Compensation for removing illegal encroachment not liable for TDS u/s 194L/194LA when occupants were not owners of the land on which they had built illegal huts – High Court
ABCAUS Case Law Citation:
ABCAUS 2513 (2018) 09 HC
The Revenue had filed the instant appeal(s) under the Income Tax Act, 1961, against the common order passed by the Income Tax Appellate Tribunal (ITAT).
The Assessing Officer (AO) had passed the impugned order of assessments under section 201(1)/201(1A) of the Income Tax Act, 1961 (the Act). The orders were passed as the Assessing Officer was of the opinion that the assessee had acquired immovable property for various projects for which the affected persons were compensated as per the Land Acquisition Act, 1894.
Since, the assessee had not deducted Tax at Source (TDS) as per the provisions of section 194L/194LA, the Assessing Officer treated the assessee as an assessee in default and computed the payment of tax under section 201(1) and that for interest under section 201(1A) of the Act.
Additionally, for two assessment years, the Assessing Officer noticed that the assessee had made payment towards Annual Maintenance Contracts (AMCs) for Air Conditioners and Lifts on which TDS was deducted under section 194C of the Act when, according to the Assessing Officer, the same ought to have been deducted under section 194J. Since, the assessee had deducted TDS under section 194C, the Assessing Officer proceeded by levying the liability under section 201(1) of the Act and also held the assessee liable to pay interest under section 201(1A) of the Act.
Being aggrieved by the impugned assessments, the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals). The CIT(A) was convinced that there was no payment of compensation for acquisition of any land or immovable property, and therefore, the said sections had no application to the facts of the present case. Accordingly, he deleted the demand raised by the AO under section 201(1) and 201(1A) of the Act.
Similarly, the CIT(A) also observed that the AMCs were contracts for periodical inspection and routine maintenance work along with supply of several parts. He was, therefore, held that such services did not constitute technical services, and therefore, section 194J had no application to the facts and circumstances of the case. He, therefore, deleted the demand of tax/interest under section 201(1) and section 201(1A) of the Act.
The Tribunal upheld the order of the CIT(A) and dismissed the appeals filed by the revenue.
The Hon’ble High Court observed that Section 194LA of the Act inter alia deals with payment of compensation on acquisition of certain immovable property. Section 194LA was brought into force with effect from 1st October, 2004. Section 194L dealt with payment of compensation on acquisition of a capital asset and was omitted with effect from 1st June, 2016.
The Hon’ble High Court noted that basically, both the provisions provided that any person responsible for paying to a resident any sum in the nature of compensation or enhanced compensation or consideration or enhanced consideration on account of compulsory acquisition, under any law for the time being in force of any capital asset, 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, is liable to deduct an amount equal to 10% of such sum as TDS on the income comprised therein.
The Hon’ble High Court observed that as per the aforesaid provisions, TDS was to be deducted when compensation is paid on account of compulsory acquisition under any law for the time being in force. Whereas, as recorded by the ITAT, for the purpose of implementing the scheme of the Government relating to road widening near the railway track, the assessee evacuated the illegal/unauthorized persons who were squatters/hutment dwellers. The fact of the matter was that the possession of these persons was unauthorized and illegal and they were not the owners of the land on which they had squatted / built their illegal hutments. In fact, they were trespassers. This being the case, there was no question of the land being acquired by the assessee.
The Hon’ble High Court opined that the ITAT correctly, came to the conclusion that the land always belonged to the State; it was encroached upon, which encroachment was removed by the assessee; and the encroaching squatters / hutment dwellers were rehabilitated.
Accordingly, the Hon’ble High Court opined that section 194L or section 194LA of the Act had absolutely no application to the facts and circumstances of the present case.
Section applicable on TDS on Annual Maintenance Contact (AMC)
Further, with respect to TDS on AMCs, the Hon’ble High Court opined that the ITAT correctly held that the assessee had made payments only in respect of maintenance contracts which related to minor repairs, replacement of some spare parts, greasing of machinery etc. These services did not require any technical expertise, and therefore, could not be categorized as “technical services” as contemplated under section 194J of the Act which deals with fees for professional or technical services.