2024 (8) TMI 1601 - HC - Income Tax

Section 96 of RFCTLARR Act exempts land acquisition compensation from income tax and TDS under Income Tax Act

SMT. CM UMA Versus THE CHIEF COMMISSIONER OF INCOME TAX, BENGALURU

The HC held that Section 96 of the RFCTLARR Act applies to compensation for land acquired under the National Highways Act, 1956, exempting such ... Compensation payable for land acquired under the National Highways Act, 1956 - applicability of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 - Whether compensation payable for acquisition of land under the National Highways Act, 1956 is exempt from payment of income tax / TDS under the Income Tax Act, 1961? - HELD THAT:- As a natural corollary that acquisition of land, payment of compensation and all acts, deeds, things, matters etc., which are incidental, ancillary and connected to / in relation to payment of compensation would become applicable under the RFCTLARR Act; as a consequence of the same, Section 96 of the RFCTLARR Act, which provides for exemption from payment of income tax / TDS would also be applicable to payment of compensation for acquisition of land under the N.H.Act, which is one of the enactments specified in the Fourth Schedule, to which, the RFCTLARR Act has been made applicable by virtue of the aforesaid Ordinances, Notifications, Orders, Communications etc., referred to supra. Thus, the respondent clearly fell in error in coming to the conclusion that Section 96 of the RFCTLARR Act, which provides for exemption from payment of income tax was not applicable to the subject compensation paid to the husband of the petitioner for acquisition of his land under the N.H.Act. It is well settled that insofar as payment of compensation is concerned under different enactments, the discrimination is impermissible and there has to be parity between land losers in relation to compensation payable to different land losers whose lands have been acquired under different enactments as held by the Apex Court in the case of Nagpur Improvement Trust&Anr. vs. Vittal Rao& others [1972 (12) TMI 82 - SUPREME COURT] As held by the Apex Court in Tarsem Singh’s case [2019 (9) TMI 1480 - SUPREME COURT] and Nagaraju’s case [2022 (7) TMI 1413 - SUPREME COURT] the provisions of the RFCTLARR Act have been made applicable to acquisition under the N.H.Act, 1956. It is therefore clear that Section 96 of the RFCTLARR Act exempting levy / payment of income tax on compensation would also be applicable to acquisition of land and compensation paid / payable under the N.H.Act and consequently, the impugned order passed by the respondent deserves to be set aside on this ground also. Exemption from payment of income tax / TDS in view of Section 96 of the RTCPLARR Act and Section 194-LA of I.T. Act (Amended w.e.f. 01.04.2017) as well as CBDT Circular dated 25.10.2016 - Section 96 of the RFCTLARR Act is applicable to compensation for land acquired under the N.H.Act and the said compensation is exempted from TDS / payment of income tax under the I.T.Act and the impugned order deserves to be set aside on this score also. A perusal of the impugned order will indicate that the respondent has come to the conclusion that in view of Section 105(1) of the RFCTLARR Act is not applicable to acquisition of land under the N.H.Act, which is excluded in the Fourth Schedule, since the land of the petitioner was acquired under the N.H.Act and not under the RFCTLARR Act. As stated hereinbefore, as already come to the conclusion that by virtue of the Three Ordinances, Removal of difficulties order, Notification, Correspondence etc., Section 96 of the RFCTLARR Act is applicable to compensation paid / payable for acquisition of land under the N.H.Act, as a result of which, the compensation would not be exigible to income tax and therefore, the obligation to comply with tax deduction at source would not arise and as such, the said findings recorded by the respondent deserves to be set aside. Points 1 and 2 are accordingly answered in favour of the petitioner and against the respondent-revenue by holding that Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, is applicable to compensation payable for land acquired under the National Highways Act, 1956 and consequently, compensation payable for acquisition of land under the National Highways Act, 1956 is exempt from payment of income tax / TDS under the Income Tax Act, 1961. Rejection to condone the delay in filing the Income Tax returns - A perusal of the material on record clearly indicates that the said Chidananda could not file his I.T. returns before the stipulated date on account of his ill health and ultimate demise on 14.08.2022 and the inability and omission on the part of his wife, the petitioner herein to file the I.T. returns within the prescribed period was due to bonafide reasons, unavoidable circumstances and sufficient cause