P&H High Court Sets Aside ₹128 Crore Penalty Imposed On Land Acquisition Officer For Failing To Deduct TDS Upon Interest On Compensation

The Punjab & Haryana High Court has set aside the hefty penalty of Rs.128 Crores imposed on a Land Acquisition Officer (LAO) for failing to deduct Tax Deduction At Source (TDS) upon Interest on enhanced compensation disbursed under the Land Acquisition Act.

The Court noted that the Officer followed the advice of his seniors which was based on legal advice relying on orders passed by the High Court that TDS is not required to be deducted on interest payments.

Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth said, "It cannot be said that the LAO was at fault. He was genuinely following the advice given to him by his superior officer who was a District Revenue Officer, whose directions of not deducting TDS were based on legal advice. The legal advice was given on the basis of the directions of this Court."

While this Court may have passed an order which was not in conformity with some other orders passed by the High Court, it was not available for the LAO to ignore or flout the Court's orders, which are to be presumed to be correct till they are set aside in appeal. Thus, no fault can be attributed to the LAO or to his officials, the Court added.

These observations were made while hearing the plea of a Land Acquisition Officer, Urban Estate, Panchkula, office of the Government of Haryana challenging the imposition of huge liability of an amount of Rs.1,28,19,35,845/- under Section 201(1) of the Income Tax Act, 1961 on the ground that the LAO had failed to deduct the tax at source upon interest on enhanced compensation paid under Section 28 of the Land Acquisition Act, 1894.

Facts In Brief

The petitioner was conducting the duty of disbursement of compensation, enhanced compensation and interest on the compensation in lieu of acquisition of land in terms of Section 28 of the Act, 1894. The compensation received for the acquisition of agricultural land is exempted from deduction of tax at source in terms of Section 194LA of the Act, 1961.

Till 2012, the petitioner was disbursing the enhanced compensation and interest on enhanced compensation by deducting tax at source in terms of Section 194A of the Act, 1961.

In the case of CIT vs. Ghanshyam (HUF) 315 ITR 1, the Supreme Court while interpreting the provisions of Section 45(5)(b) of Act, 1961 held that the interest on enhanced compensation paid under Section 28 of Act, 1894 is part of the compensation and therefore, not liable for deduction of tax at source as the same would be held to be an accretion to capital.

The High Court also passed orders in the case of Jagmal Singh and another vs. State of Haryana and another in [CR No. 7740 of 2012] restraining petitioners from deducting TDS. Accordingly, TDS was not being deducted upon interest disbursed on enhanced compensation in view of various judgments passed by the High Court.

A survey under Section 133A of the Act, 1961 was conducted in 2015 and the income tax authorities found that the TDS was not on the payments of interest on compensation/enhanced compensation

Counsel appearing for the LAO argued that the petitioner was in bona fide belief that there is no liability to deduct tax at source in view of the legal opinion of the Additional District Attorney.

After hearing the submissions, the Court said that "various Courts including this High Court granted stay and also held that TDS is not required to be deducted from the interest payments."

The LAO asked for a legal opinion and as per the instructions dated 09.10.2012 issued by the District Revenue Officer on the noting sheet, he was directed that “as per the opinion of the ADA(P) i.e. Additional District Attorney, TDS may not be deducted”. The document was produced by the petitioner before the Income Tax Authorities. In terms of directions issued by the superior officer, the deductions were therefore not made, it noted further.

Speaking for the bench Justice Sharma opined that, "in the absence of there being any fault and there being a genuine belief based on judgment of the High Court that TDS was not required to be deducted on the interest paid, the action of the LAO cannot be said to be wrongful or illegal."

The action of releasing the interest amount without deducting TDS therefore, cannot be a reason for imposing a penalty in terms of Section 201 and 201(1A) of the Act, 1961 and cannot be justified, the Court said.

It added that "the Land Acquisition Officer cannot be made to suffer on account of the orders passed by the Court. Penalty imposed on him by the Assistant Commissioner of Income Tax, TDS Circle vide its orders dated 22.03.2016 and 31.03.2016 are liable to be set aside."

While quashing the order imposing a penalty on the LAO, the Court allowed the plea.

Ms. Radhika Suri, Sr. Advocate with Mr. Abhinav Narang, Advocate

Ms. Parnika Singla, Advocate for LAO.

Mrs. Urvashi Dhugga, Sr. Standing Counsel for the respondent/Revenue.

 Title: THE LAND ACQUISITION OFFICER, URBAN ESTATE V. THE ASSISTANT COMMISSIONER OF INCOME TAX, TDS CIRCLE

Citation: 2024 LiveLaw (PH) 210

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