Law Web: Land acquisition Act-entries in revenue records is prima-facie evidence of land being agricultural land.

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 A.O. 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 entries in revenue records is prima-facie evidence of land being agricultural

(4) It is immaterial whether land has not been used for agriculture purposes for long or the land is fallow.

(5) No doubt the final authority is ITO for determining whether the land sold by the farmers/land owners is agricultural land or not and whether capital gains is liable thereon or not but for the purposes of TDS the prima- facie satisfaction of the Land Acquisition Officer is sufficient to determine whether land is agricultural or not.

(6) There is no provision in section194LA for any reference to revenue authorities by the Land Acquisition Officer for obtaining their opinion as to the nature of land being acquired by him.

(7) The presumption raised by Land Acquisition Officer is rebuttable and evidence can be adduced against it by the A.O. but that can be done only during assessment proceedings.

(8) In absence of any provision in sec. 194LA A.O. cannot enter to influence the view of LAO on the character of a land acquired by him if he has prima facie evidence in support of the view he has framed. There is also no provision to give any opportunity to the A.O. for rebutting the presumption in the Court of Land Acquisition Officer against the presumption raised by him.

(9) The ratio laid down in M/s. Prasad Product Ltd., is not fully applicable to section 194LA because that judgement was rendered in the context of section 195(1) where language used is different than the language used in sec. 194LA.

(10) The definition of agricultural land contained in sec. 2(14)(iii) (b) & (b) cannot be imported for determining the land as agricultural land because such definition is separately given in sec. 194LA. Further definition given in sec. 2(14)(iii)(a) & (b) are for the purpose of determining whether capital gains would be chargeable or not on the land sold and for that purpose whether the land in question would be agricultural land or not. That definition can be applied when the question of levy of capital gain arise before the A.O.

(11) The definition contained in sec. 2(14)(iii)(a) & (b) cannot be borrowed to influence the definition contained in explanation of sec. 194LA. The object and purpose of the two provisions are different and both are to be implemented by two different authorities. Section 194LA is really to be implemented by the LAO who is awarding compensation and he has to decide whether TDS is required to be made on the compensation awarded and paid by him on the acquisition of land. Therefore, it is only he who has to decide at that point of time and on the basis of prima facie evidence available with him as to whether TDS is required to be made or not.

(12) The Courts are empowered to look into the issue whether LAO had sufficient evidence to arrive at prima-facie view he has taken. If there is no justification or basis for arriving at a view he has taken, his decision can be reversed. In the present case LAO was prima facie satisfied about the nature 47

of the land which was based on entries in land revenue record. We consider it as a sufficient basis for arriving at the view he has taken.

33. In view of the above, we hold as under:

The land acquisition officer was prima facie justified in not deducting tax on compensation paid on acquisition of agricultural land and trees and houses standing thereon.

Income Tax Appellate Tribunal - Ahmedabad

Special Land Acquisition Officer ... vs Assessee on 18 August, 2010

1
IN THE INCOME_TAX APPELLATE TRIBUNAL " A " BENCH,
AHMEDABAD
BEFORE SHRI T.K. SHARMA AND SHRI D.C. AGRAWAL.
ITA. No. 236/Ahd/2010
(Assessment Year: 2008-09)

This is an appeal filed by the Special Land Acquisition Officer, Surat against the order of the Ld. C.I.T.(A) dated 17-12-2009 raising following grounds :-

"1. Under the facts and circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals), hereinafter referred to as 'CIT(Appeals)', has erred in holding that the appellant should have deducted tax at source of Rs.8,42,85,887/- u/s. 194LA from the compensation paid to the land owners on acquisition of land or Rs.74,39,17,811/- and thus confirming the order of the ITO, TDS-4, Surat, hereinafter referred to as 'ITO'.

2. Under the facts and circumstances of the case and in law, the learned CIT(Appeals) has erred in treating the lands against which compensation of Rs.3,56,09,43,438/- was paid 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 Sec. 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 bonafide 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 Sec. 201 without taking any recourse to the original assesses 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 u/s. 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 Company known as ESSAR Steel Ltd. These lands were claimed to be acquired as per Samiti Award as well as Regular Award. The total amount of compensation payable as per two awards was determined as under :-

Case No Land Area Value of land Value of trees, Total value/ Amount paid till construction, etc. date.

Amount

Payable.

6/05,Hazira 125-29-29 30,08,75,090 26,18,80,215 56,27,55,305 54,97,14,595 (SamatiAw

ard)

6/05, 124-56-49 36,95,77,294 55,20,34,442 92,16,11,736 15,87,71,559

Hazira

(Regular

Award)

The Land Acquisition Officer informed to the A.O. vide his letter dated December, 2008 that following payments have been made till date:-

Case No. Land area Amount payable. Amount paid till TDS from Amount to be date. payment of paid.

award

amount.

6/05, Hazira 125-29-29 56,27,55,305/- 54,97,14,595/- Nil 2,10,95,393/- (Sammati

award)

6/05 Hazira 124-56-49 92,16,11,736/- 15,87,71,559/- Nil 76,28,40,177/- (Regular

award)

TOTAL. 78,39,35,570/-

The A.O. found that no TDS has been made on above payments. He considered that the Land Acquisition Officer (LAO in short) should have deducted tax in accordance with section 194LA. He, therefore, issued a show cause notice to him asking him to explain why he should not be treated as an assessee in default for failure to deduct TDS u/s. 194LA and accordingly why he should not be charged interest u/s. 201/201(1A) pf the Act. Vide his letter dated 5-1-2009 it was explained to the A.O. that land was acquired for extension of the plant of M/s. ESSAR Steel Ltd. The total area of the land comprised of two parts admeasuring (i) 125 H 29 RA 29 Mtrs. & (ii) 124 H 56 RA 49 Mtrs. The award amount for these acquisitions were determined at Rs.56,27,55,035/- and Rs.92,16,11,736/- respectively In addition to this, 12% enhanced price + 30% solatium amount on the amount of compensation, it included compensation on residential house constructed on such land + compensation for trees on the said land in addition to compensation for acquisition of the land. It was explained by L.A.O. that these lands were agricultural lands and residential houses thereon were that of farmers and were meant for agriculture activities. The value of the residential house was 4

