TaxTMI 
TaxTMI 
2010 (8) TMI 754
X X X X Extracts X X X X
X X X X Extracts X X X X
....al 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 Hazira for the compensation of the existing plant of a co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Assessing Officer TDS under section 194LA need not be made by the Land Acquisition Officer on compensation paid for acquiring agricultural land onl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 section 2(14)(iii)( a) and (b) will have to be applied. There also the word agricultural land is not defined but it only refers to the issue whether a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt? (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 or intended to use it for agricultural purposes? (8)Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoinin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 ever been grown on them. This means that these parts of the lands were never used for the purpose of agriculture and no agricultural activities were carried on them. The Agricultural Officer has stated that out of the six hundred acres of land under co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ategorized 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 assessable under section 45 of the Act as capital gain." The Hon'ble Karnataka High Court in the case of M. Ramaiah Reddy (158 ITR 61) stated as under :- "The lands was compulsorily acquired and while determining the compensation, the land and the trees had been ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st 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 that the land is an agricultural land. Similar proposition was held in all other judgments referred by the Land Acquisition Officer before the Ld. CIT(A). On the above basis Ld. A.R. submitted that once entries in the revenue record is found that land is agricultural la....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 award the compensation pertaining to any well or existing construction has already been paid. ** ** ** The agricultural land under acquisition by way of this award are of total 135 survey numbers and hence, in order to recover the amount of revenue upon the same for the revenue amount after the revenue year 2007-08 and for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uisition, 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) 4331 for the proposition that it is the tax deductor who has to decide whether part payment bears any income character. If assessee can decide in his own case what amount is taxable then he can also decide in respect of payment made by him to others, non-residents in that case. In fact the payer has not to determine tax liability of the total income of the payee but he has to consider the chargeability only in respect of the payment he is making to the payee. It is the payer who is the first person to decide whether the payme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 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 which are in the nature of guidelines. The expression 'agricultural land' should be given widest meaning. If it is assessed in the land revenue records as agricultural land then this is a strong piece of evidence of its character as agricultural land and in order to find out whether agricultural land was really so, actual use of the land has to be seen. Since no agricultural operations were carried o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enue 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 decided on case-to-case basis then how the Land Acquisition Officer has not decided in any of the case that land being acquired is not agricultural land. He should have given a finding in case of every owner to whom compensation is paid for land acquired from him whether it is agricultural land and such decision should have been taken not only on the basis of land revenue record but also on the basis of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tial 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 carried out on such land, babool and such other jungle trees were existing or grown on such lands, there is no irrigation facility on such lands and further that District Agriculture Officer had also certified way-back in 2004 that most of the land is not useable for agricultural purposes and only a small part of the land could give some good yield. With all these facts available, LAO could not come to the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 section,- (i )'agricultural land' means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause ( iii) of clause (14) of section 2; (ii )'immovable property' means any land (other than agricultural land) or any building or part of a building." 27. The main part of the controversy is whether the land acquired by LAO should be treated as agricultural land and therefore, n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 chargeability of capital gains. Thus as per the definition contained in section 194LA no TDS is required to be done on the compensation paid for acquisition of agricultural land. 28. So far as the trees are concerned there is no separate identification for the trees in section 194LA as was the case in respect of building or part of the building. Once trees are not separately defined as immovable property in section 194LA, then two views are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 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 on the acquisition the trees, they are treated as a part of agriculture land. 29.2 In any case, there are two views possible as to whether the Land Acquisition Officer could treat trees as a separate asset or could treat as inseparable part of agriculture land. It has already been held above by us that the Land Acquisition Officer for the purposes of determining whether TDS to be done or not can take the view that trees are inseparable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt 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. The concept of 'immovable property' used in Explanation II annexed to section 194LA of the Income-tax Act, 1961, is for the immovable property which is situated on non-agricultural land and the words 'agriculture land' used in section 194LA of the Income-tax Act, 1961 and Explanation attached thereto, as such not defined either in this section or in section 2(14) of the Income-tax Act, 1961. Therefore, a general meaning of 'agriculture land' has to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quisition 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 applicable here also with full force. No distinction can be made between the compensation paid for acquisition of trees and the compensation paid for acquisition of farmers' houses standing on the agriculture land. 29.11 In any case, the view adopted by the Land Acquisition Officer is only tentative and prima facie and not final. It is always the assessing authority whose view will finally prevail as to the nature of asset acquired by the Land Acquisition Officer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 Officer may carry out and finally determine the nature of the asset for which, or on whose acquisition, the compensation was paid. Here the only limited question is whether the Land Acquisition Officer can be said to be justified in not deducting the tax on compensation paid by him to the land owners for acquisition of land, trees and farmers' houses. 30. In support of their contention both the parties have cited several judgments. 30.1 It has been held in Orissa State ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat 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 section 2(14)(iii)( a) & (b) makes it abundantly clear that the Competent Authority to decide whether any compensation award is exigible to income-tax is the ITO Thus, in this case, it was held that land acquisition officer has no jurisdiction to decide the issue whether land is agricultural land or not and that matter is to be decided by the ITO. In this case Hon'ble Court had considered the definition of agricultural land in section 2(14)(iii)( a) and (b). It was held that that this d....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 under :- The assessee made a remittance to IMAX Canada towards technology transfer fee without deduction of tax at source. The Assessing Officer took the view that the consideration was "fees for technical services" under section 9(1)(vii) and that tax ought to have been deducted at source as per Transmission Corpn. of A.P. Ltd. v. CIT [1999] 239 ITR 587 (SC). He accordingly held the assessee to be an "assessee-in-default" under section 201 though the CIT(A) reversed the same. On appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax 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 & demobilization charges of Rs. 8.65 crores by way of reimbursement to its parent company, a company based in Netherlands. The assessee applied to the Assessing Officer under section 195(2) for a Nil withholding rate though the Assessing Officer held that tax had to be deducted at 11 per cent. The assessee deducted tax on sums aggregating Rs. 6.98 crs. In the assessment order the Assessing Officer took the view that as the assessee had failed to deduct tax at source under section 195, the expenditure had to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovision 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 presumptive value. This presumption arises from the actual user of the land for agricultural purposes and from the entries in the record of rights if they are not rebutted then it has to be held in favour of the proposition that land in question are agricultural land. This decision relates to chargeability of capital gain raising of presump-tion on the basis of Land Revenue Records and it is rebuttable by the Assessing Officer. It does not lay down any proposition for the Assistance of LAO. (9) In Smt. Lilavati Thak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 been rebutted or dislodged by other factors. (12) In H.V. Mungale's case (supra). The issue was whether land in question is agricultural land for the purposes of Wealth tax Act. The land was entered as agricultural land in revenue records and was assessed to land revenue. The land was cultivated till 1963 and permission was not obtained for conversion to non agricultural purposes. Merely because land remained fallow even after 1963 would not make it non agricultural and therefore, value of such land would not be included in net wea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidered 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 careful study of above authorities and undisputed facts, we hold as under:- (1)For the purposes of determining whether land is agricultural land or not it is the prima facie satisfaction of the LAO. The Law does not provide any role to the Assessing Officer in such determination at the time of awarding compensation. (2)The Land Acquisition Officer has to only prima facie decide whether the land being acquired by him is agricultural land or not. (3)For the purposes of determining whether land in question is agricultural land or not the entries in revenu....