P&H HC Quashes ₹128 Cr Fine Imposed on LAO for Failure to Deduct TDS from Interest on Increased Compensation

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

It was remarked by the court that the officer followed the advice of his seniors which was based on legal advice laying on the orders passed via the High Court that TDS does not need to be deducted from the 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 based on the directions of this Court.”

While this court has passed an order that was not in conformity with certain other orders passed via the High Court, the LAO couldn’t neglect or flout the orders of the court, which are to be assumed to be correct till they are set aside in plea. Hence no fault could be attributed to the Land Acquisition Officer (LAO) or to his officials.

These came to know while hearing the plea of a Land Acquisition Officer, Urban Estate, Panchkula, office of the Government of Haryana contesting the imposition of huge liability of an amount of Rs.1,28,19,35,845 u/s 201(1) of the Income Tax Act, 1961 on the foundation that the LAO had failed to deduct the tax at source upon interest on enhanced compensation paid u/s 28 of the Land Acquisition Act, 1894.

Key Facts at a Glance

The applicant was performing the duty of disbursement of compensation, enhanced compensation, and interest on the compensation in place of the land acquisition as per section 28 of the act, 1894. The compensation obtained for the agricultural land acquisition is waived from the deduction of tax at source as per section 194LA of the Act, 1961.

The applicant till 2012 was disbursing the enhanced compensation and interest on enhanced compensation via deducting tax at source as per section 194A of the Act, 1961.

For the case of CIT vs. Ghanshyam (HUF) 315 ITR 1, the Apex Court while interpreting the provisions of Section 45(5)(b) of Act, 1961 said that the interest on enhanced compensation paid u/s 28 of Act, 1894 is part of the compensation and hence, it does not liable for deduction of tax at source as the same would be held to be an accumulation to capital.

For the case of Jagmal Singh and another vs. the State of Haryana and another in [CR No. 7740 of 2012] the High Court has passed orders restraining the applicants from deducting TDS. As per that TDS was not being deducted on interest disbursed on enhanced compensation because of distinct rulings passed via the High Court.

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

The counsel of LAO cited that the applicant was in bonafide belief that no obligation is there to deduct tax at source concerning the legal opinion of the Additional District Attorney.

Post hearing the submissions the court mentioned that “various Courts including this High Court granted stay and also held that TDS is not required to be deducted from the interest payments.”

Read Also: Delhi ITAT Deletes Penalty U/S 271C If Not Deducting TDS On Account of Belief U/S 194J

LAO urged for legal advice and under the norms issued on 9/10/12 via the District Revenue Officer on the noting sheet, he was asked 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 applicant before the income tax authorities. As per the directions issued via the superior officer, the deductions were not made, it remarked.

Speaking for the bench Justice Sharma said 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 measure of releasing the interest amount without deducting TDS could not be a cause to levy a penalty as per sections 201 and 201(1A) of the Act, 1961, and could be justified, the court mentioned.

It mentioned that the land acquisition officer could not be made to suffer as per the orders passed via the court. The penalty was levied on him via the assistant commissioner of the income tax. TDS circle vide its orders on 22.03.2016 and 31.03.2016 are liable to be set aside.

While quashing the order levying a penalty on the LAO, the court permitted the appeal.

Case Title	The land Acquisition Officer, Urban Estate Vs. The Assistant Commissioner of Income Tax
Citation	CWP-14794-2016 (O&M) and CWP-14811-2016 (O&M)
Date	09.08.2024
Counsel For Appellant	Ms. Radhika Suri, Mr. Abhinav Narang, Ms. Parnika Singla
Counsel For Respondent	Mrs. Urvashi Dhugga
P&H High Court	Read Order