TaxTMI 
TaxTMI 
2024 (11) TMI 251
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....o.103377/2017 c/w other identical cases, having been favoured, they have been relieved off from the levy of income tax on the compensation paid for the acquisition of their lands. This relief, he has granted principally in terms of section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. 2. Learned Senior Panel Counsel appearing for the Revenue urged the following points for voiding the impugned judgment: 2.1. Section 96 of 2013 Act providing for exemption from income tax on the amount payable as compensation, is invocable only when acquisition of private lands for public purpose has been accomplished under the provisions of this very Act and not under any other statutes such as the Karnataka Highways Act, 1964, to be specific. 2.2. Section 96 of 2013 Act enacts a part of law relating to Income Tax; the Parliament in its wisdom has exempted from tax the compensation payable for the land acquisition done under the provisions of this Act only, as a matter of policy and that such a provision has to be construed literally, there being no room for its otherwise interpretation. 2.3. What income should be taxed and what ....
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....ompensation payable to the land-losers and therefore, the Revenue is not entitled to levy & recover any amount by way of income tax from them. 3.6. These appeals have been rendered infructuous inasmuch as the Income Tax Department has refunded entire TDS amount not only to the private respondents herein but to all land-losers in the subject acquisition process, more particularly when such a refund is made without reserving right to prosecute the appeals. 4. We have heard learned counsel for the parties; we have perused the Appeal Papers and adverted to relevant of the Rulings cited at the Bar. Having done all that, we are inclined to grant indulgence in the matter as under and for the following reasons: 4.1. The first contention of land-losers that the 2013 Act has impliedly repealed the provisions of all statutes in general providing for acquisition of land and more particularly, section 15 of the 1964 Act and therefore, the acquisition done under the provincial statutes should be deemed to have been done under the 2013 Act, is difficult to countenance, and the reasons for this are not far to seek: (a) Article 246 (2) read with Entry 42 (Acquisition and requisitioning of prop....
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....i-federal'), a conflict should arise in the matter of legislative process. To avoid possible conflict, civilized jurisdictions have adopted inter alia the rule of harmonious construction. This conventional rule enjoins the constitutional courts with a duty, (however onerous it may prove to be to discharge) to ascertain in what degree and to what extent, authority to deal with matters falling within the jurisdiction of each legislature exists and to define/delineate in the particular case at their hands, the limits of their respective powers. Some of the Entries in different Lists may overlap and at times may appear to be in direct conflict with each other. Therefore, as of necessity, courts have to reconcile the Entries by bringing them into a harmony; this they do by placing a reasonable and pragmatic construction on them. Keeping that in mind, the contention of land-losers that the 2013 Act has completely obliterated the provisions of all State legislations providing for acquisition of land, being too far fetched, cannot be countenanced. Arguably, such a contention could have been entertained had the subject matter of 2013 Act and that of 1964 Act, in pith and substance happened ....
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....asoning of the learned Single Judge to the contra vide paragraphs 20 to 22 of the impugned judgment, therefore is flaw some. By virtue of Government Order dated 14th November 2014 or the Addendum issued in November 2015, the provisions of section 96 of the 2013 Act do not become applicable to the subject land acquisition of 2012. Despite repeatedly asking, learned counsel appearing for the land-losers and the learned AAG appearing for the State were not in a position to relate the subject Government Order to any statutory provision. Further, what the State cannot do by enacting a law i.e., exempting the compensation from income tax, it cannot do in exercise of its Executive Power by issuing the Government Order of the kind. Plainly it is so because the legislative competence in this regard apparently lies with the Parliament. It has been firmly settled by half century jurisprudence vide RAI SAHIB RAM JAWAYA KAPUR vs. STATE OF PUNJAB AIR 1955 SC 549, that the Executive Power of the State is co-extensive with its legislative competence. If State has no legislative power, a Government of the State cannot arrogate to itself the corresponding Executive Power. Much is not necessary to di....
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....refore, cannot be acceded to. As already mentioned above, a plethora of legislations both Central & State, provide for acquisition of private property for the purpose of effectuating their principal objects, such as establishment of industrial areas, laying of roads, providing housing accommodation, granting house sites to the members of oppressed classes, etc. These statutes relate to several Entries in the Lists and incidentally they provide for such acquisition. Many of them invoke the procedure for acquisition of property as prescribed under the provisions of erstwhile 1894 Act. It is true that the compensation package availing to the land-losers under these Statutes arguably is not as attractive as the one intended under the 2013 Act. In other words, the amount of compensation payable for the acquisition of property inter alia under the State Legislations is comparatively less than what is being awarded under the new statute. In addition, Section 96 of the 2013 Act exempts compensation from the levy of Income Tax. However, on that basis one cannot profitably contend that the land-losers under 2013 Act and those under other legislations constitute one homogenous class and there....
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....terpretation, regard being had to its textual clarity. Rowlatt, J in CAPE BRANDY SYNDICATE vs. IR [1921] 1 KB 64 observed: "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." Ordinarily, in the absence of challenge to the vires of a legislative provision, Courts do not readily invoke the doctrine of reading down, subject to all just exceptions, more so when such a provision has essentially enacted a fiscal policy of great significance. It hardly needs to be reiterated that the provisions of fiscal legislations have to be construed strictly, unless an otherwise intent is discernable. The doctrine of reading down may be invoked and applied if the statute is silent, ambiguous or admits more than one interpretation. But where it is express, and clearly mandates to take certain action or to mean certain things, the function of the Court is to interpret it plainly. In the absence of challenge, ordinarily courts do not Permit the invocation of this doctrine to alter the po....
