In a recent ruling, a division bench of the Rajasthan High Court held that compensation paid by the Jaipur Development Authority on account of land acquisition is not subject to TDS under the provisions of the Income Tax Act, 1961.
The issue in CIT(TDS) v. Jaipur Development Authority was whether records furnished by the assessee was enough to determine applicability of section 194LA Income Tax Act and no further physical verification was required by the assessing officer to ascertain whether the land is agricultural or non-agricultural.
In order to gather information regarding actual use of land acquired JDA was asked to submit Giradawari report which gives details about actual nature and use of land. From the reports obtained from Tehsildars, it was found that majority of land acquired by the assessee on which no TDS was deducted was barren. No cultivation has been undertaken on such land for a period beginning 4 years before the date of notification for acquisition.
The assessee maintained that the land acquisitions and payments were done with sufficient proof in hand about the land being agricultural i.e. certificate of Tehsildar and affidavit from the owner about agriculture being practiced on land. To which the court asserted that these certificates cannot be taken for evidence. During the course of verification and till date the assessee has not furnished any Giradawari report.
CIT(A) held that AO was right in holding that on compensations paid on acquiring of these lands TDS has to be deducted as per the provisions of section 194LA of Income Tax Act.
However, the Tribunal observed that the assessee has been able to demonstrate from the record that land acquired are agricultural land in terms of Section 194LA of the Income Tax Act, therefore, there is no obligation to deduct any TDS thereon.
The Court agreed with the above findings and held that the assessee being an Urban Development Authority requires the amount for the purpose of paying compensation to the agriculturist.
On the date on which, the contract of land acquisition was entered between the parties that too under cooperative society, it was an agriculture land, therefore exemption which was granted was on agriculture land.
While interpreting the view, the question is if local authority is acting in the interest of State as a whole or not. In the present case, for the purpose of taxation, if the interpretation which has been canvassed by the counsel is accepted, it will put loss to the authority and they have to pay higher compensation. In that view of the matter, while considering the payment of compensation, it should be on a lower side. The bench therefore, observed that the authority has not committed any wrong and they have acted in the interest of the State and it should be considered as an agriculture land as rightly considered by the authority.
Division bench headed by Justices K.S. Jhaveri and Inderjeet Singh of the Rajasthan High Court answered in favour of Jaipur Development Authority.
Read the full text of the Judgment below.
