CIT (TDS) Vs Tushira Industries (Karnataka High Court)

Acquisition under section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 alone are exempt & not under the other Acts

The Commissioner of Income Tax (TDS) has preferred these intra court appeals, for laying a challenge to a common judgment dated 12.04.2023 entered by a learned Single Judge of this Court whereby, land-losers’   other identical cases, having been favoured, they have been relieved off from the levy of income tax on the compensation paid for the acquisition of their lands. This relief, he has granted principally in terms of section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (hereinafrer referred to as “2013 Act” ).

Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 Act provides for exemption from income tax on the amount payable as compensation when acquisition of private lands for public purpose has been accomplished under the provisions of this Act. Whether the similar acquisitions under    any other statutes such as the Karnataka Highways Act,1964 was the question answered by the division bench of the High Court.

Revenue argued that  the Parliament in its wisdom has exempted from tax the compensation payable for the land acquisition done under the provisions of  2013 Act only, as a matter of policy and that such a provision has to be construed literally, there being no room for its otherwise interpretation.  What income should be taxed and what should be exempted are a matter of legislative wisdom; by employing the said wisdom, Parliament has enacted Income Tax Act, 1961 providing for levy on the compensation payable for compulsory purchase of land, done under the provisions of 2013 Act alone and not any other statute. There being no challenge to section 96 of the new Act, court by interpretative process cannot restrict or widen its scope & application.

Assessees who had succeeded in obtaining a favourable judgment from the single judge of the High Court argued that the provisions of all local statutes such as the Karnataka Highways Act, 1964, Karnataka Industrial Areas Development Act, 1966, Bangalore Development Authority Act, 1976, Karnataka Urban Development Authorities Act, 1987, etc, stand impliedly repealed by the enactment of 2013 Act and therefore, section 96 of 2013 Act exempting compensation from the income tax comes to the rescue, even when the acquisition of their lands was under the local laws. Regardless of multiple statutes providing for acquisition of private land for public purpose, all land-losers constitute one homogenous class for bane or benefits and therefore, the exemption from income tax enacted u/s 96 of 2013 Act is available to all of them; if necessary, the provision should be read down to accord with rule of equality constitutionally enshrined in Article 14.

Assessees alao argued that the appeals filed by the Revenue  have been rendered infructuous inasmuch as the Income Tax Department has refunded entire TDS amount not only to the private respondents in this appeal  but to all land-losers in the subject acquisition   process, more particularly when such a refund is made without reserving right to prosecute the appeals.

The Division bench did not agree wit the contentions of the assesses. As regards the  first contention of land-losers that the 2013 Act has impliedly repealed the provisions of all statutes in general providing for acquisition of land and more particularly, section 15 of the 1964 Act and therefore, the acquisition done under the provincial statutes should be deemed to have been done under the 2013 Act, is difficult to countenance.

The Bench noted that the subject acquisition was initiated vide Notification dated 10.09.2012 issued under the provisions of 1964 Act i.e., much before the 2013 Act  came into force (w.e.f. 1.1.2014). There is a very strong presumption that substantive statutes are prospective in operation unless otherwise indicated by their Maker. The reasoning of the learned Single Judge to the contra vide paragraphs 20 to 22 of the impugned judgment, therefore is flawsome. Referring to GO by the state Govt, the Bench observed that the State cannot do by enacting a law i.e., exempting the compensation from income tax, it cannot do in exercise of its Executive Power by issuing the Government Order of the kind. Plainly it is so because the legislative competence in this regard apparently lies with the Parliament. It has been firmly settled by half century jurisprudence   that the Executive Power of the State is co-extensive with its legislative competence. If State has no legislative power, a Government of the State cannot arrogate to itself the corresponding Executive Power.

The Bench noted that the text of this provision is  clear & it  applies only to the awards or agreements made under the provisions of the said Act, which becomes apparent by the term ‘made under this Act’ consciously employed by the Parliament. To contend that even the awards passed under any other legislation would fit into the precincts of this provision is to render the said term otiose. It has been a canon of construction that courts should give effect, if possible, to every clause and word of a statute, avoiding, if it may be, any construction which implies that the legislature was ignorant of the meaning of the language it employed. The modern variant of this is: statutes should be construed “so as to avoid rendering superfluous” any statutory language. A statute should be construed to give effect to all its provisions, so that none of its part will be inoperative or superfluous, void or insignificant. If the Parliament intended to exempt compensation from income tax, even when acquisition is made or awards are passed under “any law whichsoever”, it would have structured section 96 with a different text. After all, what income should be taxed and what should be exempted, is a policy matter of Parliamentary wisdom. Courts in the interpretative process do not enlarge or constrict the scope of fiscal legislation.

