TDS on negotiated land acquisition compensation remains mandatory where acquisition proceedings have already begun.

Section 194LA applies to compensation paid under negotiated settlements reached after initiation of land acquisition proceedings, because the later agreement affects only the quantum of compensation and does not change the compulsory character of the acquisition. Once acquisition proceedings have begun, the landowner parts with the property under statutory compulsion, so the transaction is not treated as a voluntary sale. The earlier view that a consented settlement converted such payment into a non-compulsory transaction is no longer good law. Tax deduction at source therefore remains mandatory on the compensation paid.

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Issues: Whether tax is liable to be deducted at source under Section 194LA of the Income-tax Act from compensation paid pursuant to negotiated settlements reached after initiation of land acquisition proceedings.

Analysis: Section 194LA applies where compensation or consideration is payable on account of compulsory acquisition of immovable property other than agricultural land. Once acquisition proceedings are initiated under the land acquisition law, a later settlement on the amount payable does not alter the character of the acquisition. The settlement concerns only the quantum of compensation, while the acquisition remains compulsory because the landowner parts with the property under the compulsion of the acquisition proceedings. The earlier view that a negotiated settlement converted the transaction into a voluntary sale was no longer good law in view of the Supreme Court ruling that consent awards or agreed compensation do not change the nature of the acquisition. Accordingly, the statutory obligation to deduct tax at source continued to apply.

Conclusion: Section 194LA applies to compensation paid under negotiated settlements after initiation of acquisition proceedings, and the challenge to tax deduction at source fails.

Ratio Decidendi: Where land is acquired through statutory acquisition proceedings, a negotiated settlement on compensation does not change the acquisition from compulsory to voluntary, and tax deduction at source remains mandatory under Section 194LA.

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