determined as assessed by the Executive Engineer of the State P.W.D. 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 A.O. 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 A.O. provisions of section 194LA introduced with effect from 1-10-2004 is similar to the provisions of section 194 L which was effective between the period from 1-6-1999 to 31-5-2000 that words "capital asset" has been replaced with the words 'immoveable property other than the agricultural land)". Since, according to the A.O. TDS u/s. 194 LA need not be made by the Land Acquisition Officer on compensation paid for acquiring agricultural land only, the question then would arise as who is empowered to decide whether a particular land is agricultural land or not. According to him, it is only the A.O. who can decide whether land in respect of which compensation is paid is agricultural or not. According to the A.O. the remedy available with the party who has been paid compensation is either to approach the Competent Authority u/s. 197 or to pay tax and get it refunded. He referred to the decision of Hon'ble Kerala High Court in the case of Nalini vs. Deputy Collector, Land Acquisition Officer [294 ITR 423] in support of his contention. The learned A.O. further observed that the land which was acquired was adjacent to sea, sandy in nature and surrounded by industries. The lands were neither cultivable nor could have been cultivated ever. The land to be called agricultural, should be either generating agricultural income or capable of doing so. He referred to the decision 5

of Hon'ble Calcutta High Court in the case of Tea Estates India (P) Ltd. Vs. C.W.T. [59 ITR 428] wherein ingredients of land to be called agricultural land have been given. They are (a) It must be land (b) It must pertain to or be connected with cultivation (c) It must involve expenditure of human labour and skill for the purpose of cultivation or for keeping it in a cultivable state. He then referred to the decision of Hon'ble Andhra Pradesh High Court in the case of Smt. Manyam Meenaxiamma v. C.W.T. [ 63 ITR 534] (AP) wherein it is held that a land would be agricultural if it is ordinarily used for the purposes of subservient to or allied to agriculture. If it is not so used, it would not be agricultural land. The A.O. also visited these lands and found that no agricultural activity has been carried out and therefore, they could not be held to be agricultural land. Thus according to A.O. the Land Acquisition Officer was bound to deduct TDS under section 194 LA of the Act.

4. Regarding the compensation paid on trees and constructed building etc., the A.O. was of the view that once the land in question were not agricultural land then trees and building thereon could not be held to be part of agricultural land. According to A.O. the trees and buildings which stand on agricultural land are not agricultural in India within the meaning of sec. 2(14)(iii) of the Act. They constitute property of any kind" mentioned in sec. 2(14) of the Act and are "capital asset" and profit arising from their sale would be assessable under sec. 45 of the Act as capital gains. He referred to the decision of Hon'ble Kerala High Court in the case of Travancore Tea Estate Co. Ltd., vs. CIT, Kerala [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. 6

5. When the matter came up before the Ld. C.I.T.(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 immoveable property used in section 194 LA and held that even for the purposes of section 194 LA, the definition of agricultural land in section 2(14)(iii)(a) (b) will have to be applied. There also the word agricultural land is not defined but it only refers to the issue whether agricultural land would be capital asset and hence taxable as capital gains. Since the words agricultural land as such have not been defined any where in Income Tax Act, a general meaning of the word 'agricultural land' and the meaning given in various pronouncements of Courts will have to be adopted. The Ld. C.I.T. (A) referred to following judgements relied on by the A.O:-

(1) Nalini vs. Dy. Collector, Land Acquisition (294 ITR- 423). (2) Tera Estate India Pvt. Ltd. (59 ITR-428).

(3) Smt. Manyam Meenaxiamma ( 63 ITR-534)

(4) Ramkrishna Deo (35 ITR-312)

(5) Travancore Tea Estate Co. Ltd. (93 ITR-314)

(6) M. Ramaiah Reddy (158 ITR-611)

6. The Ld. C.I.T. (A) also referred to following judgements relied on by the assessee before him.

(1) Mysore Urban Development Authority (218 CTR -678) (2) Sercon Pvt. Ltd. (136 ITR-881)

(3) Vajulal Chunilal (HUF) (120 ITR-21)

(4) Lilavati Thakorlal Patel (152 ITR-565)

(5) Maganlal Morarbhai (118 ITR-224 (Guj.)

(6) Chandravasi Atmaram Patel (114 ITER-302)

(7) Madhabhai H. Patel ( 208 ITR-638)

(8) H.V. Mundal (145 ITR- 208) (Bom)

(9) Fagoomal Laxmichand (112 ITR-9) (Ker.)

(10) Rajgiri Rubber and Produce Co. Ltd.(No.1.) (182 ITR-393) (Ker.) (11) Travancore Rubber Ltd. (183 ITR-417)

7. On the basis of above judgements Ld. C.I.T. (A) held that for a land to be called agricultural land there should be agriculture operations carried out on it. It should be cultivated, tilled and ploughed. There should be human efforts for growing of crops. Mere entry in the Revenue records can lead to a prima-facie presumption but that would be rebutable. The Ld. C.I.T.(A) then referred to the decision of Hon'ble Gujarat High Court in Sercon Pvt. Ltd. (supra) wherein various factors for determining whether land can be said to be agricultural land or not are given (at page 638 thereof as under ) :-

(1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue?

(2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant timer?

(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 Lamd 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 8

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 adjoining area were such as would indicate that the land was agricultural?

(9) Whether the land itself was developed by plotting and providing roads and other facilities?

(10) Whether there were any previous sales of portions of the land for non- agricultural use?

(11) Whether permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948 was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such non- agriculturist was for non-agricultural or agricultural user?

(12) Whether the land was sold on yardage or on acreage basis?

(13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield?

8. In order to determine whether the land acquired by the Land Acquisition Officer for handing over it to M/s. ESSAR Steel Ltd., the Ld. C.I.T. (A) referred to a letter of District Agricultural Officer dated 16-6-2004 addressed to the Collector, Surat which reads as under :-

"To,

The Collector,

Collector's Office, Surat.

Sub :- Acquisition of land for the Essar Steel Project -

opinion reg.

Ref:- Your Outward No.LAQ/Vashi 2436/044 dt. 10.06.2004.

