Saturday, September 17, 2011


By on 9:24 PM

TDS from compensation paid under any law:

We find provisions for deduction of tax at source from the amount of compensation or additional compensation by way of enhancement etc. when certain capital assets are compulsorily acquired under any law. The provisions provide circumstances and conditions for TDS. We find that S.194L (operative up to 31.05.2000) is for TDS from compensation of any capital asset (which could be movable or immovable property). Operation of this section was suspended w.e.f. 01.06.2000 and a new section that is S. 194LA was inserted w.e.f. 01.10.2004 in respect of immovable property (other than agricultural land). Thus S.194L was wider to cover any capital asset whereas S. 194LA covers only immovable properties (other than agricultural land).

We notice that after making section 194L non operational w.e.f. 01.06.2000 vide the Finance Act, 2000 new section 194LA was inserted w.e.f. 01.10.2004 vide the Finance (No.2) Act, 2004. New section is restricted to compensation etc. payable in respect of immovable property, other than agricultural land. There is no doubt or ambiguity that in case the property is any agricultural land then TDS is not required. This is clear in the language of section wherein in bracket 'other than agricultural land' is mentioned, this is also mentioned vide Explanation (ii) to the section. Any agricultural land is excluded, it is not a case that the agricultural land should not be a 'capital asset'. Whether agricultural land is capital asset or not will make no difference.

Analysis of High Court's observation as to facts of the case and arguments of parties:
(Risal Singh & Anr. v. UOI & Ors. [2010 -TMI - 75720 - PUNJAB AND HARYANA HIGH COURT])

A bare perusal of the provisions clearly shows that TDS is required in respect of compensation paid for acquisition of immovable property other than agricultural land. That is no TDS is required for compensation for agricultural land , there is no jurisdiction to deduct tax from compensation for agricultural land.

The stand of the Income-tax department that since there is remedy of getting the assessment done and to receive refund, the writ petition was not maintainable, cannot be accepted in view of (a).

Deduction of tax at source, without determining the plea of the petitioner that the land was agricultural land, was not justified.

The amount is said to have been remitted to the Income-tax Department which is illegal.

Analysis of High Court's observation as to facts of the case and arguments of parties:

The writ petition was accordingly allowed.

The Income-tax Department to refund the amount to the Collector within one month from the date of receipt of a copy of the order.

Thereafter, the Collector will determine whether compensation paid is for property other than agricultural land or otherwise and whether deduction of tax at source was permissible under any provision of law. This will be decided by the Collector within two months from the date of receipt of a copy of the order.

If deduction is found not permissible, the amount will be refunded to the petitioners not later than three months from receipt of a copy of the order.

It is made clear that this order will not affect the right of Income-tax Department to take such action as may be permissible under the law.

The finance ministry has also issued a directive to its field officials clarifying that no tax is to be deducted on compensation paid in lieu of acquisition of rural and urban agricultural land and they should not insist on authorities to deduct tax. "A circular has been issued clarifying the matter," a ministry official said.

TDS contributes more than 35% to total direct taxes collections. There has been growing on emphasis on TDS as it is a neat and efficient way of collecting taxes, which also helps in establishing an audit trail.

Tax has to be deducted whenever a payment is made above Rs 20,000. Though all agricultural land is exempt from taxations, non-agricultural lands are liable to tax. Compensation for acquisition of urban agricultural land that is exempt from tax deduction at source attracts capital gains tax.

About Syed Faizan Ali

Faizan is a 17 year old young guy who is blessed with the art of Blogging,He love to Blog day in and day out,He is a Website Designer and a Certified Graphics Designer.


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