2025 (11) TMI 48 - HC - Income Tax

Section 194LA read ejusdem generis with 'payment...cash or cheque'; TDRs excluded; interim stay on s.201, s.201(1A), s.274, s.271C demands

HC held that s.194LA must be read ejusdem generis with 'payment...in cash or by issue of a cheque or draft' and does not apply where TDRs are issued in ... TDS u/s 194LA - issuing TDR in lieu of compensation for lands acquired for public purposes from the original owners as contemplated under Section 126 of the MRTP Act, 1966 - HELD THAT:- We find substance in the argument canvassed by the Petitioner that the words “or by any other mode” appearing in Section 194LA would have to be read ejusdem generis to the words “payment thereof in cash or by issue of a cheque or draft”. Section 194LA would not apply when TDR Certificates are issued in lieu of compensation. As mentioned earlier, we find support for this reasoning by referring to Section 194B as well as Section 194R, which in fact contemplate as to what is to be done when payment is to be made entirely in kind or partly in cash and partly in kind. Those provisions are conspicuously absent in Section 194LA of the Income Tax Act. We find that the Petitioner has made out a strong prima facie case for grant of interim relief. We accordingly order that pending the hearing and final disposal of the above Petition, implementation and operation of the impugned Order dated 31st March 2025 passed u/s 201 and 201(1A) of the Income Tax Act, 1961 is hereby stayed. Consequently, even the Demand Notice and the Penalty Order under Section 274 read with Section 271C and the Demand Notice emanating therefrom, both dated 30th September 2025, are hereby stayed. ISSUES PRESENTED AND CONSIDERED 1. Whether Section 194LA of the Income Tax Act applies to require deduction of tax at source when compensation for compulsory acquisition of immovable property is discharged by issuance of Transferable Development Rights (TDR) certificates rather than by cash, cheque, draft or other monetary modes. 2. Whether the phrase 'or by any other mode' in Section 194LA must be read ejusdem generis with the immediately preceding expressions 'in cash or by issue of a cheque or draft', thereby excluding non-monetary consideration such as issuance of TDRs from the scope of Section 194LA. 3. Whether the absence in Section 194LA of provisions analogous to the proviso in Section 194B (dealing with winnings wholly or partly in kind) or the provisions of Section 194R (covering benefits or perquisites in kind) indicates legislative intent that Section 194LA does not cover payments made entirely in kind. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Section 194LA to payment by issuance of TDR certificates Legal framework: Section 194LA requires deduction of tax by any person responsible for paying 'any sum in the nature of compensation' on account of compulsory acquisition of immovable property to a resident, at the time of credit or payment 'in cash or by issue of a cheque or draft or by any other mode'. Precedent Treatment: No prior judicial precedent is relied upon in the judgment for direct application to TDRs; the Court evaluates statutory text and related provisions instead. Interpretation and reasoning: The Court examines the textual description 'payment thereof, in cash or by issue of a cheque or draft' and the subsequent non-exhaustive phrase 'or by any other mode'. It analyzes whether issuance of TDRs-a non-monetary, in-kind mechanism to discharge compensation liabilities under acquisition law-falls within the statutory sweep. The Court finds that, prima facie, issuance of TDRs cannot be equated to monetary payment modes contemplated by Section 194LA, and that applying Section 194LA to TDR issuance would extend the provision beyond its ordinary meaning. Ratio vs. Obiter: The core holding that Section 194LA does not prima facie apply to issuance of TDRs (and thus does not, at least on an interim view, trigger TDS liability under that section when compensation is discharged by TDRs) constitutes ratio for the limited interim purpose of granting stay; the Court frames this as a prima facie view pending final adjudication. Conclusions: At least prima facie, Section 194LA is not attracted when compensation is discharged by issuing TDR certificates; therefore the petitioner has a strong case against being declared an assessee in default under Sections 201/201(1A) based on non-deduction under Section 194LA. Issue 2 - Construction of 'or by any other mode' in Section 194LA (Ejusdem generis) Legal framework: The ejusdem generis canon of construction-where general words follow specific words