In this subject, it is submitted in respect of expansion of Essar Steel Plant, Hazira that out of the land aggregating to appx. 600 acres, in certain survey numbers, crops like Jowar grass, vegetables, Babool, grass and trees of mangoes and Chikoo, Palm and other trees apart from some small residential units are situated. There is no Irrigation facility and only Kharif crops could be grown. In certain parts of land, the high tide water of sea spreads and certain parts are uneven and barren land. Out of total land, the proportion of land giving good yield is quite less.

Submitted for information.

Sd/-

District Agriculture Officer,

Zillah Panchayat, Surat. "

9. On the basis of this letter, Ld. C.I.T. (A) drew following inferences :-

"From the above letter it is clear that

( i) Only some survey numbers out of six hundred acres of land involved are cultivable.

(ii) The crops taken are such which are grown without cultivation e.g. grass, Jowar grass & 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. C.I.T.(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 parts 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 consideration when the report was made in 2004, only certain survey numbers were cultivable. It is important to note that the Agricultural Officer has not stated that certain survey numbers were being cultivated. He has stated that certain survey numbers were cultivable and had crops like jawar grass, vegetables, babul, grass, trees of mango and chickoo. Out of these jawar grass, babul, etc. grow themselves and no cultivation activities are there for growing them,. Only in very small portion in certain survey numbers vegetables and trees of mango and chickoo on them but the extent of area is not mentioned either by the Agricultural Officer or by the appellant at any stage of assessment or appeal. Hence he was trying to show only potentiality of these survey numbers. Even this statement was qualified by the Agricultural Officer by saying that the land which could give good quality of yield is very less. This shows that such land was of so small proportion that he did not even think of even quantifying the same even for the purpose of potentiality. The Agricultural Officer has nowhere in the report stated that cultivation was being carried 11

out on some port of the land. As discussed above, potentiality of a land is not important. The rebuttable presumption arising from the fact that these lands are shown as agricultural land in the revenue record is fully dislodged by this analysis of the letter of the Agricultural Officer. Hence in view of the above discussion it is clear that the lands in question are not agricultural lands on facts as well as as per law. These lands are, therefore, clearly immovable property other than agricultural land and hence covered by the provisions of Section 194 LA.

5.18.1 With respect to the trees, hutments/residential building or other constructions, etc., it is seen that the appellant has himself bifurcated the value of these capital assets. As discussed above, these are capital assets chargeable to tax. The A.O. has pointed out that in the order of the SLAO dated 31.07.2007 the amounts found to be paid are consolidated whereas in another order dated 21.01.2008 the amounts 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 Estate 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 meanings of Sec. 2(14)(iii) of the I.T. Act,1961.They constitute "property of any kind" mentioned in Sec. 2(14) of the Act and are "capital asset" and profit arising from their sale would be assessable u/s. 45 of the Act as capital gain." The Hon'ble Karnataka High Court in the case of M. Ramaiah Reddy ( 158 ITR-611) stated as under :-

"The lands was compulsorily acquired and while determining the compensation, the land & the trees had been valued separately. Therefore, the excess realized from trees & other plants on account of acquisition of the land did not constitute agricultural income & was not exempt from taxation."

5.18.3. In view of the above, the compensation for trees and hutments/ residential buildings and other constructions is also taxable. These are also nothing but immovable properties within the meaning of Section 194LA and hence the appellant should have deducted TDS u/s. 194LA.

5.19. In view of the above, the action of the A.O. is confirmed and the grounds of appeal are dismissed."

11. Against the above order of Ld. C.I.T.(A), Ld. A.R. for the assessee submitted that the determination as to whether the land is agricultural land or not is to be done on the basis of entries in the Revenue Record only and not on the basis of any inquiry or opinion of experts. He referred to the decision of Hon'ble Karnataka High Court in the case of Mysore Urban Development Authority vs. ITO (TDS) (2008) 175 Taxman 307 (Kar). In that case, the Ld. A.R. submitted, Mysore Urban Development Authority (MUDA in short) had distributed the compensation in favour of persons whose agricultural land was acquired by the authority. The revenue authorities were of the view that MUDA was required to deduct tax u/s. 194 LA. They invoked the definition of capital asset as contained in section 2(14) and held that TDS was required to be made. On a Writ Petition. Hon'ble Karnataka High Court held that definition of capital asset u/s. 2(14) is not required to be imported for the purpose of section 194 LA as, as per Sec. 194 LA obligation cast on a person distributing the compensation is only in respect of payment for immovable property which does not include agricultural land and such agricultural land may be located in any place even in urban area. The Ld. A.R. submitted that as per above judgment definition contained in section 2(14) is for 13

the purpose of determining whether any capital gains would arise on transfer of capital asset and what asset would be capital asset for this purpose and to determine whether agricultural land could be capital asset or not.

12. The Ld. A.R. then referred to the decision of Hon'ble Kerala High Court in Nalini vs. Dy. Collector case (supra) as referred to by the Ld. A.O. and by Ld. C.I.T.(A) and submitted that this judgement 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 judgements as referred to by Land Acquisition Officer before the Ld. C.I.T.(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 Pvt. Ltd. (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 judgements referred by the Land Acquisition Officer before the Ld. C.I.T.(A). On the above basis Ld. A.R. submitted that once entries in the revenue record is found that land is agricultural land then the burden to prove that land is put to non agricultural use is upon the revenue and it is not for the assessee to prove that the land is still agricultural land. In relation to standing trees Ld. A.R. submitted that such trees are acquired and sold together with the agricultural land and therefore, sale price referable to trees is also agricultural in nature. He referred to the following judgements in this regard. 14

(1) 158 ITR 630 (Ker.)

(2) 189 ITR 185 (Ker.)

(3) 158 ITR 611 (Ker.)

(4) 24 ITD 288 (Cochin)

13. The Ld. A,.R. also referred to section 63 of Bombay Tenancy and Agricultural Land Act according to which if agricultural operations are not carried out on the land and it is shown as agricultural land in revenue record then it will continue to be as agricultural land. Presumption is in favour of it being held as agricultural land unless such presumption is rebutted. The Ld. A.R. then referred to the decision of Hon'ble Gujarat High Court in C.I.T. (TDS) vs. Reliance Industries Ltd., (2009) 308 ITR-82 (Guj) for the proposition that tax deductor, being employer in that case was not expected to presume misuse of coupons so as to warrant deduction of tax at source. In that case, assessee had made payment by way of reimbursement of conveyance expenses which according to the A.O. was a taxable perquisite as relevant conditions stipulated by the Explanation below sec. 17(2)(iii) (c) were violated. It was held that employer will decide about deduction of tax on the basis of facts available before him. He is not expected to carry out inquiry like A.O.

