Facts: Group of matters were listed before the Supreme Court. Facts of one of the case, ie. Infopark Kerala as emanating from High Court order are discussed here. The Assessee was a society established under the Travancore Cochin Societies Registration Act, 1955 set up with the object of development of Information Technology Parks. Suitable lands were identified in Ernakulum District and Government issued notification under Section 4 of the Land Acquisition Act, 1894 notifying the lands. The District Level Purchase Committee with District Collector as Chairman was authorised to determine the price of the land. That has to be considered by Empowered Committee by giving approval which consists of senior officers of the Government. The parties had two options; either to negotiate settlement or to go by the land acquisition procedure as provided under the Act. In the first category, there is sale of property on agreed price and in the second category there is compulsory acquisition. In that case, apart from market value, solatium, interest etc. are payable. If the market value fixed is not acceptable, the parties can go to the court for reference. On negotiation large extent of lands involved in the Section 4 notification was sold and sale deeds were executed and those lands were excluded from the provisions of the Land Acquisition Act. Government withdrew from the Land Acquisition under Section 48 by effacement of the notification issued under Section 4(1) of the Land Acquisition Act. The TDS officer issued notice mentioning that tax needs to be deducted as per Section 194 LA of the Income Tax Act, 1961.  This was challenged by the Assessee before the High Court through a writ petition. The Single judge decided in favour of the Assessee and quashed the notice. Revenue filed an appeal against the Single judge decision.

The division bench observed that Section 194LA shows that it is applicable only when lands are compulsorily acquired by the Government. Even though, here the acquisition procedures were initiated, lands were sold to the Government by negotiating settlement. Under Section 194LA of the Income Tax Act, deduction of an amount equal to ten per cent of compensation is required only when lands are compulsorily acquired but deduction of tax is not necessary when the land is purchased by negotiation after executing sale deeds. It is well settled that taxing statute should be interpreted strictly. But for Section 194LA, even in compulsory acquisition, entire compensation determined was payable to the owner of the land. After Section 194LA was introduced, only after deducting 10% of the amount towards income tax, the Government can pay the compensation. If the owners of the land are not liable to pay income tax, they can get refund of the amount by producing the certificate of deduction. But such compulsory deduction at source is not mandated under Section 194LA when the land is purchased by executing sale deeds on the price paid by it. Only by proper legislation that can be done. If the purchasers are liable to pay tax, it is for the income tax department to demand from them. Here the lands were sold by executing sale deeds and therefore Section 194LA is not applicable. The Division bench of High Court held that all the contentions raised by the Department were considered meticulously by the learned Single Judge and hence dismissed the appeal. Department had sought further appeal before the Supreme Court against High Court’s Division bench order.

Issue: Apart from applicability of section 194LA, the controversy raised in the appeals was whether the payment of compensation on agreed terms in respect of the land acquired would be entitled for exemption under Section 10 (37) of the Income Tax Act, 1961 or not.

View: In Balakrishnan v. Union of India [2017] 391 ITR 178 (SC) the Court had overruled the ratio of present case i.e. Info Park Kerala vs ACIT. The Supreme Court was not in agreement with the aforesaid view that since the title in the property was passed by the land owners on the strength of sale deeds executed by them, it was not a compulsory acquisition. The Court in that case held that it was clear that but for Notification under Section 4 and Award under Section 9 of the LA Act, the Assessee (Seller of land) would not have entered into any negotiations for the compensation of the consideration which he was to receive for the said land. As far as the acquisition of the land in question is concerned, there was no consent. The Assessee (Seller) was put in such a condition that he knew that his land had been acquired and he cannot reiterate the same. The Assessee (Seller), therefore, only wanted to salvage the situation by receiving as much compensation as possible commensurate with the market value thereof and in the process avoid the litigation so that the he is able to receive the compensation well in time. If for this purpose he entered into the negotiations, such negotiations would be confined to the quantum of compensation only and cannot change or alter the nature of acquisition which would remain compulsory. To that extent judgment of the Kerela High Court in Infopark Kerala was overrule).

Held: The Court observed that the issue pertaining to 10(37) was decided in favour of the Assessee in Balakrishnan v. UOI (2017) 391 ITR 178 where it was held that even if the amount of compensation is paid on agreed terms it would not change the character of the acquisition from that of compulsory acquisition to the voluntary sale and the exemption provided under the Income -tax Act would be available. Basis this, the Court did not interfere with the decision order passed by the High Court division bench. (CA No.2415/2010 dt 5-4-2017)  

Editorial: The Supreme Court in this case has followed another Supreme Court decision in the case of Balakrishnan v. UOI (2017) 391 ITR 178 which has referred to section 10(37) of the Act