With reference to the arguments of the assesses that all persons who give up their lands in the statutory acquisition process, whichever be the enactment would constitute one homogenous   and therefore Sec.96 of 2013 Act should be read down as to include the awards made under other statutes as well, the Bench ruled that it is too farfetched an argument and therefore, cannot be acceded to.  Bench further held that a plethora of legislations both Central & State, provide for acquisition of private property for the purpose of effectuating their principal objects, such as establishment of industrial areas, laying of roads, providing housing accommodation, granting house sites to the members of oppressed classes, etc. These statutes relate to several Entries in the Lists and incidentally they provide for such acquisition.  . It is true that the compensation package availing to the land-losers under these Statutes arguably is not as attractive as the one intended under the 2013 Act. In other words, the amount of compensation payable for the acquisition of property inter alia under the State Legislations is comparatively less than what is being awarded under the new statute. In addition, Section 96 of the 2013 Act exempts compensation from the levy of Income Tax. However, on that basis one cannot profitably contend that the land-losers under 2013 Act and those under other legislations constitute one homogenous class and therefore all the benefits including exemption from taxation availing under the former should normatively avail under the latter. Persons loosing property in the acquisition under 2013 Act constitute a class apart qua those who do it under other statutes, at least for the purpose of claiming exemption from taxation.

The Bench noted that ordinarily, in the absence of challenge to the vires of a legislative provision, Courts do not readily invoke the doctrine of reading down, subject to all just exceptions, more so when such a provision has essentially enacted a fiscal policy of great significance. It hardly needs to be reiterated that the provisions of fiscal legislations have to be construed strictly, unless an otherwise intent is discernable. The doctrine of reading down may be invoked and applied if the statute is silent, ambiguous or admits more than one interpretation. But where it is express, and clearly mandates to take certain action or to mean certain things, the function of the Court is to interpret it plainly. In the absence of challenge, ordinarily courts do not Permit the invocation of this doctrine to alter the policy Content of a statute.

As regards the  next contention advanced on behalf of land[1]losers that the State itself has specifically undertaken to look after the tax component of the compensation amount and therefore the Revenue is liable to refund TDS amount to them, the Bench ruled that it does not merit acceptance. The primary liability to pay the income tax is on the person who earns income. The entity who effects TDS is only an agency, who is enjoined with a statutory duty to do it vide Sec.194LA of 1961 Act. Compulsory acquisition of property under any law is included in the definition of “transfer” under section 2(47). Any profit or gain arising from such transfer attracts income tax under the head “Capital Gains” as provided under section 45(5). Same is the position even in the case of enhanced compensation, although year of assessment may differ. Exemption from levy of income tax cannot be claimed on the ground that State Government has agreed to reimburse the same.

On the arguments of the asssseseees that  the TDS component having already been refunded to all the land[1]losers including the respondents herein by the Department, these Appeals have become infructuous, the Bench held that they  not subscribe to that view. The Bench agreed with the  Revenue  that the payment to these respondents was done under the threat of contempt proceedings and that the benefit was extended to non[1]litiguous assesses on the principle of parity. Such a grace cannot tax the Revenue. Merely because refund was made to other land-losers who had not initiated any contempt proceedings, one cannot hastily jump to the conclusion that the right to prosecute these pending Appeals would whither away. If the Judgement Debtor complies with the Decree, his pending Appeal against the same thereby does not commit legal suicide. Such compliance is subject to outcome of the Appeals, which if succeed, restitution as a matter of course follows. An argument to the contrary, if accepted, would enormously prejudice the interest of Public Exchequer, as rightly contended on behalf of the Revenue. Thus the Division bench ruled in favour of the Revenue.

Interestingly the Division Bench made an appeal to the  Central Government. The Court observed that  one cannot turn a Nelson’s Eye to the apparent hostile discrimination of the persons losing land in acquisition process under the statutes other than 2013 Act, are put to:  Firstly, the benefit of package availing under the new Act 2013 Act are pretty attractive compared to those contemplated under State legislations such as Karnataka Industrial Areas Development Act 1966, inter alia providing for acquisition. In the new Act, the amount of compensation payable to the land-losers is much higher. Added to the above, under Section 96 of the 2013 Act, the compensation is exempted from the levy of income tax. There are other rehabilitatory facilities too. It is quite obvious that there is a lot of heart-burn in the class of persons who have lost lands in acquisitions accomplished under the statutes other than 2013 Act.  Ordinarily, land-losers in acquisition process, whichever be the statute, do constitute one homogenous class, at least viewed from the angle of recompense. It is high time that the Central Government addresses this aspect of the matter before long and thereby assuages the grievance of land losing farmers, consistent with the policy content & laudable intent enacted in Section 96 of the new Act. Much is not necessary to specify.

