TaxTMI 
TaxTMI 
2010 (8) TMI 754
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....d as immovable properties other than agricultural land. 3.Under the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in treating the constructions and trees on the lands against which compensation of Rs. 38,29,74,373 was paid as immovable properties other than agricultural land and thus holding that the provisions of section 194LA would apply to that compensation. 4.Under the facts and circumstances of the case and in law, the Ld. CIT (Appeals) ought to have appreciated the fact that the appellant had acted under bona fide belief that the above compensation was not subject to TDS and thus ought to have held that the action of the ITO in invoking the provisions of section 201 without taking any recourse to the original assessees to whom the compensation was paid is incorrect." 2. The issue involved in this appeal is whether Special Land Acquisition Officer was required to deduct tax under section 194LA on the payments of compensation made by him to various persons on the acquisition of land, building and trees. 3. The ITO (TDS)-4, Surat noticed that Special Land Acquisition Officer Branch-1, Surat had acquired land in the new area at Ha....
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....meant for agriculture activities. The value of the residential house was determined as assessed by the Executive Engineer of the State PWD on the basis of number of family members. The value of the trees standing on these lands were determined by the Forest Department of the State Government even though land falling under notified area is required to be treated as non-agricultural land but as per the provisions of section 194LA the land covered under the notified area is to be treated as agricultural land. Therefore according to LAO, no TDS is required to be made and accordingly no TDS was made. The Assessing Officer did not agree on the above contention and he held that provisions of section 194LA of the Act and definition of agricultural land mentioned therein is linked to the provisions of section 2(14)(iii)( a) and (b) of the Act. According to the Assessing Officer provisions of section 194LA introduced with effect from 1-10-2004 is similar to the provisions of section 194L which was effective between the period from 1-6-1999 to 31-5-2000 that words "capital asset" has been replaced with the words "immovable property other than the agricultural land". Since, according to the As....
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....ccording to Assessing Officer the trees and buildings which stand on agricultural land are not agricultural in India within the meaning of section 2(14)(iii) of the Act. They constitute "property of any kind" mentioned in section 2(14) of the Act and are "capital asset" and profit arising from their sale would be assessable under section 45 of the Act as capital gains. He referred to the decision of Hon'ble Kerala High Court in the case of Travancore Tea Estates Co. Ltd.v. CIT [1974] 93 ITR 314 in support of his reasoning. He, accordingly, held that Land Acquisition Officer was required to deduct tax and therefore, the assessee is in default and he accordingly worked out the liability of Rs. 8,42,85,887 as TDS and interest thereon. 5. When the matter came up before the Ld. CIT(A), he confirmed the order of Assessing Officer and dismissed the appeal of the Land Acquisition Officer by holding that land acquired was not used for agricultural purposes and therefore will not be agricultural land. He referred to the definition of agricultural land and immovable properly used in section 194LA and held that even for the purposes of section 194LA, the definition of agricultural land in s....
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....d for agricultural purposes at or about the relevant time? (3)Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement? (4)Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? (5)Whether the permission under section 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? (6)Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a permanent or temporary nature? (7)Whether the land, though entered in revenue records, had never been actually used for agriculture, that is it had never been ploughed or tilled? Whether the owner meant....
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.... involved are cultivable. (ii )The crops taken are such which are grown without cultivation, e.g., grass, jowar grass and fruit trees except that some of the fruit trees and vegetables were also there in certain survey numbers. (iii)There is no irrigation facility and only kharif crops could be grown, (iv)The sea water spreads on certain parts of the land during high tide. (v )The land which could yield something is very less, (vi)Certain parts of the land is barren and uneven." 10. Ld. CIT(A) finally gave following finding :- "5.17.2 From the analysis of this letter, it is clear that the Agricultural Officer has not at all pointed out any area where the crops were being grown and agricultural activities were being carried out. The Agricultural Officer has stated that the certain parts of the land are uneven and barren. This means that these parts of the land were never used for the purpose of agriculture and no agricultural activities were carried on them. Further, certain part of the land have been stated to be covered by the sea water during high tide. This means that twice during the 24 hours the land gets covered by salty water and hence nothing could have....
