his opinion shall be allowed for the land. Sub-section (3) speaks about determination of the compensation. Section 15 speaks about matters to be WPC.10316/2008. 13 considered and neglected in determining the amount of compensation, which is provided under Sections 23 and 24. Section 16 provides for the power to take possession after the award is passed. Taking of possession has the effect of vesting absolutely the title in the Government free from all encumbrances. No doubt Section 17 speaks about the special powers in cases of urgency. Possession can be taken in such cases on expiry of fifteen days from the date of publication of the notice mentioned in Section 9 and it is provided that the land will thereupon vests absolutely with the Government free from all encumbrances. Sub-section (2) of Section 17 also provides for taking of possession in certain contingencies contemplated therein and it is declared that upon taking of possession of such land, it shall thereupon vest absolutely with the Government free from all encumbrances. The Collector has to offer in such cases compensation to persons interested for the standing crops and trees, if any, on the land and for any other damage. Also the Collector has to tender payment of 80% of the compensation for such land as estimated by him. Section 18 of the Act speaks about the right of a person interested, who has not accepted the award, to file written application before the Collector requiring the matter to be referred to court for its determination inter alia of the amount of compensation. Section 19 speaks about duty of the Collector to state for the WPC.10316/2008. 14 information of the court inter alia the ground on which the compensation was determined if the objection was on the amount of compensation. Section 25 provides that the amount of compensation awarded shall not be less than the amount awarded by the Collector under Section 11. Section 28 provides that the Collector can be directed to pay interest on excess compensation. Section 29 speaks about apportionment of compensation when there are other persons interested. Section 30 refers to the dispute relating to the apportionment of the compensation or any part thereof, or as to the persons to whom the same or any part thereof is payable leading to the reference of the same by the Collector to the court. Section 31 sub sections (1) (3) and (4) reads as follows: “31.Payment of compensation or deposit of same in Court.- (1) On making an award under Section 11, the Collector shall tender payment of the compensation awarded by him to the persons interested entitled thereto according to the award, and shall pay it to them unless prevented by some one or more of the contingencies mentioned in the next sub-section. xxxxx xxxxx (3) Notwithstanding anything in this section, the Collector may, with the sanction of the appropriate Government, instead of awarding a money compensation in respect of any land, make any arrangement with a person having a limited interest in such land, either by the grant of other lands in exchange, the WPC.10316/2008. 15 remission of land revenue on other lands held under the same title, or in such other way as may be equitable having regard to the interest of the parties concerned. (4) Nothing in the last foregoing sub-section shall be construed to interfere with or limit the power of the Collector to enter into any arrangement with any person interested in the land and competent to contract in respect thereof.” Section 34 speaks about payment of interest on compensation which is not paid or deposited on or before taking of possession. Section 54 provides for appeals to the High Court from the award or from any part of the award of the court. It is also important to refer Section 28A. Section 28A provides for the right to claim excess compensation with persons who had not sought for reference under Section 18. The word 'compensation' occurs in Section 9. The notification under Section 4 of the Act must be followed by the issuance of declaration under Section 6 of the Act. Thereafter, the Collector is obliged to issue notice under Section 9, consider the claims and pass an award fixing compensation. There can be no doubt that Section 194LA of the Income Tax Act will apply to the compensation awarded by the Collector under the Land Acquisition Act by way of passing the award. If the claimant is not satisfied with the award of the Collector and seeks a valid reference and the Collector makes a reference to the court, it is open WPC.10316/2008. 16 to the court to award higher compensation or enhanced compensation. If the claimant is still dissatisfied, he may file an appeal to the High Court and also take the matter still to the highest court and claim enhanced compensation. Thus the concepts 'compensation' or 'enhanced compensation' are concepts which are drawn by the legislature bearing in mind the meaning it has come to acquire under the Land Acquisition Act. In other words, the word 'compensation' must mean compensation which is given under an award passed by the appropriate Collector and the words 'enhanced compensation' means the enhanced compensation becoming payable under the award of the civil court or the High Court or of the Apex Court or under Section 28(A). 13. A question may arise whether the petitioner is liable to comply with Ext.P8 in view of the use of the words 'consideration' and 'enhanced consideration'. In this context, learned counsel for the petitioner would submit that the said words are used in view of the various statutes, which provide for acquisition of assets, that is laws other than the Land Acquisition Act. For instance he relied on the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and the Burmah Oil Company (Acquisition of