Thus the Appeals by the Revenue were  are allowed and the impugned orders of the learned Single Judge was  set at naught. Registry was asked to send a copy of the Judgement to The Ministry of Finance & to the  Law Commission of India

FULL TEXT OF THE ORDER OF HIGH COURT JUDGMENT

The Commissioner of Income Tax (TDS) has preferred these intra court appeals, for laying a challenge to a common judgment dated 12.04.2023 entered by a learned Single Judge of this Court whereby, land-losers’ W.P.No.103377/2017 c/w other identical cases, having been favoured, they have been relieved off from the levy of income tax on the compensation paid for the acquisition of their lands. This relief, he has granted principally in terms of section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

2. Learned Senior Panel Counsel appearing for the Revenue urged the following points for voiding the impugned judgment:

2.1. Section 96 of 2013 Act providing for exemption from income tax on the amount payable as compensation, is invocable only when acquisition of private lands for public purpose has been accomplished under the provisions of this very Act and not under any other statutes such as the Karnataka Highways Act, 1964, to be specific.

2.2. Section 96 of 2013 Act enacts a part of law relating to Income Tax; the Parliament in its wisdom has exempted from tax the compensation payable for the land acquisition done under the provisions of this Act only, as a matter of policy and that such a provision has to be construed literally, there being no room for its otherwise interpretation.

2.3. What income should be taxed and what should be exempted are a matter of legislative wisdom; by employing the said wisdom, Parliament has enacted Income Tax Act, 1961 providing for levy on the compensation payable for compulsory purchase of land, done under the provisions of 2013 Act alone and not any other statute. There being no challenge to section 96 of the new Act, court by interpretative process cannot restrict or widen its scope & application.

3. Learned Senior Advocate Mr.S.M.Chandrashekar appearing for the land-losers per contra made the following submission for resisting these appeals:

3.1. The provisions of all local statutes such as the Karnataka Highways Act, 1964, Karnataka Industrial Areas Development Act, 1966, Bangalore Development Authority Act, 1976, Karnataka Urban Development Authorities Act, 1987, etc, stand impliedly repealed by the enactment of 2013 Act and therefore, section 96 of this new Act exempting compensation from the income tax comes to the rescue of his clients, even when the acquisition of their lands was under the local laws.

3.2. Regardless of multiple statutes providing for acquisition of private land for public purpose, all land-losers constitute one homogenous class for bane or benefits and therefore, the exemption from income tax enacted u/s 96 of 2013 Act is available to all of them; if necessary, the provision should be read down to accord with rule of equality constitutionally enshrined in Article 14.

3.3. The Government Order dated 14.11.2014 makes 2013 Act applicable ‘to all cases of acquisition where compensation awards or agreements are not made by 31.12.2013’. This very G.O mandates ‘The land acquisition for the project will follow the process of Land Acquisition under the Karnataka State Highways Act, 1964 as to be amended to include the provisions and process of the RTFCTLARR Act, 2013…’

3.4. Article 265 of the Constitution of India empowers levy and collection of tax by authority of law and accordingly, the Finance Act (No.2) of 2004 provided for levy of tax to be deducted at source u/s 194LA of the 1961 Act on the compensation payable for compulsory acquisition of land ‘under any Enactment’. However, by virtue of enactment of section 96 of 2013 Act, ‘…Parliament in its wisdom disallowed the levy of tax on compulsory acquisition…’

3.5. The State Government itself has undertaken to reimburse the income tax component in respect of compensation payable to the land-losers and therefore, the Revenue is not entitled to levy & recover any amount by way of income tax from them.

3.6. These appeals have been rendered infructuous inasmuch as the Income Tax Department has refunded entire TDS amount not only to the private respondents herein but to all land-losers in the subject acquisition process, more particularly when such a refund is made without reserving right to prosecute the appeals.