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.... for trees and construction have been mentioned separately. It is, therefore, clear that the sum paid for the acquisition of trees, buildings, construction etc., have been treated separately by the assessee. Since these buildings/constructions have been categorized as residential building by the assessee, the income from transfer of such buildings as per Explanation (2) of section 2(1A)(c ) would be income chargeable to tax and not agricultural income. 5.18.2 As discussed above in respect of the trees, the compensation for the trees has been made separately. This compensation would not amount to agriculture income. In this regard, the decision of the Hon'ble Kerala High Court in the case of Travancore Tea Estates Co. Ltd. (supra) is very clear wherein the Hon'ble High Court stated as under :- "The principle that what is attached to land belongs to the land is not applicable in India. Trees which stand on agricultural land are not "agricultural land in India" within the meaning of section 2(14)(iii) of the Income-tax Act, 1961. They constitute "property of any kind" mentioned in section 2(14) of the Act and are "capital asset" and profit arising from their sale would be assess....
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....al asset or not. 12. The Ld. A.R. then referred to the decision of Hon'ble Kerala High Court in Nalini's case (supra) as referred to by the Ld. Assessing Officer and by Ld. CIT(A) and submitted that this judgment is in different contest. It is held therein that the test to determine whether land described as agricultural land in revenue record is agricultural land or not, is to determine whether it is put to non-agricultural use. So long as there is no non-agricultural activity carried on, on the land, it continues to be agricultural land. He also referred to various judgments as referred to by Land Acquisition Officer before the Ld. CIT(A) to emphasis the point that reference of the land as agricultural land in revenue records is of prime importance for determining by Land Acquisition Officer whether the particular land is agricultural land or not. In Sercon (P.) Ltd.'s case (supra) Hon'ble Gujarat High Court held that entries in the revenue record as agricultural land is important for leading to presumption that it was agricultural land in character but this presumption can be rebutted. Further, if non-agricultural use of the land is not shown in the record then presumption is....
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.... were as under :- "As crop is standing on the land and construction is found existing upon the land valuation of the crops is carried out by the Agriculture Officer, District Panchayat, Surat and the valuation of the house has also been carried out by the Executive Engineer (Road & Building Department), Surat and thereby the amount of compensation has been paid. ** ** ** On the date of declaration of consent award any standing crop or existing trees and houses are not found upon the land under acquisition hence, the question of paying the amount of compensation of the standing crops and existing trees does not arise at all. ** ** ** Waste land is also included in the land under acquisition but as this is a consent award hence, there is no question of paying up the compensation of the waste land. ** ** ** The compensation of the existing constructions upon the land under acquisition have been paid previously. ** ** ** The land owners who have deep bores or wells in their lands have been paid the amount of compensation thereof previously. ** ** ** Any crop is presently not found standing upon the land, at the time of awar....
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....mall numbers besides, some of the lands are also coming under the agricultural zone. In some of the survey number land a road of 60 metres width is also passing. ** ** ** Trees are found in the land under acquisition, compensation of the same is to be paid as mentioned in the compensation statement enclosed herewith. ** ** ** Wells are found in the land under acquisition, compensation of the same is to be paid as mentioned in the compensation statement enclosed herewith." 15. The ld. A.R. then referred to some judgments relied on by the ld. Assessing Officer and ld. CIT(A) and submitted that they are not applicable to the facts of the present case. He referred to the decision of Hon'ble Karnataka High Court in Travancore Tea Estates Co. Ltd.'s case (supra) where trees were sold all alone and was not a case of composite acquisition or sale of land with standing trees. 16. The ld. A.R. then referred to the decision of ITAT Special Bench in ITO (International Taxation) v. Prasad Production Ltd. [2010] 129 TTJ (Chennai) 433^1 for the proposition that it is the tax deductor who has to decide whether part payment bears any income character. If assessee can d....
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....urt of Wards) [1976] 105 ITR 133 (SC) wherein it is held that if property is classified in the revenue records as agricultural land it would not be conclusive and such entries could raise only a rebuttal presumption. The LAO was not expected to superficially accept that land being acquired by him is agricultural land particularly, when it is personally seen it is found that there are lot of pits, land is saline and surrounded by industries and it is not worthy of agriculture operations and grass is growing thereon and trees of babool, etc., are standing. No Land Acquisition Officer would acquire the land unless he physically has inspected. For the purposes of valuation of the compensation for the land it is necessary for him to make a physical inspection of the land. Once it is so he had to give a finding whether agricultural operations were actually carried on or not. The ld. D.R. referred to the decision of Hon'ble Supreme Court in Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 70 Taxman 301 for the proposition that whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of the Supreme Court and High Courts w....
