ORDER
D.V. Shylendra Kumar, J.
1. This writ petition is a clear illustration of situations where even the non-assesses under the Income Tax Act, 1961 [for short 'the Act'] can be subjected to harassment by statutory provisions which are provided more to ensure safeguarding of the interest of revenue by obligating distributors of income tax assessable in the hands of the recipients being compelled to deduct certain percentage of amount to be distributed and to be remitted to the credit of the income tax authorities which can virtually act as a payment of advance tax on the part of the recipient.
2. The present situation is one seeking to cover payments made by way of compensation on acquisition of certain immovable property in terms of Section 194LA of the Act. This petition is examined for clarifying the legal position in terms of Section 194LA of the Act.
3. Writ petitioner is Mysore Urban Development Authority, a statutory authority created under Section 3 of the Karnataka Urban Development Authorities Act, 1987.
4. The authority in the normal course of its functioning does acquire lands belonging to private persons and other persons and develops the same and distribute residential plots by forming layouts either for the benefit of residence or even for forming commercial complexes and other public amenities.
5. It appears the petitioner-authority had distributed compensation payment in favour of the owners who had owned certain agricultural lands which had been acquired by the authority to the tune of Rs. 3,67,94,840/-. The Income Tax Authorities were of the view that for the period 1.10.2004 to 5.1.2006 while this was the quantum of compensation paid to owners whose property had been acquired by the petitioner-authority, they had not deducted 10% of this amount and had not remitted the same to the credit of the income tax authorities and therefore the petitioner-authority had been called upon not only to remit this amount but also with interest of Rs. 5,88,717/- for non-compliance with the statutory provisions of Section 194LA of the Act
6. Section 194LA of the Income Tax Act, 1961, reads as under:
194LA - Payment of compensation on acquisition of certain Immovable property.
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 purpose 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.
7. The proceedings for such demand was initiated In terms of the demand notice dated 26.12.2005 issued by the Income Tax Officer, W2[1]/TDS, Mysore [copy at Annexure-A]. The petitioner-authority it appears had objected to any action being initiated against them for non-remitting deduction at source at 10% of the compensation distributed to the owners of agricultural land whose land had been acquired, inter alia, pointing out that the provisions of Section 194LA of the Act was not applicable to them as agricultural land had been excluded from the definition of 'immovable property' for the purpose of compliance with Section 194LA of the Act; that while under the other provisions of the Act i.e., under items [a] & [b] of Sub-clause [iii] of Clause [14] of Section 2 of the Act, the agricultural land within the urban agglomeration is sought to be excluded from this understanding for the purpose of Section 194LA it was retained to be agricultural land, in which event it will become property other than the immovable properly for the purpose of Section 194LA of the Act and therefore there is no obligation on their part to deduct such amount and remit it to the income tax authorities.
8. The Income Tax Officer who had issued notice, heard the representative of the authority who had objected for the proposition and proceeded to pass the order dated 30.1.2006 [copy at Annexure-D] holding that the petitioner-authority was not only liable to make payment of the amount as indicated in the earlier part of this order but would also be liable for levy of penalty under Section 271(1)(c) of the Act which is equal to the amount of tax ought to have been deducted.
9. The petitioner-authority after being threatened not only with the demand but also the proposed further penal action, it appears preferred a revision petition under Section 264 before the respondent No. 2 - Commissioner of Income Tax.
10. The authority had also sought for stay of the enforcement of the order and further proceedings before the Commissioner. The Commissioner though was seized with the revision petition, nevertheless, appears to have not ordered stay of further proceedings and it is at this stage the petitioner-authority has approached this court by filing this revision petition.
11. This court admitted this petition on 17.8.2006 and granted interim relief staying further proceedings and thereafter the respondents have entered appearance through standing counsel.
12. I have heard Sri. P.S. Manjunath, learned Counsel for the petitioner and Sri. Aravind, learned Counsel for the respondents.
13. While Sri. P.S. Manjunath, learned Counsel for the petitioner points out that a reading of Section 194LA of the Act makes it very clear that compensation amount paid in respect of the agricultural land is not covered by the provisions of Section 194LA of the Act; that the understanding of the Income Tax Officer to the contrary is in the teeth of the provisions; that the Income Tax Officer while passing the impugned order has necessarily sought to invoke the definition of 'capital asset' as contained in Section 2(14) of the Act, as in Clause [iii] of Sub-section 14 of Section 2, agricultural land in India excludes such agricultural land with urban potential for development, even for the purpose of Section 194LA and therefore not only the order but also the entire proceedings are bad; that the Commissioner also even without appreciating this position has nevertheless allowed the enforcing authority to further proceed in the matter which virtually amounts to harassment and therefore the matter warrants interference to relieve the petitioner from further unnecessary proceedings.
14. On the other hand, Sri. Aravind, learned Counsel for the respondents, would firstly urge that this court should not interfere in this matter at this stage, particularly, as the revision petition filed by the petitioner is still at large before the Commissioner and as this court has already stayed further proceedings, stay can be continued and directions issued to the Commissioner to dispose of the matter expeditiously.
15. Secondly, it is submitted that even assuming that the compensation paid is in respect of agricultural land, the understanding of 'agricultural land' in the Act itself is such that it excludes any agricultural land located in an urban agglomeration; that the definition of capital asset makes it very clear and therefore the authorities are well within their power and jurisdiction in calling upon the petitioners to make payment as the petitioner had failed in complying with the requirement of Section 194LA of the Act.
16. The next contention urged is that it is not clear as to whether the compensation paid is only in respect of agricultural land or it could be other lands also and in the absence of information as to whether the entire compensation is in respect of agricultural land or even other lands, the matter cannot be examined by this court; that if the land is converted land, particularly, being within the urban agglomeration, then also provisions of Section 194LA are attracted and therefore there is nothing for this court to interfere in the matter.