4. We have heard learned counsel for the parties; we have perused the Appeal Papers and adverted to relevant of the Rulings cited at the Bar. Having done all that, we are inclined to grant indulgence in the matter as under and for the following reasons:

4.1. The first contention of land-losers that the 2013 Act has impliedly repealed the provisions of all statutes in general providing for acquisition of land and more particularly, section 15 of the 1964 Act and therefore, the acquisition done under the provincial statutes should be deemed to have been done under the 2013 Act, is difficult to countenance, and the reasons for this are not far to seek:

(a) Article 246(2) read with Entry 42 (Acquisition and requisitioning of property), List III, Schedule VII of the Constitution concurrently lays open a wide legislative field; the enactment of 2013 Act by the Parliament is broadly relatable to this Entry. The legislative entries are only the fields of legislation and not the centers of legislative power vide UJAGAR PRINTS vs. UNION OF INDIA¹. Section 96 of this Act which grants tax exemption to compensation payable for acquisition of lands is a piece of law pertaining to income tax, though it is not conventionally enacted in the 1961 Act; it is relatable to Entry 82 (Taxes on income other than agricultural income), List I. Thus, we may call 2013 Act as a ‘rag-bag legislation’ to borrow the words of Chief Justice M.N.Venkatachalaiah, since it is not confined to one single Entry. However, the Karnataka Highways Act, 1964 is relatable to Entry 13 (Communications that is to sayroads,…). It hardly needs to be stated that the fields of legislation should be construed with widest amplitude vide CALCUTTA GAS COMPANY (PROPRIETARY) LIMITED vs. STATE OF WEST BENGAL². Viewed from that angle, legislation relating to ‘roads’ can inter alia provide for acquisition of land for the purpose of laying roads in general and ‘State Highways’ in particular. Merely because, a State statute relating to a substantive field of legislation such as roads, incidentally provides for acquisition, one cannot hastily fit into the scope of Entry 42 of List III i.e., ‘Acquisition and requisitioning of property’. If two legislations deal with separate and distinct matters, though of cognate & allied character, it cannot be said that one has already occupied the field and therefore the other could not have been enacted. This view gains support from KARUNANIDHI vs. UOI. ³ In such a scenario there is no scope for invoking either the doctrine of ‘Occupied Field’ or the idea of ‘Repugnancy’ and therefore the contention as to Article 254(2) of the Constitution has to remain miles away. Even otherwise, when 2013 Act specifically intends to retain other legislations which inter alia provide for acquisition of property, such a contention would not arise. (This aspect of the matter is further discussed infra).

(b) Added to the above, it could not have been the intention of Makers of the Constitution that in a federal structure like ours (though Prof.K.C.Wheare called it ‘quasi-federal’), a conflict should arise in the matter of legislative process. To avoid possible conflict, civilized jurisdictions have adopted inter alia the rule of harmonious construction. This conventional rule enjoins the constitutional courts with a duty, (however onerous it may prove to be to discharge) to ascertain in what degree and to what extent, authority to deal with matters falling within the jurisdiction of each legislature exists and to define/delineate in the particular case at their hands, the limits of their respective powers. Some of the Entries in different Lists may overlap and at times may appear to be in direct conflict with each other. Therefore, as of necessity, courts have to reconcile the Entries by bringing them into a harmony; this they do by placing a reasonable and pragmatic construction on them. Keeping that in mind, the contention of land-losers that the 2013 Act has completely obliterated the provisions of all State legislations providing for acquisition of land, being too far fetched, cannot be countenanced. Arguably, such a contention could have been entertained had the subject matter of 2013 Act and that of 1964 Act, in pith and substance happened to be the same; however, that is not the case. The fact that the State Act has secured the Assent of the President way back in 05.11.1964 under the provisions of Article 254 of the Constitution does not make any difference to this legal position.

(c) Contention of the kind does not fit into the intent & policy content of 2013 Act. This new legislation is not in derogation of all the existing legislations pertaining to acquisition of property but is in addition to existing State legislations. This view is plainly enacted by the Parliament in section 103 of the Act which reads as under:

“Provisions to be in addition to existing laws.-

The provisions of this Act shall be in addition to and not in derogation of, any other law for the time being in force.”

Added, section 105 makes the new Act not applicable to certain Central enactments relating to land acquisition, that are enlisted in the Fourth Schedule. It seeks to modify their provisions in certain cases if the Central Government issues the Notification to that effect. Sub-section (3) of the said provision makes issuance of such a Notification mandatory. Section 107 clarifies that the new Act does not come in the way of any State inter alia enacting a law more beneficial. A conjoint reading of these provisions makes it abundantly clear that the 2013 Act far from intending repeal of the State legislations, saves them in so many words. This view gains support from a Coordinate Bench decision in ANIL AND OTHERS vs. STATE OF KARNATAKA.⁴

