TDS on TDR compensation may not apply where land acquisition payment is made in kind, not money.

Issuance of TDR certificates in lieu of land acquisition compensation was treated, at least prima facie, as outside Section 194LA because the provision was construed in light of surrounding words and the statutory scheme for payments in kind. The Court accepted a prima facie distinction between monetary compensation and discharge through TDR certificates, and on that basis held that TDS did not clearly apply to such in-kind compensation. That prima facie view also justified interim protection against enforcement of the demand, notice and penalty proceedings pending the writ petition.

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Issues: (i) Whether issuance of TDR certificates in lieu of compensation for acquisition of land attracted tax deduction at source under Section 194LA of the Income-tax Act, 1961; (ii) Whether the petitioner had made out a prima facie case for stay of the demand and penalty orders pending the writ petition.

Issue (i): Whether issuance of TDR certificates in lieu of compensation for acquisition of land attracted tax deduction at source under Section 194LA of the Income-tax Act, 1961.

Analysis: The provision dealing with tax deduction on compensation for compulsory acquisition was read in the context of payment by credit or by cash, cheque, draft or other mode. The expression used in the section was treated as requiring construction with the surrounding words, and the Court accepted, prima facie, that the residual words should be read ejusdem generis. Support was drawn from the statutory scheme in provisions dealing with payment wholly or partly in kind, where the legislature has made express machinery provisions. On that basis, the Court found a prima facie distinction between monetary payment and issuance of TDR certificates in kind.

Conclusion: Prima facie, Section 194LA was held not to apply to issuance of TDR certificates in lieu of compensation.

Issue (ii): Whether the petitioner had made out a prima facie case for stay of the demand and penalty orders pending the writ petition.

Analysis: The prima facie view on the scope of Section 194LA led the Court to find substantial substance in the challenge to the impugned order, demand notice and penalty proceedings. The pending writ petition was considered fit for protection by interim orders so that the disputed demands would not be enforced before final adjudication.

Conclusion: Interim protection by way of stay of the impugned order, demand notice and penalty order was granted.

Final Conclusion: The writ petition was protected by interim relief because the petitioner established a strong prima facie challenge to the applicability of tax deduction at source on TDR-based compensation.

Ratio Decidendi: Where compensation is discharged by issuance of TDR certificates in kind, the words of a TDS provision may not extend to such mode of payment unless the statute clearly so provides.

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