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....r babool is grown. The presumption as such arising from entries in the revenue record is rebutted by the record of State Government itself in the form of the letter from District Agricultural Officer and therefore, the Land Acquisition Officer should have either physically inspected and classified the land into agricultural and non-agricultural or in the matter of doubt should have consulted the revenue authorities. The mere fact that Land Acquisition Officer chose to distribute compensation without deducting tax showed that he was predetermined not to deduct tax without resorting to actual verification and categorization. 20. The ld. D.R. submitted that if revenue record raised a rebuttal presumption then it should be decided who would rebut such presumption and when and how? No notice has been given to the revenue Authorities of the intention of Land Acquisition Officer that he does not intend to deduct the tax because in his opinion and as per his records land to be acquired is agricultural land. For rebutting presumption, opportunity should have been given to the revenue authorities, which has not been given. 21. The ld. D.R. submitted that if character of land is to be d....
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....LA was that he was under bona fide belief that land acquired for giving to Hazira Steel Plant was agricultural land as per Land Revenue record, therefore, he was not required to deduct any tax under section 194LA. In respect of trees the case put forward was that they are part of the agricultural land and therefore, no TDS is required to be made on payment in respect of them. Similarly in respect of residential houses the case sought to be made out was that they are part and parcel of agricultural land, being used by the farmers. Therefore, no TDS is required to be made from compensation paid in respect of them also. They have relied on several authorities as referred above in support of their contentions. 24. The case of the revenue is that mere information given in land revenue record is not sufficient to hold that land acquired by LAO was agricultural land. A personal visit made by the revenue authorities showed that the land sought to be acquired was barren land, it was saline as it was adjacent to sea, it was surrounded by factories, it was just adjacent to Hazira Steel Plant of Essar Company, there were lot of pits and unevenness in the land, no agricultural operations was....
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....ce, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette." 26. On the other hand, section 194LA reads as under :- "194LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon : Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed one hundred thousand rupees. Explanation.-For the purposes of this ....
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....s occupy the same field. We derive support in our view by Hon'ble Delhi High Court in CIT v. Prasar Bharati (Broadcasting Corpn. of India) [2007] 292 ITR 580 and Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 (SC). It is held by Apex Court in the above case that any matter for which a provision is made in the Income-tax Act, 1961, is to be governed by it, notwithstanding anything different or to the contrary contained in the general law relating to that matter. Special Bench of the Tribunal in Eicher Tractors Ltd. v. Dy. CIT [2003] 84 ITD 49 (Delhi) held that if special provision is made on a certain matter that matter is excluded from the general provision. In our considered view definition of immovable property and agricultural land in section 194LA is specifically enacted for the limited purpose of deduction of tax from compensation paid, and therefore, we need to confine to the definition of immovable property and of agricultural land as contained in section 194LA only and the definition under section 194LA need not be influenced by the definition under section 2(14)(iii)( a) and (b) which comes within the domain of Assessing Officer only for the purposes of chargeabilit....
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....r agricultural land would include any other immovable property attached or standing thereon and whether the scope of meaning of agricultural land can be extended and that of meaning of immovable property be reduced so as to exclude trees and residential houses standing thereon. 29.1 In this regard also we are of the view that the Land Acquisition Officer was fully justified that the compensation paid by him on acquisition of land along with houses thereon was a composite asset and houses as such cannot be separated from the land which is undisputedly agriculture land. If the treatment given to the trees, standing on the land is that it is inseparable part of agriculture land then for similar logic, buildings standing on the agriculture land would also be treated as integral part of the same land. Merely because the State PWD Authorities separately valued the buildings, it could not be said that they have separate and independent existence on agriculture land. It has been held in several Authorities as we will see subsequently that trees are not agriculture land but when he acquired along with the agriculture land, then for the purposes of TDS to be deducted on compensation paid ....