14. The Ld. A.R. then referred to the order of Land Acquisition Officer wherein it is mentioned that crops are taken in kharip season. He particular referred to following paragraphs from the order of Land Acquisition Officer dated 21-1-2008 in LAQ/1/Case No.6/05 (Hazira) through which the above lands were acquired for Hazira Steel Plant. Some of the paragraphs relied by the Ld. A.R. 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 15

the Executive Engineer (Road & Building Department) Surat and thereby the amount of compensation has been paid.

xxxx

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.

xxxx

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.

xxxx

The compensation of the existing constructions upon the land under acquisition have been paid previously.

xxxx

The land owners who have deep bores or wells in their lands have been paid the amount of compensation thereof previously.

xxxx

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.

xxxx

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 deducting the same from the revenue records the Mamlatdar, Choryasi shall be ordered by the Taluka Development Officer, Choryasi attached to the scheme after the acquiring institute has taken over the possession of the land 16

for recovery of non agricultural tax and transfer fees (if any liable to be taken).

xxxx

According to the letter dated 16-6-2004 of the District Agriculture Officer, Surat in some of the survey numbers out of the land under acquisition vegetables, Juvar, grass, wild babul, local babul, Mango tree, Chico tree, Palm tree, date trees etc., along with the other trees and in some of the land some residences are situated. As there is no availability of irrigation facility only Kharif crop is taken from the above land. Some part of the land have been surrounded by the water, some of the part of the land are having ditches and heaps, some land is found to be pasture, there is a very small proportion of land where one can get higher amount of production from land.

xxxx

The land under acquisition are of jarayat type, wherein grass, Juvar etc., are obtained, there is no facility of irrigation, crops are taken in Kharif season.

xxxx

Irrigation facility : Water facility is raised by taking out water from wells and hence, vegetables are grown accordingly. There is no irrigation facility from any canal.

xxxx

The lands under acquisition are open agricultural land that can be taken for being utilized for non agricultural purpose, they are situated adjoining to the road, hence, violation of Urban development rul;es can be committed hence, presently the above land are utilized as agricultural land only.

xxxx

Regarding the land under acquisition the Hazira Area Development Authority had made a Hazira development plan under its development scheme and taking the same for consideration it is included in Industrial Zone. Besides, land of some of the survey numbers are under reservation of 17

the G.I,D.C. in Green Strip and utility corridor by G.I.D.C., they are very small numbers besides, some of the lands are also coming under the agricultural zone. In some of the survey number land a road of 60 meters width is also passing,.

xxxx

Trees are found in the land under acquisition, compensation of the same is to be paid as mentioned in the compensation statement enclosed herewith.

xxxx

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 judgements relied on by the Ld. A.O. and Ld. C.I.T.(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 93 ITR-314 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 vs. Prasad Production Ltd., (2010) 129 TTJ (Chennai) (S.B) 641 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 payment he is making bears any income character or not. If in his view payment being made to payee is not taxable then he is not 18

required to make any deduction of tax Therefore, he cannot be considered in default for non deduction of tax. Similarly, in the case of award of compensation, It is payer first who has to decide whether land in question is agricultural land or not and for that purpose it is the revenue record which becomes the basis for his presumption whether land he is acquiring was agricultural land or not. Thus, if as per revenue record land acquired by him is agricultural land then a presumption is raised in favour of proposition that land is agricultural and payer is not required to deduct tax when compensation is paid.

17. The A.R. finally submitted that, non deduction of tax does not take away the power of A.O. to determine in individual cases whether land was in fact agricultural land or not and to charge capital gains depending upon facts of each case.

18. Regarding compensation paid on building Ld. A.R. submitted that they are part and parcel of the agricultural land used by the farmers for agriculture purposes and therefore, they have also been treated at par by the Land Acquisition Officer as agricultural land or part and parcel of it. He, accordingly, is justified in not deducting the tax thereon also. Regarding trees he submitted that they are sold along with the land and therefore they are part and parcel of the agricultural land. The Land Acquisition Officer was justified in not deducting tax thereon also.

19. Against the above Ld. D.R. submitted that the deductor has to apply his mind whether it is agricultural land or not and it is expected of him to physically verify and give a finding whether agricultural operations were carried out on such land or not in the near past. For the proposition that such verification is required to be done by the LAO. Ld. D.R. relied on the decision in the case of C.W.T. vs. Officer-in-Charge (Court of Wards) (1976) 105 ITR-133 (SC) wherein it is held 19

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 babul, 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 Mohmad Ibrahim vs. C.I.T. (1993) 70 Taxman 301 (SC) 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 & 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 out on these lands they cannot be characterized as agricultural land. Ld. D. R. also relied on the decision of Hon'ble Karnataka High Court in Nalini's case which according to him is applicable on the facts of the case wherein it is held that the use of the agricultural land is of prime importance. He submitted that in case of confusion or doubt the Agricultural Land Acquisition Officer should have consulted the revenue authorities before arriving at a decision of his own. The Ld. D.R. then submitted that if we strictly go according to the definition contained in section 194 LA then trees and building thereon could not be said to be agricultural 20

land, therefore, Land Acquisition Officer was required to deduct tax on the payment of compensation in respect of trees and buildings. It is pertinent to note that buildings have been separately evaluated by the PWD Department of the State Government and thereby a separate status has been given to them different from that of agricultural land. Similarly trees have been evaluated separately. Therefore, trees cannot be said to be agricultural land and therefore, the compensation paid for trees would suffer TDS. The Ld. D.R. submitted that once a letter from District Agricultural Officer had come on the record of Land Acquisition Officer way back in 2004 pointing out that grass, vegetable, babul and some trees of Mangos and chiku are grown on that land and that in certain part of land tide water of sea spreads and certain parts are uneven and barren and it is only a small proportion of land gives good yield, then it was imperative on the part of Land Acquisition Officer to divide the land into two parts one which is really used for agricultural purposes and giving yield and other which is not used for agricultural purpose. He should have at-least deducted tax on that part of the land which is not at all used for agricultural purposes, which is uneven and barren and which is facing high tide water of sea or where grass or babul is grown. The presumption as such arising from entries in the revenue record is rebutted by the record of State Govt. 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 pre- determined 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 physical inspection and actual use of the land.