4.2. Admittedly, the subject acquisition was initiated vide Notification dated 10.09.2012 issued under the provisions of 1964 Act i.e., much before the 2013 Act came into force (w.e.f. 1.1.2014). There is a very strong presumption that substantive statutes are prospective in operation unless otherwise indicated by their Maker. Learned Sr. Panel Counsel appearing for the Revenue is right in telling us that it is the date of initial Notification for an acquisition like the one under Section 4 of the erstwhile 1894 Act or Section 15 of the 1964 Act, which is relevant to determine the applicability of law. Merely because the awards came to be passed after the 2013 Act came into force, its provisions ipse jure do not become applicable to the acquisition in question, subject to all just exceptions into which argued case of the land-losers does not fit. The reasoning of the learned Single Judge to the contra vide paragraphs 20 to 22 of the impugned judgment, therefore is flawsome. By virtue of Government Order dated 14^th November 2014 or the Addendum issued in November 2015, the provisions of section 96 of the 2013 Act do not become applicable to the subject land acquisition of 2012. Despite repeatedly asking, learned counsel appearing for the land-losers and the learned AAG appearing for the State were not in a position to relate the subject Government Order to any statutory provision. Further, what the State cannot do by enacting a law i.e., exempting the compensation from income tax, it cannot do in exercise of its Executive Power by issuing the Government Order of the kind. Plainly it is so because the legislative competence in this regard apparently lies with the Parliament. It has been firmly settled by half century jurisprudence vide RAI SAHIB RAM JAWAYA KAPUR vs. STATE OF PUNJAB⁵ that the Executive Power of the State is co-extensive with its legislative competence. If State has no legislative power, a Government of the State cannot arrogate to itself the corresponding Executive Power. Much is not necessary to discuss.

4.3. Section 96 of the 2013 Act which the land-losers heavily banked upon to escape from taxation, runs as under:

“Exemption from income-tax, stamp duty and fees.–

No income tax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.”

The text of this provision is as clear as Gangetic waters. It applies only to the awards or agreements made under the provisions of the said Act, which becomes apparent by the term ‘made under this Act’ consciously employed by the Parliament. To contend that even the awards passed under any other legislation would fit into the precincts of this provision is to render the said term otiose. It has been a canon of construction that courts should give effect, if possible, to every clause and word of a statute, avoiding, if it may be, any construction which implies that the legislature was ignorant of the meaning of the language it employed vide MONTCLAIR vs. RAMSDELL.⁶ The modern variant of this is: statutes should be construed “so as to avoid rendering superfluous” any statutory language. A statute should be construed to give effect to all its provisions, so that none of its part will be inoperative or superfluous, void or insignificant vide HINNDA vs. WINN.⁷ If the Parliament intended to exempt compensation from income tax, even when acquisition is made or awards are passed under “any law whichsoever”, it would have structured section 96 with a different text. After all, what income should be taxed and what should be exempted, is a policy matter of Parliamentary wisdom. Our Constitution in a sense, has enacted Fiscal Federalism vide MINERAL AREA DEVELOPMENT vs. M/s STEEL AUTHORITY OF INDIA, ⁸Courts in the interpretative process do not enlarge or constrict the scope of fiscal legislation.

4.4. The submission of learned counsel for the land-losers that all persons who give up their lands in the statutory acquisition process, whichever be the enactment would constitute one homogenous class vide NAGPUR IMPROVEMENT TRUST vs. VITTAL RAO⁹ and therefore Sec.96 of 2013 Act should be read down as to include the awards made under other statutes as well, is too farfetched an argument and therefore, cannot be acceded to. As already mentioned above, a plethora of legislations both Central & State, provide for acquisition of private property for the purpose of effectuating their principal objects, such as establishment of industrial areas, laying of roads, providing housing accommodation, granting house sites to the members of oppressed classes, etc. These statutes relate to several Entries in the Lists and incidentally they provide for such acquisition. Many of them invoke the procedure for acquisition of property as prescribed under the provisions of erstwhile 1894 Act. It is true that the compensation package availing to the land-losers under these Statutes arguably is not as attractive as the one intended under the 2013 Act. In other words, the amount of compensation payable for the acquisition of property inter alia under the State Legislations is comparatively less than what is being awarded under the new statute. In addition, Section 96 of the 2013 Act exempts compensation from the levy of Income Tax. However, on that basis one cannot profitably contend that the land-losers under 2013 Act and those under other legislations constitute one homogenous class and therefore all the benefits including exemption from taxation availing under the former should normatively avail under the latter. Persons loosing property in the acquisition under 2013 Act constitute a class apart qua those who do it under other statutes, at least for the purpose of claiming exemption from taxation.

