Tax deduction at source on land surrender does not apply where development rights certificates are issued without monetary payment.

Section 194LA of the Income-tax Act, 1961 applies only when compensation or consideration is paid in money on account of compulsory acquisition of immovable property. Where land is voluntarily surrendered under Section 14B of the Karnataka Town and Country Planning Act, 1961 and the municipal authority issues Development Rights Certificates without any cash or other monetary payment, tax deduction at source is not attracted. The statutory deduction mechanism depends on a monetary outflow, and a non-monetary exchange of development rights certificates does not constitute payment for this purpose. The tax-deduction obligation, being vicarious in nature, cannot arise in the absence of a quantifiable monetary sum.

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Issues: Whether tax was deductible under Section 194LA of the Income-tax Act, 1961 on surrender of land under Section 14B of the Karnataka Town and Country Planning Act, 1961 against issuance of Development Rights Certificates without any cash or other monetary payment.

Analysis: Section 194LA applies only where a person pays compensation or enhanced compensation, or consideration or enhanced consideration, on account of compulsory acquisition of immovable property, and the deduction is to be made at the time of payment in cash, cheque, draft or any other mode. The land in question was not acquired by compulsory acquisition but was voluntarily surrendered under Section 14B of the Karnataka Town and Country Planning Act, 1961, and no monetary payment was made by the municipal authority. The issuance of Development Rights Certificates did not constitute payment of money, and the statutory mechanism of tax deduction at source, which is predicated on a monetary outflow, could not be applied. The liability to deduct tax at source is also in the nature of vicarious liability and cannot be imposed where no quantifiable sum is paid in money.

Conclusion: Section 194LA was not attracted, and the disallowance of the assessee's liability to deduct tax at source was in law.

Ratio Decidendi: Tax deduction at source under Section 194LA of the Income-tax Act, 1961 arises only on payment of monetary compensation or consideration on account of compulsory acquisition, and it does not apply to voluntary surrender of land in exchange for non-monetary development rights certificates.

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