22. In rejoinder the Ld. A.R. submitted that it is the point of view of deductor that should prevail. The 13 factors laid down by Courts to decide whether land is agricultural land or not will caste impossible burden on the LAO. The nature of agricultural land is only known to the cultivator and deductor does not have latest facts. He can only go by land revenue records. The deductor cannot know all the factors as laid down by the Courts for determining whether land is agricultural or not. In fact .judgement of the LAO is primafacie, and it is only the A.O. who will finally decide in each case whether capital gains is chargeable on acquisition of land trees and building. Thus the A.O. is free to decide the issue of capital gain in case of each individual payee.

23. We have heard the rival submissions and perused the material on record. The undisputed facts are that Land Acquisition Officer declared Award u/s. 11(2) of the Land Acquisition Act, 1894 in LAQ/1/Case No.6/05 (Hazira) on 21-1-2008 awarding a sum of Rs. 56.27 crores and Rs.92.16 crores in respect of the 2 types of Awards (Samiti Award) and the other (Regular Award) whose details are given above. No tax was deducted by the Land Acquisition Officer on the amount of compensation paid to the land owners. A part of the compensation was paid whose details are also given above. This compensation was further augmented by 12% enhanced price and 30% solatium. This also included compensation for trees standing on the land and compensation for residential houses constructed on these lands. Out of the total compensation found payable the value of land was determined at Rs.30.08 crores and Rs.36.95 crores in two types of awards. The value of trees and construction put together was determined at Rs.26.18 crores and Rs.55.20 crores. The case of the LAO for non deducting the tax as required u/s. 194 LA was that he was under bonafide 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 u/s. 194 LA. 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 23

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, babul 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 conclusion that land acquired by him was agricultural land and therefore, his decision not to deduct TDS on compensation paid was not bona-fide, therefore, he is an assessee in default and accordingly action u/s. 201/201(1A) has been separately taken against him. In respect of trees and houses the case of the department is that exemption from not deduction of tax has been provided only in respect of agricultural land and not in respect of the trees or houses. In fact, houses are immovable properties which are excluded from exemption from tax deduction. Therefore, in any case, the LAO was required to deduct tax in respect of payment for trees and houses. The department supported its case by arguing that if houses or trees were part of the agricultural land then there was no necessity to separately get them valued from the Forest Department and PWD of the State Govt. The fact that they were so valued separately showed that they could not be treated as part of the agricultural land. The LAO was accordingly required to deduct tax at-least in respect of the compensation paid on these two items. The department had supported their stand by several authorities as referred to by Ld. A.O & Ld. C.I.T.(A) and Ld. D.R.

25. In order to resolve the controversy we refer to the definition of Agricultural land as contained in section 2(14)(iii) on which AO has heavily relied. It reads as under.

2.14.(iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(b) in any area within such distance, 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 194 LA reads as under :-

"Sec.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 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, no TDS is required from the compensation paid on their acquisition. There are two definitions of agricultural land in Income tax Act. One is provided in section 2(14) and the other is provided in section 194 LA. The question now arises which definition is to be used for deciding the issue whether land acquired by LAO is agricultural land or not or what is acquired is part and parcel of or inclusive in agricultural land. For deciding the issue one has to see the purpose and object for which the two definitions are enacted. Since in section 2(14)(iii)(a) & (b) definition of agricultural is given in the context of deciding what should be the capital asset then this definition can be used only for that purpose. The definition in section 2(14)(iii) is linked with Section 45 where chargeability of capital gains is provided on transfer of capital asset. Therefore, the definition of agricultural land as capital asset in sec. 2(14) read with section 45, cannot be imported to influence the concept of agricultural land as specifically provided in section 194LA. Where one has to determine the character of immovable property being acquired by LAO then the specific definition of immovable property given therein has only to be applied. The definition of immovable property given in section 194 LA is specific and limited to the purpose of deduction of tax on compensation paid by the LAO once role of LAO is over this definition cannot be imported to influence the definition of capital asset given in sec. 2(14) (iii). In fact the definition of immovable property given in section 194LA, and the definition of agricultural land given therein is specific to the activity of deduction of tax. Specific enacted for specific purpose should alone be 26

invoked. Generalia specilabus non derogant is the proposition which can be applied under such circumstances. This principle embodies a rule of construction and can be invoked when general and specific provisions occupy the same field. We derive support in our view by Hon'ble Delhi High Court in CIT vs. Prasar Bharati (Broad casting Corporation of India) (2007) 292 ITR-580 (Del) and Rao Bahadur Ravulu Subbarao vs. 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 I.T. Act,19061, 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., vs. DCIT (Asstt) (2003) 261 ITR (AT) 52 ITAT (Del) (SB) 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 u/s. 194LA need not be influenced by the definition u/s. 2(14)(iii)(a) & (b) which comes within the domain of AO 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 possible. One is that trees have separate identity as determined and valued by the Forest Department of the State Govt. and therefore, they should be considered separately for the purposes of determining whether TDS 27

is required to be made on compensation paid on their acquisition. The second view is that once it is not so specifically provided in section 194LA then trees should be treated as natural part of the land and their compensation should be treated as part of the compensation paid for land and accordingly no TDS is required to be made. Once two views are possible we adopt the view favouring the LAO, in view of the decision of Hon'ble Supreme Court in CIT vs. Vegetable Products Ltd., (1973) 88 ITR-192 (SC) which has been further followed in several judgements such as Mysore Mineral Ltd. Vs. CIT (1999) 239 ITR-775 (SC), C.I.T v/s. Poddar Cement Pvt. Ltd., (1997) 226 ITR-625 (SC) and Orissa State Warehousing Corporation vs. CIT (1999) 237 ITR-589 (SC). In view of the above we hold that trees standing on the agricultural land are part of agricultural land and therefore, compensation paid thereon would not suffer TDS in case land on which they are standing are treated as agricultural land.