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....ers as compared to the one which was mostly filled with back waters and it became infertile due to consequential salinity. 29.5 We observe from the part of compensation paid that the State Government has determined a uniform rate to every chunk of land so acquired which in fact could not be a market reality, therefore, farmers' houses standing on the land which could fetch a higher price in the market was considered for payment of higher amount to such land owners. Therefore, in reality, what is paid to the farmers on account of buildings, could not be really be the compensation paid for buildings, but was higher amount of compensation paid for acquiring better land fetching higher price in the market. 29.6 We also agree with the argument of the Learned AR that even if there are houses, then they are houses appurtenant to the land which is undisputedly agriculture land. Such houses are houses for agriculture purposes for keeping agricultural plants, agricultural produce or for residence of the farmers. These houses, therefore, carry the character of houses appurtenant to agriculture land and therefore integral to it and they would also carry the same character as the land. Th....
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....the Land Acquisition Officer adopted a view which now contradicts with the view the Assessing Officer intends to adopt. 29.9 The view advanced by the Department in support of their stand is equally possible that the buildings standing on the agriculture land should be given a different treatment as compared to agriculture land as immovable property separately so mentioned in Explanation to section 194LA of the Income-tax Act, 1961 and therefore, the Land Acquisition Officer could have deducted tax on compensation paid on the acquisition and because buildings have been separately valued by the State PWD Authorities, they could have given a separate treatment. 29.10 Thus in our considered view both the views are equally possible though we feel that the view adopted by the Land Acquisition Officer carry a greater weight. Therefore the Land Acquisition Officer would be justified to adopt the view favourably to the taxpayer or the farmers. The authorities supporting the proposition is that if there are two views equally, possible then the view which favours the assessee should be adopted have been also referred while making discussion in respect of trees. These authorities are app....
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....al Bench in Prasad Production Ltd.'s case (supra) has only upheld this view that it is the prima facie satisfaction of the payer as to the taxability of an amount paid by him to the payee that is relevant and important for determining whether he should make TDS on the payment to the payee. If on a particular issue there is already an authority that particular payment made by the payer is chargeable to tax and then the payer does not follow such an authority or ignoring such an authority, then his Judgment in not deducting the tax on payment made to the payee can be faulted. But, where there is no authority or law contradicting the view taken by the payer and there are adequate reasons that the payer has to adopt the view that amount paid by him to the payee is not chargeable to tax, then he would be justified in not deducting the tax on the payment made to the payee. 29.14 We make it clear that it is not the question here whether capital gains would be chargeable on compensation paid by the Land Acquisition Officer to the land owners. The capital gains may or may not be chargeable on the land, trees and farmers' houses depending upon enquiries and investigations the Assessing Of....
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....ral land. The tax deduction was challenged before the Hon'ble Punjab & Haryana High Court. It was held that once compensation is paid for acquisition of agricultural land then as per section 194LA, no TDS is required to be made. Further, the jurisdiction of Collector to deduct tax would come only when property acquired is not agricultural land and without determining the character of land acquired as non-agricultural TDS could not be made. Thus, it was held in the above case that jurisdiction to deduct tax by LAO would arise only when he decides that land acquired by him is non-agricultural. In this case, the fact that the land acquired was agricultural land was not under challenge. Therefore, Hon'ble Court had held that Collector should deduct the tax only when lands acquired is non-agricultural. (2) In Nalini's case (supra) the issue was whether a particular land is agricultural land or not has to be determined with reference to the definition given in section 2(14)(iii)( a) & (b) of the Act or with reference to the character of land shown in the land revenue record. It was held that a combined reading of section 194LA and the definition of agricultural land given in sectio....
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....minative factor and if the land is shown as agricultural land in revenue records and permission for non agricultural use under section 65 of Bombay Land Revenue Code has not been obtained then it should be treated as agricultural land. This Judgment apparently refers to determination of character of land at the time of levying capital gains by the Assessing Officer and does not lay down the proposition as to how LAO should arrive at a decision about the character of a land he is acquiring. Even though Hon'ble Court was referring to the levy of capital gains on sale of land still it was held that if the land in revenue record is shown as agricultural land and no permission for non agricultural use under section 65 of Bombay Land Revenue Code has been obtained then the land should be treated as agricultural land and its non user for agricultural purposes for several years is not a determinative factor. If this criteria can be laid down for Assessing Officer then there is no reason why same criteria cannot be laid down for LAO whose decision is only tentative, prima facie and not final like that of Assessing Officer. (6) In Prasad Productions Ltd.'s case (supra), it was held as ....