17. While normally this court will not examine a matter which is pending or seized before any other authority and would direct the aggrieved person to abide by the proceedings by the authority which the petitioner himself had invoked, I find in the present case, there is no other question involved except interpretation of provisions of Section 194LA of the Act or to be precise, understanding of the provisions of Section 194LA of the Act and therefore the writ petition is entertained as the officers under the Act have proceeded to invoke the power under Section 194LA of the Act on an erroneous understanding of this section.
18. The very authority also has indicated that the compensation being paid is in respect of agricultural land acquired by the development authority. There is no question of further examination of this aspect on the premise that it is either non-agricultural or land converted etc.
19. In so far as the understanding of the provisions of Section 194LA is concerned, I find that unlike many other Sections under the Act, this Section is fairly short and simple. It does not give scope for either ambiguity or interpretation. It has to be merely read and understood and nothing more. The caption to the Section which reads as 'Payment of compensation on acquisition of certain immovable property' is very indicative as to for what purpose the provision has been made. One should appreciate that the liability here is a artificial liability on the person distributing the compensation in respect of immovable property as in the hands of the recipient the compensation received may be capital gain which is income taxable under the Act and therefore the legislature wanted a safeguard in favour of the revenue by providing for deduction at source at some percentage of the amount paid by way of compensation so that the deducted amounts acts as security for realisation of the actual liability of tax to be determined by the authority later at the end of the assessment year etc.,.
20. It is not the liability of the person distributing the compensation, but the liability of a person receiving the compensation amount. Now, it is very clear that the obligation on the part of the person to deduct is only in respect of compensation on acquisition of certain immovable properties. While agricultural land undoubtedly is an immovable property, the main part of Section 194LA itself excludes agricultural land from the immovable property covered by Section 194LA as the words in the bracket indicates i.e. [other than agricultural land].
21. This is further made very explicit, particularly, by ensuring that the meaning of 'agricultural land as found in the definition of Capital asset' under Section 2(14) is not imported for the purpose of Section 194LA of the Act which not only refers to retaining the agricultural land as it is for the purpose of Section 194LA in all situations irrespective of their location but also by making it further clear that 'immovable property' means only land or part of the other land other than agricultural land. A proper reading and understanding of Section 194LA leaves one with no ambiguity or misunderstanding about the object and scope of this section. It is very clear that obligation cast on a person distributing compensation is only in respect of payment for immovable property. Such immovable property does not include agricultural land and such agricultural land may be located in any place including in an urban agglomeration and the meaning of 'agricultural land' as given in Section 2(14) of the Act is not imported for the purpose of Section 194LA of the Act.
22. The authority functioning under the Act has obviously gone wrong by quoting artificial meaning of 'agricultural land' as contained in Section 2(14) of the Act, defining capital asset The definition of capital asset is given for the purpose of indicating that the transfer of capital asset if has resulted in some gain and becomes capital gain, it is an income taxable as income includes capital gains. The definition of capital asset under Section 2(14) of the Act, which reads as under:
(14) 'capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include-
(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;
(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him.
Explanation.- For the purposes of this subclause, 'jewellery' includes-
(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semiprecious stone, and whether or not worked or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;
(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;
(iv) 6 1/2 percent. Gold Bonds, 1977, or 7 per cent. Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government;
(v) Special Bearer Bonds, 1991, issued by the Central Government;
(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government;
is for the limited purpose of determining capital gains. The legislature has, having regard to the potential of agricultural land though basically the land remains agricultural land, but if its value got enhanced because of the potential for development being located in an urbanized area or potential for urban development, has sought to rope in the gain which a person may make by transfer of such capital asset with potential for urban development, though such potential is in respect of agricultural land.
23. The legislature has taken care to levy tax on the income, which is other than agricultural income, knowing its legislative limitations and by seeking to rope in income attributable to transfer of asset with development potential, which is essentially not an income attributable to agricultural operations. This exercise does not in any way affect or control the provisions of Section 194LA and more so when the very provision expressly seeks to retain agricultural land with or without urban potential to be as an agricultural land only and further treats it as not an immovable property.
24. When statutory provision is so very clear, it is rather surprising that the authority functioning under the Act has misread this provision and emphatically enforced the provision in a way not provided under the Section itself and further threatened the petitioner with the possibility of mulcting with penalty under Section 271(1) of the Act
25. It is also surprising that the Commissioner before whom the revision petition was taken, could not see the scope content and meaning of Section 194LA of the Act which is as clear as a day light and allowed further proceedings against the complaining petitioner.
The understanding of the Section 194LA of the Act is as indicated in this order. Notwithstanding the pendency of the revision petition, as the impugned order passed by the Income Tax Officer has to be examined only on the understanding of the provisions of Section 194LA and on the understanding and as indicated in this order, the order cannot withstand scrutiny. The order of the Income Tax Officer at Annexure-A is quashed notwithstanding the pendency of the revision petition before the Commissioner. This order is passed as I find subjecting the petitioner to further proceedings by asking the petitioner to go before the Commissioner and await further examination of his revision petition is an avoidable hardship.
26. In the circumstances, this writ petition is allowed. The impugned order passed by the Income Tax Officer, W2[1][TDS], Mysore bearing F. No. TDS/TCS/W2[1]/Mysore/05-06 dated 26.12.2005 [copy at Annexure- A] is hereby quashed in this petition itself and there is no further need for the petitioner to pursue the revision petition under Section 264 of the Act.
27. Petitioner awarded cost of Rs. 10,000/- against the respondents. Rule made absolute.