29. Now comes the issue whether TDS is required to be made from part of the compensation claimed to be paid for acquisition of houses. Apparently from a reading of section, 194LA it appears that TDS is required to be made from the compensation/enhanced compensation paid on acquisition of any immovable property other than agricultural land. And further that no deduction shall be made if aggregate amount of payments does not exceed one hundred thousand rupees. The explanation defined agricultural land as well as immovable property. Thus, out of the entire group of immovable properties in respect of which compensation is paid on their acquisition only agricultural land has been excluded where no TDS is required to be made. The question now arises whether 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 28

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 P W D 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 part of agriculture land. From similar logic the buildings standing on the agriculture land could be treated as integral part of agriculture land, acquired along with the agriculture land and accordingly, no TDS is required to be made on compensation paid on their acquisition.

29.3. It has been argued by the Learned AR that buildings are of no use either to the Government or to the Industries for whom the land is being acquired by State 29

Government and they have to be completely demolished and plain land is created and used for setting up an industrial plant. Therefore, the State Government as such is not acquiring any building but only acquiring land and the buildings standing thereon are merely incidental and therefore inconsequential for the ultimate purpose of establishing industry thereon except that they are useful only for the purposes of computing amount payable to the owners of the agriculture land on which such buildings are erected.

29.4. The Learned AR also strongly argued that the compensation on buildings is in fact a mode of paying higher amount of compensation to certain agriculture land owners as compared to the other owners, as their land was in a better position, to fetch higher market rate. But, because, the State Government had decided to pay uniformly at a fixed rate of compensation to all the land owners whose lands were acquired and comprised in a bigger chunk of land for being used for establishing an industry, the valuation of the houses was considered as a safe mode to pay higher amount of compensation to such land owners who had better market rate for their land. We tend to agree with this argument because what was acquired by the Land Acquisition Officer was a big chunk of land, some having good agriculture value, better yield, better crop and others had only a barren land near sea. Some part of the land was nearer to the existing plant could certainly fetch a very high price to their land owners 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 30

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 'immoveable property' used in Explanation II annexed to Section 194LA of the Income-tax Act, 1961, is for the immoveable 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 be adopted. Thus agriculture land cannot be confined to merely the land but would also encompass within its meaning the trees and farmers' houses standing thereon.

29.7. In any case, the Assessing Officer to protect the interest of the Revenue can take a view that houses standing on agriculture land did not carry the same character as the agriculture land itself. But so far as the Land Acquisition Officer is concerned, he does not have and cannot have any view or opinion of the Assessing Officer at the time when he decides to pay compensation, has therefore to decide whether to make TDS thereon or not ? He can take a view which is inconsonance with the general understanding of the concept of agriculture land which would include the trees and farmers' houses standing thereon, within its fold.

29.8. There is no direct or indirect authority in support of the view that the Land Acquisition Officer should adopt only a strict interpretation in favour of the Revenue. There is a clear justification before the Land Acquisition Officer to take a view that farmers' houses for which compensation was paid was part of agriculture land and not a separate immoveable property standing on non- agriculture land.

Firstly, as stated above, the composite compensation was paid for acquiring agriculture land, the trees and farmers' houses standing thereon, even though their valuation was done separately.

Secondly, it was only the land which was to be handed over to the Industrialist for establishing Industry thereon and houses and trees have no use for the purposes for which the land was being acquired.

Thirdly, the State Government had as a policy, decided to pay uniform rate of compensation for the chunk of land so acquired but in fact they had varying market rates and the houses were used as a mode of paying higher amount of compensation to such farmers whose land could fetch higher market value.

Based on these reasoning's, 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 immoveable 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 P W D Authorities, they could have given a separate treatment. 32

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 favorably to the tax payer or the famers. 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 and whether capital gains has to be charged on the compensation paid thereon.

29.12. The view adopted by the Land Acquisition Officer is not the end of the matter. It is the assessment of the situation before him on the basis of which he has taken a prima facie view, which may tally or may not tally with the view which the Assessing Officer may subsequently adopt while making the assessment of the income under the heading 'capital gains'. There is no authority or law which would compel the Land Acquisition Officer to perceive as to what view the Assessing Officer is going to take while framing the income tax assessment of the land owners whose land is acquired by the Land Acquisition Officer.

29.13. Therefore, the order of the Land Acquisition Officer in not deducting tax on the compensation paid on acquisition of the agriculture land, the trees and farmers' 33

houses cannot be quashed merely because his views now do not tally with the view the Assessing Officer . We had to only see at the facts and circumstances and the situation at the time when the Land Acquisition Officer proceeded to decide whether TDS is to be made or not to be made. If he had a valid and justified reason and had prima facie satisfaction for not deducting TDS, then his order has to be upheld even if the Department does not finally agree with him. The order of the Land Acquisition Officer does not put any fetters on the powers and the jurisdiction of the Assessing Officer in levying the capital gains on compensation paid to the land owners if according to him such capital gains is actually leviable. But so far as the TDS is concerned, it is only the view of the Land Acquisition Officer which has to be only justified on the basis of material available before him and by the reasoning and logic adopted by him and whether he was prima facie satisfied thereon. If his view is justifiable then it has to be upheld. The Hon'ble Special Bench in ITO vs Prasad Productions 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 34

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 judgements.

30.1. It has been held in Orissa State Warehousing Corporation Ltd., vs. CIT (1999) 237 ITR-589 that a fiscal statute should be interpreted on the basis of the language used therein and not otherwise. No words ought to be added and only the language used should be considered so as to ascertain the proper meaning and intention of the legislation. In CIT vs. TVS Link Logistics (2007) 293 ITR-432 (Mad.) it is held that where the statutory provision is applied and interprets the court shall not interpret the same language in a different manner only because of harsh consequences arising there-from. The Court cannot enlarge the scope of legislation or intention if the nature of the provision is plain and unambiguous. It cannot add or subtract the words to constitute or read something into it which is not there and cannot re-write or re-caste legislation. In CIT vs Chemplast Cannar Ltd., (2008) 296 ITR-81 (Mad.) it is held that the Court cannot correct the defect in the definition when a literal reading thereof produces an intangible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline. Thus in view of this we cannot add words "building or part of building" within the parenthesis along with the words "agricultural land" so as to allow exemption to buildings on such agricultural land merely because in ordinary sense 35

building standing on agricultural land are treated as houses appurtenant to land. Such concept of houses appurtenant to land cannot be brought into the provision of section 194LA so as to create the favorable interpretation for the LAO.

