Compulsory acquisition payment rule: negotiated sale deeds are outside tax deduction where title never vested in the Government.

Section 194LA of the Income-tax Act applies only where payment is compensation or consideration on account of completed compulsory acquisition of immovable property. Payments made under negotiated sale deeds executed by landowners, with mutual assent and transfer of title under the Transfer of Property Act, are not covered merely because acquisition proceedings had begun. A Section 4(1) notification does not divest title; vesting occurs only on possession under Sections 16 or 17, and withdrawal under Section 48 effaces the acquisition. On that basis, tax deduction at source was not attracted to the sale-deed payments.

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Issues: Whether Section 194LA of the Income-tax Act, 1961 applied to payments made under sale deeds executed by landowners in favour of the petitioner pursuant to land acquisition proceedings and negotiated fast-track acquisition arrangements.

Analysis: Section 194LA operates where the payment is in the nature of compensation or consideration on account of compulsory acquisition of immovable property. The relevant enquiry was whether the payments made under the sale deeds were truly compensation for compulsory acquisition or were consideration under voluntary transfers. Mere issuance of a notification under Section 4(1) of the Land Acquisition Act, 1894 does not divest title. Title vests in the Government only on taking possession under Section 16 or Section 17, and where the Government withdraws from acquisition under Section 48, the acquisition notification stands effaced. The documents executed by the landowners showed negotiated consideration, mutual assent, and transfer of title by registered sale deeds under the Transfer of Property Act, not a completed compulsory acquisition under the Land Acquisition Act, 1894.

Conclusion: Section 194LA was not attracted to the payments made under the sale deeds. The impugned direction to deduct tax at source was without jurisdiction and was liable to be quashed.

Ratio Decidendi: Section 194LA applies only to sums paid as compensation or enhanced compensation on account of completed compulsory acquisition, not to consideration paid under negotiated sale deeds executed before vesting of title under the land acquisition law.

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