4.5. The above apart, law relating to compensation is one thing and the law governing levy of tax on compensation payable for the land acquired, is another. Both can be enacted in one statute book inasmuch as our Constitution does not prohibit making of ‘rag-bag legislations’. It hardly needs to be stated that the grievance of land-losers in all the appeals at our hand is not as to payment of compensation but denial of exemption from income tax. It cannot be argued that regardless of the law under which acquisition of property happens, all owners of the property who have lost their lands in acquisition should be given exemption from income tax. Such a Parliamentary intent is not forthcoming from the new Act. Viewed from this angle, the decision of Apex Court in UNION OF INDIA vs. TARSEM SINGH.¹⁰ which shuns classification of land owners on the basis of the statute under which acquisition has happened, does not come to the rescue of respondents, the inner voice of the said decision being parity in the matter of compensation and not in the matter of its taxation. The decision does not whisper anything about taxability of compensation. It was Lord Halsbury in QUINN VS. LEATHEM ¹¹ who more than a century ago said that a case is an authority for the proposition that it lays down in its fact matrix and not for all that, that would logically follow from what has been so laid down.

4.6 Learned Sr. advocate appearing for the land-losers insisted for the reading down of section 96 of the 2013 Act so as to extend the benefit of exemption from income tax to the persons who have lost their land in the acquisition process under the provisions of all other statutes in general and 1964 Act in particular. We do not accede to the same for more than one reason: There is no challenge to the provisions of section 96 of the new Act on the ground that it is discriminatory and therefore is liable to be voided as being violative of Article 14 of the Constitution. All endeavors are confined to construing this provision, which does not admit any interpretation, regard being had to its textual clarity. Rowlatt, J in CAPE BRANDY SYNDICATE vs. IR¹² observed:

“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

Ordinarily, in the absence of challenge to the vires of a legislative provision, Courts do not readily invoke the doctrine of reading down, subject to all just exceptions, more so when such a provision has essentially enacted a fiscal policy of great significance. It hardly needs to be reiterated that the provisions of fiscal legislations have to be construed strictly, unless an otherwise intent is discernable. The doctrine of reading down may be invoked and applied if the statute is silent, ambiguous or admits more than one interpretation. But where it is express, and clearly mandates to take certain action or to mean certain things, the function of the Court is to interpret it plainly. In the absence of challenge, ordinarily courts do not Permit the invocation of this doctrine to alter the policy Content of a statute. It is relevant to see what the Apex Court observed in Minerva Mills vs. UOI¹³

“64. … The device of reading down is not to Be resorted to in order to save the susceptibilities Of the law makers, nor indeed to imagine a law of One’s liking to have been passed. One must at least Take the Parliament at its word …

65. … If the Parliament has manifested a Clear intention to exercise an unlimited power, it is Impermissible to read down the amplitude of that Power so as to make it limited. The principle of Reading down cannot be invoked or applied in Opposition to the clear intention of the legislature…”

The above observations broadly support our view what learned Sr.Advocate insisted upon is virtually “reading into” and not “reading down” of the subject provision.

4.7. The vehement submission of learned Sr. Advocate appearing for the land-losers that the subject Government Order of 2014 has adopted the provisions of 2013 Act for the purpose of granting benefits to the land-losers in the acquisition in question, is only a partial truth. A Coordinate Bench of this Court in ANIL supra has observed at para 11 as under:

“It is a misconception of the appellants-petitioners that merely because the State Government has adopted the yardsticks and criteria for determining the market value of compensation on the basis of principles enacted in the new Land Acquisition Act, 2013 in the Government Order dated 14^th November 2014 and even the Addendum-I issued by the respondent-HDBRTS Company Limited in November 2015, as envisaged and permitted under Sections 103 and 107 of the Central RTFCTLAR Act, 2013, the said RTFCTLARR Act of 2013 itself became applicable to the present acquisition. It is the date of initial Notification for an acquisition like under Section 4 of the old Central Land Acquisition Act of 1894 or Section 15 of the Karnataka Highways Act, 1964, which is relevant to determine the applicable law. By Government Order dated 14^th November 2014 or the Addendum issued by HDBRTS Company limited in November 201, neither the Central RTFCTLARR Act, 2013 could be made applicable to the present land acquisition of 2012 nor has it been so done by the respondent-State Government. Therefore, the claim of the appellants that the Act of 2013 applies to the present acquisition and all proceedings for determining the compensation have to be undertaken accordingly is a misconception and the same deserves to be rejected. We do not find any error in the findings of the learned Single Judge in this regard repelling this contention.”