31. It is necessary to refer to them so as to narrow down and then to resolve the controversy.

(1) In Risal Singh vs. Union of India (2010) 321 ITR- 251 Punjab & Haryana High Court - The Collector deducted tax from the compensation paid on acquisition of agricultural 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 vs. Deputy Collector, Land Acquisition (2007) [294 ITR-423] 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 36

Income tax is the I.T.O. 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 I.T.O.

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 definition is for the purposes of determining the character of capital asset for the chargeability of capital gain. It is without any dispute that it is only the A.O. who will decide the character of a land for the purpose of chargeability of capital gains. Since at the stage of awarding compensation by the LAO the role of AO cannot be imported as there is no such provision in the Act, therefore, the ratio of this decision would be applicable only when A.O. is seized with the matter for levying capital gains. The Compensation awarded is a sale consideration for the purposes of chargeability of capital gains and accordingly it was rightly held that Competent Authority to decide whether any compensation award is exgible to Income tax is the I.T.O. The question whether LAO can have a prima facie satisfaction of the land being an agricultural land on the basis of revenue record is not apparently answered by the Hon'ble Court in this case.

(3) In State of Kerala vs. Mariyamma (2006) 280 ITR-225 (Ker.), the land was acquired and compensation was paid. The issue was as to when tax is required to be deducted. It was also held that liability to pay Income tax is with the LAO who initiated proceedings under the land acquisition Act and actually pays the compensation and interest to the claimants.

(4) In C.I.T. vs. Madhabhai H. Patel (1994) 208 ITR-638 (Guj.) thirteen criteria have been laid down as referred to above for determining whether land can be said to be agricultural land or not.

(5) In Sercon Private Ltd., vs. CIT. (1982) 136 ITR-881 (Guj.). The issue was whether capital gains would be chargeable on sale of agricultural land. It was contended on behalf of the revenue that land was laying fallow for nearly 17 years and no agricultural operations was carried out thereon. It was held that non user of the land for more than 17 years or its users in last couple of years is not determinative factor and if the land is shown as agricultural land in revenue records and permission for non agricultural use u/s. 65 of Bombay Land Revenue Code has not been obtained then it should be treated as agricultural land.

This Judgement apparently refers to determination of character of land at the time of levying capital gains by the A.O. 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 u/s.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 A.O. 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 A.O.

(6) In I.T.O. vs. Prasad Productions Ltd. [ITAT (Spl.Bench) (Chennai), it was held as under :-

The assessee made a remittance to IMAX Canada towards technology transfer fee without deduction of tax at source. The A.O. took the view that the consideration was "fees for technical services" u/s. 9(1)(vii) and that tax ought to have been deducted at source as per Transmission Corporation 239 ITR 587 (SC).. He accordingly held the assessee to be an "assessee-in- default" u/s. 201 though the CIT (A) reversed the same. On appeal by the 38

revenue, the question as to whether a person responsible for making payment to a non-resident was liable to deduct tax at source u/s. 195(1) if he did not apply to the A.O. u/s. 195(2) for permission to remit without deduction at source was referred to the Special Bench. HELD by the Special Bench :

(i) The effect of the judgment of the Supreme Court in Transmission Corporation and Eli Lilly 312 ITR 225 is that s. 195(1) applies only if the payment made to the non-resident is chargeable to tax. If the payer has a bona fide belief that no part of the payment has income character, s. 195(1) will not apply and it is not necessary to apply to the A.O. u/s. 195(2). This interpretation is supported by the Circulars of the CBDT setting out the alternative procedure for TDS;

(ii) As regards Samsung Electronics 320 ITR-209 (Kar) (which held that s. 195/201 liability cannot be avoided on ground of non-taxability of recipient), a judgement of a non-jurisdictional High Court need not be followed where there are conflicting High Court judgements or where the judgement is rendered per incur am (Kanel Oil 121 ITD 596 (Ahd) or where the correct legal position was not brought to the notice of the High Court (Lalsons Enterprises 89 ITD 25 (Del.) (SB). Apart from the judicial conflict,. The alternative TDS procedure as per the CBDT Circulars was not brought to the attention of the High Court. Consequently, the judgement of the Special Bench in Mahindra & Mahindra 313 ITR 263 (AT) (Mum) (which held that s. 195(1) did not apply if the payment was not chargeable to tax) has to be followed in preference to that of Samsung Electronics

A bear reading of above ratio indicates that decision of Hon'ble Spl. Bench in Prasad Production Ltd., would not be applicable to the facts of the case as decision in Prasad Production Ltd., was given in the context of section 195(1) whereas the issue in the present case is u/s. 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 39

tax. No such parallel can be drawn in respect of case falling u/s. 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 A.O. in this determination.

(7) In Van Oord ACZ India vs. CIT (Del.) following proposition was laid down.

"The assessee, an Indian company remitted mobilization & demobilization charges of Rs.8.65 crs by way of reimbursement to its parent company, a company based in Netherlands. The assessee applied to the A.O. u/s. 195(2) for a Nil withholding rate though the AO held that tax had to be deducted at 11%. The assessee deducted tax on sums aggregating Rs.6.98 crs. In the assessment order the AO took the view that as the assessee had failed to deduct tax at source u/s.195, the expenditure had to be disallowed u/s. 40(a) (i). This was upheld by the CIT (A) and the Tribunal (effectively on the balance amount). The Tribunal followed the Judgement of the Supreme Court in Transmission Corporation of AP 239 ITR 387 and held that the assessee was duty bound to deduct tax u/s. 195 (1) and could not escape liability without obtaining a certificate u/s. 195(2). The Tribunal held that the assessee was not entitled to "step into the shoes of the AO" and examine "whether the receipt was income in the hands of the recipient or not". On appeal by the assessee, HELD reversing the judgement of the Tribunal.