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....pensation have to be undertaken accordingly is a misconception and the same deserves to be rejected. We do not find any error in the findings of the learned Single Judge in this regard repelling this contention." 4.8. The next contention advanced on behalf of land-losers that the State itself has specifically undertaken to look after the tax component of the compensation amount and therefore the Revenue is liable to refund TDS amount to them, does not merit acceptance. The primary liability to pay the income tax is on the person who earns income. The entity who effects TDS is only an agency, who is enjoined with a statutory duty to do it vide Sec. 194LA of 1961 Act. Compulsory acquisition of property under any law is included in the definition of "transfer" under section 2 (47). Any profit or gain arising from such transfer attracts income tax under the head "Capital Gains" as provided under section 45 (5). Same is the position even in the case of enhanced compensation, although year of assessment may differ. This view gains support from COMMISSIONER OF INCOME TAX vs GHANSHAM (HUF) 2009 315 ITR 1 (SC). We are told at the Bar that the land-losers in their Income Tax Returns for the....
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....he amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority, such enhanced amount shall be deemed to be income chargeable under the head 'capital gain' in the year in which final order of the Court/Tribunal/other authority is received. (c) In case where the compensation referred to in clause (a) or enhanced compensation referred to in clause (b) is reduced by any court, Tribunal or other authority, the assessed capital gain shall be recomputed by taking the compensation or consideration as reduced by the order of the Court/Tribunal or other authority. 4.9.2 Section 45 (5) was introduced vide Finance Act, 1987 w.e.f 01.04.1988. It enacts overriding provisions and takes care of the following situation :- "Where the capital gains arise from the transfer of a capital asset, being- (a) a transfer by way of compulsory acquisition under any law, or (b) a transfer the consideration for which was determined or approved by the Central Government or RBI. The compensation or consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority - the capital gain shall be computed in....
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.... solatium and interest paid in terms of 1894 Act under the provisions of section 45 (5) of the 1961 Act. In Para 33 of the decision, it was held that additional amount under section 23 (1A) and solatium under section 23 (2) of the 1961 Act would form part of enhanced compensation under section 45 (5) (b). 4.9.3 Section 145B provides that the interest received by an assessee on any compensation or on enhanced compensation shall be deemed to be the income of the previous year in which it is received. Section 56 is like a residuary heading. Incomes which are liable to income tax and income which is not chargeable to tax under any of the heads specified in section 14, items A to E is chargeable to tax as 'income from other sources'. Section 56 (2) lists out specifically certain incomes that are chargeable to tax as income from other sources and one such income is interest received on compensation or on enhanced compensation referred to in section 145B. The question whether interest received on amount of compensation under the 1894 Act for the delay in its payment was income or not, was addressed in BIKRAM SINGH vs. LAND ACQUISITION COLLECTOR (1997) 224 ITR 551 (SC) wherein it is obser....
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....ition of an agricultural land is not taxable under the Act (subject to fulfilment of certain conditions for specified urban land). 2. The RFCTLARR Act which came into effect from 1st January, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax. 3. As no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensati....
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....ent received subject to final decision. It will attract section 45 (5) (b) only when the final decision is rendered. In TOPANDASKUNDANMAL vs. CIT [1978] 114 ITR 237 (Guj HC) it was held that the additional compensation which is inchoate or contingent, would not create a debt that only on a final determination of the amount of compensation that the right to such income in the nature of compensation would arise or accrue, and till then, there was no liability in praesenti in respect of the additional amount of compensation claimed by the land-loser in acquisition. (d) As to whether solatium received forms part of consideration for compulsory acquisition: In KARVALVES LTD. vs. CIT [1992] 60 Taxman 483 (Kerala) the assessee, a public limited company was granted a licence by the erstwhile princely State of Cochin to distribute electricity in the Ernakulam area. The Kerala State Electricity Board issued a notice to the assessee to purchase the said electrical undertaking at Ernakulam. One of the questions that arose was: Whether solatium paid for the transfer of the undertaking forms part of the sale consideration and forms part of the capital asset. The Court having examined several ....
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.... charging section enacted in the 1961 Act, whereas latter is a case of its applicability. A subtle difference lies between these two, and mistaking one for the other may have implications. To put it succinctly, the question of exemption from tax liability arises when the income is otherwise taxable. This logic accords with the opinion of the great jurist of yester decades Mr. Nani A. Palkhivala that Mother Teresa was not taxable because the Nobel Prize was not 'income' and therefore, the question of giving her any special exemption did not arise. ['Nani A.Palkhivala - A Life' by M.V.Kamath, Pages 74-75] The relevant part of Palkhivala's letter addressed to the Law Ministry reads as under: "Some official of the Law Ministry is reported to have expressed the view that Mother Teresa may be held liable to Indian income tax in respect of the value of the Nobel Prize... The correct position in law is that Mother Teresa is not liable to Indian income tax in respect of the Nobel Prize, and therefore the question of giving her any special exemption does not arise... It is only when a certain amount is income in character that the question of seeking exemption for it under section 10 of th....