4.8. The next contention advanced on behalf of land-losers that the State itself has specifically undertaken to look after the tax component of the compensation amount and therefore the Revenue is liable to refund TDS amount to them, does not merit acceptance. The primary liability to pay the income tax is on the person who earns income. The entity who effects TDS is only an agency, who is enjoined with a statutory duty to do it vide Sec.194LA of 1961 Act. Compulsory acquisition of property under any law is included in the definition of “transfer” under section 2(47). Any profit or gain arising from such transfer attracts income tax under the head “Capital Gains” as provided under section 45(5). Same is the position even in the case of enhanced compensation, although year of assessment may differ. This view gains support from COMMISSIONER OF INCOME TAX vs GHANSHAM (HUF)¹⁴. We are told at the Bar that the land-losers in their Income Tax Returns for the Assessment Year 2016-17 had offered the receipt of compensation awarded for the lands lost in the subject acquisition as Long Term Capital Gains and their claim for exemption u/s 54D of the Act came to be rejected by the Assessing Authority while completing the assessment u/s.143(3) by placing reliance on the Co-ordinate Bench decision of this court in ANIL supra. As per the 1961 Act, deductions and deposits to the credit of Central Government account and TDS Statements are to be filed voluntarily by the deducting agency. TDS authorities can only refund the TDS deducted if such agency files the request for refund in the prescribed Form 26B; the verification of such an application in format is undertaken as per the extant norms and manner. It is only the jurisdictional assessing authority who can make the refund of TDS to an assessee in accordance with the provisions of law. That being the position, exemption from levy of income tax cannot be claimed on the ground that State Government has agreed to reimburse the same. The pleaded assurance of reimbursement of tax component repels the very idea of exemption from tax.

4.9 Law relating to taxation of compensation received on account of acquisition needs to be examined at some depth in order to understand the scheme of income tax regime. Following is the summary:

4.9.1 “Compulsory acquisition” is included in the definition of “transfer” under Section 2(47) of the Income 1961 Act. Relevant portion of section 2(47) reads as follows:

“2(47) “transfer”, in relation to a capital asset, includes:

(i) xx

(ii) xx

(iii) the compulsory acquisition thereof under any law.

Any profit or gain arising from the “transfer” of capital asset is leviable to income tax under the head capital gains. Section 45(5) provides that where the capital gains arise from the transfer of capital asset, being a transfer of capital asset by way of compulsory acquisition under any law or transfer, the consideration for which is decided by the Central Government or RBI, and the compensation, if enhanced or further enhanced shall be dealt in the following manner:

(a) The capital gain in respect of compensation awarded or the consideration as determined by the Central Government or RBI shall be chargeable to tax as income from capital gain in the previous year in which the compensation or such consideration is received.

(b) If the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority, such enhanced amount shall be deemed to be income chargeable under the head ‘capital gain’ in the year in which final order of the Court/Tribunal/other authority is received.

(c) In case where the compensation referred to in clause (a) or enhanced compensation referred to in clause (b) is reduced by any court, Tribunal or other authority, the assessed capital gain shall be recomputed by taking the compensation or consideration as reduced by the order of the Court/Tribunal or other authority.

4.9.2 Section 45(5) was introduced vide Finance Act, 1987 w.e.f 01.04.1988. It enacts overriding provisions and takes care of the following situation :—

“Where the capital gains arise from the transfer of a capital asset, being—

(a) a transfer by way of compulsory acquisition under any law, or

(b) a transfer the consideration for which was determined or approved by the Central Government or RBI.

The compensation or consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority – the capital gain shall be computed in the manner specified in clause (b) of section 45(5) as under:

(a) the compensation awarded in the first instance or, as the case may be the consideration determined or approved by CG or RBI is chargeable to capital gains tax in the year in which compensation is first received;

(b) Where the compensation or consideration is enhanced by the Court/Tribunal/other authority, such enhanced amounts shall be chargeable to tax in the year in which such amounts are received.”

The object and rationale for the introduction of this provision was analyzed by the Apex Court inCOMMISSIONER OF INCOME-TAX vs. GHANSHYAM (HUF)¹⁵ Para 16 of the decision reads as under:

“…In cases where capital gains accrued or arose by way of compulsory acquisition, the additional compensation stood awarded in several stages by different appellate authorities which necessitated rectification of the original assessment at each stage. To provide for rectification of the assessment of the year in which capital gains was originally assessed, section 155(7A) was also introduced. However, as stated above, since additional compensation under the Land Acquisition Act, 1894 was awarded in several stages multiple rectifications had to be made to the original assessment which cause great difficulty in carrying out the required rectification and in effecting the recovery of additional demand. It was also noticed that repeated rectifications of assessment on account of enhancement of compensation by different courts often resulted in mistakes in computation of tax. Therefore, with a view to remove these difficulties, the Finance Act, 1987 inserted section 45(5) to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. Accordingly, additional compensation is treated as “deemed income” in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of the additional compensation is deemed to be nil. However, the compensation awarded in the first instance would continue to be chargeable as income under the head “Capital Gains”, in the previous year in which transfer took place”.

