Section 194LA TDS applies only to compulsory acquisition compensation, not negotiated land sale deeds.

Section 194LA applies only where payment is made as compensation or enhanced compensation on account of compulsory acquisition. Where land is transferred to the Government through negotiated settlement and sale deeds, the payment is consideration for purchase, not compensation for compulsory acquisition, so the statutory condition for tax deduction at source is not met. The provision, being a taxing provision, must be strictly construed; accordingly, tax was not deductible at source on such payments. This principle confines Section 194LA to compulsory acquisition cases and excludes agreed sales despite earlier acquisition proceedings.

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Issues: Whether Section 194LA of the Income-tax Act, 1961 applies to payments made for land purchased by the Government through negotiated sale deeds, or only to cases of compulsory acquisition.

Analysis: Section 194LA mandates deduction of tax at source only when a sum is paid in the nature of compensation or enhanced compensation on account of compulsory acquisition under any law. The lands in question were ultimately transferred through negotiated settlement and sale deeds, even though acquisition proceedings had been initiated earlier. In such a case, the payment is consideration for purchase and not compensation for compulsory acquisition. A taxing provision must be construed strictly, and the statutory condition for deduction at source was not satisfied.

Conclusion: Section 194LA does not apply to lands purchased by the Government through negotiated sale deeds, and tax was not deductible at source on such payment. The decision is in favour of the assessee.

Ratio Decidendi: A deduction at source under Section 194LA arises only where payment is made as compensation on compulsory acquisition, and not where land is acquired through an agreed sale evidenced by sale deeds.

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