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....hat of Samsung Electronics Ltd. (supra). A bare reading of above ratio indicates that decision of Hon'ble Spl. Bench in Prasad Production Ltd.'s case (supra) would not be applicable to the facts of the case as decision in Prasad Production Ltd.'s case (supra), was given in the context of section 195(1) whereas the issue in the present case is under section 194LA. The language in the two sections is quite different. In section 195(1) a basis has been provided to the payer that he need not deduct the tax in respect of payment which is not chargeable to tax. No such parallel can be drawn in respect of case falling under section 194LA, where the LAO has to decide the character of the land for deciding whether TDS has to be made on payment of compensation on acquisition of land. Only one proposition can be borrowed from above decision which is that it is the payer who has to decide whether TDS has to be made on the payment made by him and accordingly there is no role of the Assessing Officer in this determination. (7) In Van Oord ACZ India (P.) Ltd. v. CIT [2010] 189 Taxman 232 (Delhi) following proposition was laid down. "The assessee, an Indian company remitted mobilization &....
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.... on the sum 'chargeable under the provisions of this Act'; (iv)As regards Samsung Electronics 185 Taxman 313 (Kar.), the context was different. The assessees wanted to show in their own assessment proceedings that the amount paid by them was not assessable to tax at the hands of recipient. No doubt, they would be precluded to do so. However, when in the assessment proceedings relating to recipient itself, it is opined by the Income-tax authorities that the tax is not payable at all on the amounts so received, provision of section 195 would not be attracted. "Even otherwise, because of the analysis of what Transmission Corporation of AP decides, we, with due respect, are not in agreement with some of the observations made in the aforesaid judgment of the Karnataka High Court." In our considered view the inference from the above decision would be the same as we have drawn from the decision in Prasad Production Ltd.'s case (supra). (8) In Vajulal Chunilal's case (supra). The issue was about charging of capital gain on sale of agricultural land. The test for holding whether land is agricultural or not have been laid down. It was held that an entry in revenue record creates the....
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....ut one inference can certainly be drawn that Land Revenue Record and entries therein do create a presumption in favour of the land being agricultural land. (10) In Maganlal Morarbhai's case (supra). The issue was when land sold for non agriculture purposes ceased to be agricultural land. The permission for change of user was granted subsequent to the sale of land and presumption that land was agricultural land on the date of sale was not rebutted. Mere potential for non agricultural value of the land would not affect nature of land on the date of sale. In the following cases the question of determination of character of a land was decided by the Assessing Officer either for the purposes of levying capital gains or wealth tax. There also it was held that entries in Revenue Record would raise a presumption in favour of land being agricultural land. (11) In Smt. Chandravati Atmaram Patel's case (supra ). Again it was held in this case that if land is recorded in the revenue record as agricultural land and it was also used for agriculture purposes then the presumption would arise that land in question is agricultural land. Further it has been seen whether such presumption has ....
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....latory intention of the owner when integrated activity of agriculture is undertaken and performed on any land then land can be called agricultural land. (19) In Officer-in-Charge (Court of Wards) v. CWT [1969] 72 ITR 552 (AP). The issue for the purpose of wealth tax was the inclusion of vacant land of about 108 acres and also building which were enclosed in the compound walls. The land was never ploughed or tilled though it was capable of being used for agriculture. The land revenue was assessed on it by the State Government. The Hon'ble Court considered following criteria and held that land in question was agriculture in nature. The matter came up before the Hon'ble Supreme Court in the above case in Officer-in-Charge (Court of words) (supra). It was held as under. And thus Judgment of A.P. High Court was set aside. Further, Hon'ble Apex Court held that entries in revenue record are good prima facie evidence. (20) In Travancore Tea Estates Co. Ltd.'s case (supra). It was held that sale of trees standing on agricultural land is assessable under section 45 of the Act as they are not agricultural land. 32. From the discussion made by representatives of both the parties and c....