Consensual land acquisition does not amount to compulsory acquisition and does not trigger tax deduction at source.

Acquisition of land by mutual agreement under the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973 is not compulsory acquisition because the owner can negotiate the price and the transfer is not fixed by statute or statutory principles. Section 194 LA of the Income-tax Act, 1961 applies only where compensation is paid on compulsory acquisition of immovable property, so it does not cover an agreed transfer. The agreed notification did not alter the consensual character of the transaction. The result is that the transaction was a contractual purchase, not a statutory acquisition attracting tax deduction at source.

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Issues: (i) Whether land acquired by agreement under the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973 amounts to compulsory acquisition; (ii) whether section 194 LA of the Income-tax Act, 1961 applies to such acquisition.

Issue (i): Whether land acquired by agreement under the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973 amounts to compulsory acquisition.

Analysis: Compulsory acquisition requires that the seller has no option to refuse the transfer and no opportunity to negotiate the price, which must be fixed by statute or by statutory principles. Under the Land Acquisition Act, 1894, the acquisition process and compensation are controlled by law, so acquisition under that Act is compulsory acquisition. By contrast, section 56 of the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973 permits acquisition by agreement first, and only on failure of agreement does it authorise acquisition under the Land Acquisition Act, 1894. Where the land is acquired by mutual agreement, the price is settled between the parties and is not fixed by statute.

Conclusion: Acquisition by agreement under the Nivesh Act is not compulsory acquisition.

Issue (ii): Whether section 194 LA of the Income-tax Act, 1961 applies to such acquisition.

Analysis: Section 194 LA applies only where compensation is paid on compulsory acquisition of certain immovable property. Since the present acquisition was by agreement and not by compulsory acquisition, the statutory condition for deduction at source was not met. The notification recording the agreed price did not change the character of the transaction.

Conclusion: Section 194 LA of the Income-tax Act, 1961 does not apply.

Final Conclusion: The transaction was a consensual purchase and not a statutory acquisition attracting deduction at source, so the department's challenge failed and the dismissal of the case was justified.

Ratio Decidendi: A transfer is a compulsory acquisition only when the owner cannot opt out and cannot negotiate the price, which must be fixed by statute or statutory principles; acquisition by agreement does not satisfy that test and therefore does not attract section 194 LA.

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