(i) The observations of the Supreme Court in Transmission Corporation of AP 239 ITR-387 have to be read in the context of the question before the Court i.e. whether tax was deductible on the gross trading receipts or only on the "pure income profits". The Court was not concerned with a case where the receipt was not chargeable to tax in the hands of the recipient at all. On the other hand the observations of the Court make it clear that the liability to deduct tax at source arises only when the sum payable to the non-resident is chargeable to tax ;

(ii) Even in the plain language of s. 195 shows that the tax at source is to be deducted on the "sum chargeable under the provisions of the Act". One can, therefore, reasonably say that the obligation to deduct tax at source is attracted only when the payment is chargeable to tax in India;

(iii) The determination by the AO under s. 195(2) of the Act is tentative in nature. In case it is ultimately found in the assessment proceedings relating to the recipient that he was not liable to pay any tax on the sums received, the assessee cannot be treated in "default" inasmuch as s. 195(1) of the Act casts an obligation to deduct the tax at source 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 s. 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 judgement 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. (supra).

(8) In C.I.T. vs. Vajubhai Chunilal (HUF) [1979 - 120 ITR-21 ]. 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 presumption on the basis of Land Revenue Records and it is rebutable by the A.O. It does not lay down any proposition for the Assistance of LAO.

(9) In CIT vs. Lilavati Thakorlal Patel (1985) [152 ITR-565]. Again the issue was whether land sold to Co-operative Housing society was agricultural or not. The land was used for agriculture purposes till the date of sale. It was classified as agricultural land in revenue record. Permission u/s. 65 of the Bombay Land Revenue Code for change of user has not been obtained etc., In fact Hon'ble Gujarat High Court laid down following propositions to determine whether land in question is agricultural land or not.

"In determining whether land is agricultural or not, the important factors which should be taken into consideration are: (i ) classification of the land in the revenue records as agricultural land; (ii) actual or ordinary use of the land for agricultural purposes at or about the relevant time; (iii) whether such user was for a substantial period or it was for a temporary duration only by way of a stop-gap arrangement; (iv) rational proportion of income from the land to investment made therein; (v) permission under s. 65 of the Bombay Land Revenue Code for change of user, and when and by whom it has been obtained; (vi) cessation of the agricultural use and converting the land to non-agricultural purposes; (vii) non-use for agricultural purpose of the land though listed in revenue records as agricultural land; (viii) its situation, physical characteristics and development in the vicinity; (ix) permission u/s. 63 of the Bombay Tenancy and Agricultural Lands Act,1948, and when and by whom; (x) price of the land on sale, and whether the value was determined as a unit of the land or on yardage or on acerage basis?

This authority also lays down criteria for determining character of a land for chargeability of capital gains by the A.O. It does not help LAO as to how he should proceed to decide whether tax is to be deducted or not. But one inference 42

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 vs. C.I.T. (1979) [118 ITR 224]. 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 A.O. 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 Chandravati Atmaram Patel vs. CIT (1978) [114 ITR-302]. 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 C.I.T. vs. H.V. Mungale (1984) [145 ITR-208]. 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 wealth.

(13) In C.I.T. vs. Fagoomal Laxmichand (1978) [112 ITR-09]. Hon'ble Kerala High Court held that determination of land is a matter which has to be decided on the facts of each particular case. If assessee has placed cogent evidence in support of his contention that the land was agricultural property and department has not adduced any evidence to controvert this contention then land would be held as agricultural land and would go out of chargeability of capital gains.

(14) In C.I.T. vs. Reliance Industries Ltd., (2009) [308 ITR-082]. It was held that employer can prima-facie decide about the deductibility of tax at source.

In the following case, it was held that trees are part of agricultural land and capital gains could not be separately levied on their transfer along with the agricultural land.

(15) In C.I.T. vs. Alaqnickal Co. Ltd., (1986) [158 ITR-630]. It was held that standing trees on agricultural land is immovable property as land itself. The transfer of agricultural land with standing trees does not involve transfer of capital asset.

(16) In C.I.T. vs. Rajagiri Rubber & Produce Co. Ltd., (1991) [ 189 ITR-185]. The issue was also the same as in the case of C.I.T. vs. Alanickal Co. Ltd., 158 ITR-638(1986). If agricultural land is sold along with trees then trees cannot be treated as separate asset.

(17) In C.I.T. vs. Ramaiah Reddy (1986) [158 ITR 611]. There was compulsory acquisition of agricultural land with trees thereon. Land and trees were valued separately and compensation was paid. It was held that acquisition of land and acquisition of trees do not constitute two separate transactions. 44

(18) In Syed Rafiqur Rahman vs. C.W.T. (1970) [75 ITR-318 ].The issue was inclusion of agricultural land for the purposes of Wealth tax Act. It was held that the question whether a land is agricultural land or not does not depend upon the intention of the owner to use the land or not or on the fluctuating or ambulatory 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) vs. C.W.T. (1969) [72 ITR-552]. 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 Govt. 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 CWT vs. Officer-in-Charge. It was held as under. And thus Judgement 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., vs. CIT (1974) [93 ITR-314]. It was held that sale of trees standing on agricultural land is assessable u/s. 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:-

(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 revenue records is prima-facie evidence of land being agricultural land.

(4) It is immaterial whether land has not been used for agriculture purposes for long or the land is fallow.

(6) There is no provision in section194LA for any reference to revenue authorities by the Land Acquisition Officer for obtaining their opinion as to the nature of land being acquired by him.

(7) The presumption raised by Land Acquisition Officer is rebut able and evidence can be adduced against it by the A.O. but that can be done only during assessment proceedings.

of the land which was based on entries in land revenue record. We consider it as a sufficient basis for arriving at the view he has taken.

33. In view of the above, we hold as under:

The land acquisition officer was prima facie justified in not deducting tax on compensation paid on acquisition of agricultural land and trees and houses standing thereon.

As a result appeal filed by the L.A.O. is allowed.

Order pronounced in Open Court on 18/08/2010.

SD/- SD/-

(D.C. AGRAWAL) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Ahmedabad, Dated: 18/08/2010.

S.A.Patki.

Copy of the Order forwarded to:-

1. The Appellant.

2. The Respondent.

3. The CIT(Appeals)-

4. The CIT concerned.

5. The DR.,ITAT, Ahmedabad.

6. Guard File.

TRUE COPY

BY ORDER

Deputy/Asstt .Registrar

ITAT,Ahmedabad.n acquisition of agricultural land and trees and houses standing thereon.1

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Sunday, 16 March 2014

Land acquisition Act-entries in revenue records is prima-facie evidence of land being agricultural land.

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