referring to persons or things of a particular class, the general words are to be construed as limited to things of the same kind as those enumerated-applies to statutory interpretation where appropriate. Precedent Treatment: The judgment does not cite authority applying ejusdem generis to Section 194LA, but applies the principle to construe the relationship between the specified monetary modes and the residual phrase 'or by any other mode'. Interpretation and reasoning: The Court holds that the residual phrase should be read ejusdem generis with 'in cash or by issue of a cheque or draft', meaning 'other mode' must be of the same genus (i.e., modes of monetary payment) rather than modes of non-monetary discharge such as issuance of TDRs. On this basis, the phrase does not prima facie encompass in-kind transfers which are qualitatively distinct from monetary payments. Ratio vs. Obiter: The application of the ejusdem generis principle to limit 'or by any other mode' to monetary payment modes is central to the Court's interim conclusion and forms part of the operative reasoning (ratio) for staying the impugned orders pending final adjudication. Conclusions: The phrase 'or by any other mode' in Section 194LA is to be read ejusdem generis with the specific monetary modes mentioned; accordingly, issuance of TDRs, being in-kind consideration, is prima facie excluded from Section 194LA's operation. Issue 3 - Significance of absence of provisions analogous to Sections 194B and 194R in Section 194LA Legal framework: Sections 194B and 194R of the Income Tax Act contain specific provisions dealing with incomes or benefits payable in kind (Section 194B's proviso addresses winnings wholly in kind; Section 194R governs benefits/perquisites provided in kind) and prescribe mechanisms for ensuring tax on such receipts. Precedent Treatment: No case law is referenced; the Court engages in comparative statutory analysis to infer legislative intent from the presence or absence of analogous provisions. Interpretation and reasoning: The Court reasons that where Parliament intended TDS consequences for payments made wholly or partly in kind, it expressly provided for such contingencies (e.g., in Section 194B and Section 194R). The conspicuous absence of similar language or provisos in Section 194LA suggests that Parliament did not intend Section 194LA to apply to payments made entirely in kind. This absence supports the ejusdem generis reading and bolsters the prima facie view that TDR issuance falls outside Section 194LA. Ratio vs. Obiter: This comparative statutory analysis forms part of the Court's substantive reasoning for the interim order and contributes to the ratio for the stay; it supports the primary conclusion but may be reconsidered at final hearing. Conclusions: The lack of provisions in Section 194LA analogous to Sections 194B and 194R indicates that Section 194LA was not intended to govern non-monetary discharges of compensation; this point strengthens the prima facie exclusion of TDR issuance from Section 194LA. Ancillary Issue - Interim Relief and Stay of Demands and Penalties Legal framework: The Court may stay operation of assessment/demand/penalty orders where a petitioner makes out a prima facie case, balance of convenience favors relief, and irreparable harm may ensue. Interpretation and reasoning: Having concluded that arguable and substantial questions of law arise on the applicability of Section 194LA to TDRs and after finding support in ejusdem generis construction and comparative statutory absence, the Court finds that the petitioner has established a strong prima facie case warranting interim protection. Balance of convenience and potential prejudice from immediate enforcement of demand and penalty orders support staying implementation pending final adjudication. Ratio vs. Obiter: The stay is an interlocutory relief based on the Court's prima facie conclusions; while binding as an interim order, it does not decide the ultimate legal questions finally. Conclusions: Operation and implementation of the impugned order under Sections 201/201(1A), the related demand notice, and the penalty order under Section 274 read with Section 271C (and its demand notice) are stayed pending final disposal of the writ petition. Cross-reference The ejusdem generis construction (Issue 2) and the comparative absence of in-kind provisions in Section 194LA (Issue 3) are interrelated and jointly underpin the Court's prima facie conclusion on Issue 1 (non-applicability of Section 194LA to issuance of TDRs), which, in turn, forms the basis for the interim relief stayed in the ancillary issue.