and as such, the respondent clearly erred in refusing to condone the delay in filing the income tax returns by rejecting the application by passing the impugned order which deserves to be set aside. While dealing with Section 119(2)(b) of the I.T.Act, this Court in the case of Dr. Sujatha Ramesh [2017 (11) TMI 395 - KARNATAKA HIGH COURT] as held an acceptable explanation was offered by the petitioner and a case of genuine hardship was made out. The refusal by the Central Board of Direct Taxes to condone the delay was a result of adoption of an unduly restrictive approach. The Central Board of Direct Taxes appears to have proceeded on the basis that the delay was deliberate, when from the explanation offered by the petitioner, it is clear that the delay was neither deliberate nor on account of culpable negligence or any mala fides. Thus, a perusal of the material on record, in particular the undisputed fact that the petitioner’s husband being unable to file the I.T returns within the prescribed period due to ill health and ultimate demise, the same constituted genuine hardship and the inability and omission on the part of his wife, the petitioner herein to file the I.T. returns within the prescribed period was due to bonafide reasons, unavoidable circumstances and sufficient cause and failure to appreciate this by the respondent has resulted in erroneous conclusion. Point No.3 is accordingly answered in favour of the petitioner. ISSUES: Whether Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 ('RFCTLARR Act') is applicable to compensation payable for land acquired under the National Highways Act, 1956 ('N.H.Act')?Whether compensation payable for acquisition of land under the N.H.Act is exempt from payment of income tax and tax deduction at source (TDS) under the Income Tax Act, 1961'Whether the delay in filing income tax returns can be condoned under Section 119(2)(b) of the Income Tax Act, 1961 on grounds of bona fide reasons, unavoidable circumstances, and sufficient cause? RULINGS / HOLDINGS: The Court held that Section 96 of the RFCTLARR Act is applicable to compensation payable for land acquired under the N.H.Act, by virtue of subsequent Ordinances, Notifications, and Government Orders making the provisions of the RFCTLARR Act applicable to enactments specified in the Fourth Schedule, including the N.H.Act, with effect from 01.01.2015.Compensation payable under the N.H.Act is exempt from payment of income tax and TDS under the Income Tax Act, 1961, as clarified by CBDT Circular No.36/2016 dated 25.10.2016 and supported by judicial precedents; thus, the impugned orders demanding income tax and TDS on such compensation are illegal and liable to be quashed.The respondent erred in refusing to condone the delay in filing income tax returns under Section 119(2)(b) of the Income Tax Act, 1961, where delay was due to the ill health and subsequent death of the assessee and bona fide reasons; such delay deserves to be condoned to advance substantial justice. RATIONALE: The Court relied on the statutory framework of the RFCTLARR Act, specifically Sections 96, 105, 113, and the Fourth Schedule, which initially excluded the N.H.Act but were amended by a series of Ordinances (2014 and 2015) and a 'Removal of Difficulties' Order dated 28.08.2015 under Section 113 of the RFCTLARR Act, to extend the beneficial provisions of the RFCTLARR Act, including compensation determination and exemption from income tax, to land acquisitions under enactments in the Fourth Schedule, including the N.H.Act.The Court referred to authoritative clarifications by the Central Board of Direct Taxes (CBDT Circular No.36/2016) which clarified that compensation exempted under Section 96 of the RFCTLARR Act is not taxable under the Income Tax Act, even if the latter does not specifically provide such exemption.Judicial precedents including the Supreme Court's decisions in Union of India v. Tarsem Singh and National Highways Authority of India v. P Nagaraju, and High Court decisions, were applied to hold that discrimination between landowners under different acquisition enactments regarding compensation and tax exemption violates Article 14 of the Constitution, mandating uniform application of the RFCTLARR Act's provisions to acquisitions under the N.H.Act.The Court emphasized the principle that 'genuine hardship' under Section 119(2)(b) of the Income Tax Act should be construed liberally, citing precedents that a 'justice oriented' approach must prevail over technicalities in condoning delay, especially where delay arises from circumstances beyond control such as ill health and death.The Court noted that the impugned order failed to consider the petitioner's contentions and relevant statutory provisions and precedents, resulting in a legally untenable conclusion requiring interference and remand for fresh consideration in accordance with law.