Further, the Court also discussed the taxability of additional compensation, solatium and interest paid in terms of 1894 Act under the provisions of section 45(5) of the 1961 Act. In Para 33 of the decision, it was held that additional amount under section 23(1A) and solatium under section 23(2) of the 1961 Act would form part of enhanced compensation under section 45(5)(b).

4.9.3 Section 145B provides that the interest received by an assessee on any compensation or on enhanced compensation shall be deemed to be the income of the previous year in which it is received. Section 56 is like a residuary heading. Incomes which are liable to income tax and income which is not chargeable to tax under any of the heads specified in section 14, items A to E is chargeable to tax as ‘income from other sources’. Section 56(2) lists out specifically certain incomes that are chargeable to tax as income from other sources and one such income is interest received on compensation or on enhanced compensation referred to in section 145B. The question whether interest received on amount of compensation under the 1894 Act for the delay in its payment was income or not, was addressed in BIKRAM SINGH vs. LAND ACQUISITION COLLECTOR¹⁶ wherein it is observed:

“… it is settled law that the interest received on delayed payment of the compensation is a revenue receipt exigible to income-tax …… It would mean that the interest received as income on the delayed payment of the compensation determined under section 28 or 31 of the Land Acquisition Act is a taxable event. Therefore, we hold that it is a revenue receipt exigible to tax under section 4 of the Act.”

Section 10(37) provides that an individual or HUF can claim exemption in respect of capital gain arising on transfer by way of compulsory acquisition of agricultural land situated in an urban area, provided compensation is received on or after April 1, 2004. This exemption is available if the land was used by the assessee (or by his parents in the case of an individual) for agricultural purpose for a period of 2 years immediately preceding the date of its transfer.

4.9.4 Section 194LA of 1961 Act prescribes the mechanism for deduction of tax at source on the compensation paid on account of compulsory acquisition. This section provides that any person responsible for paying a sum, a compensation or consideration or enhanced compensation or enhanced consideration, under any law, of any immovable property (other than agricultural land) shall at the time of payment or credit – whichever is earlier, deduct income tax at the rate of ten percent of the compensation. 1^st Proviso exempts from deduction where the aggregate amount of compensation payable does not exceed Rs. 2.5 Lakh. 2^nd Proviso is clarificatory in nature. In effect, it only reiterates the law enacted in Section 96 of 2013 Act. For easy implementation of the 2^nd proviso, CBDT Circular No. 36/2016, dated 25.10.2016 was issued and it reads as under:

1. “Under the existing provisions of the Income-tax Act, 1961 (‘the Act’), an agricultural land which is not situated in specified urban area, is not regarded as a capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. Finance (No. 2) Act, 2004 inserted section 10(37) in the Act from 01.04.2005 to provide specific exemption to the capital gains arising to an Individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limit, subject to fulfilment of certain conditions. Therefore, compensation received from compulsory acquisition of an agricultural land is not taxable under the Act (subject to fulfilment of certain conditions for specified urban land).

2. The RFCTLARR Act which came into effect from 1st January, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax.

3. As no distinction has been made between compensation received for compulsory acquisition of agricultural land and non­agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act,  1961.”

4.9.5. A THUMBNAIL DESCRIPTION OF CASE LAW RELATING TO RELEVANT ASPECTS OF INCOME TAX ON COMPENSATION FOR ACQUISITION:

(a) As to Scope of Section 45(5) of 1961 Act:

In K. MAHENDAR vs. CIT¹⁷ it was held that a perusal of section 45(5) shows that two conditions are to be satisfied for the application of the section, namely, the capital gains must arise from the transfer of a capital asset by way of compulsory acquisition under any law and the compensation for such transfer is enhanced or further enhanced by any court or tribunal or other authority.

(b) As to whether Section 45(5) is retrospective or prospective:

In CIT vs. IQBAL AHMAD¹⁸ it was held that even though sub-section (5) of section 45 was inserted by the Finance Act, 1987, with effect from April 1, 1988, this provision is only clarificatory in nature and has to be given retrospective effect for the reason in cases where capital asset is being compulsorily acquired under any law, till such time compensation is received, the amount would not be available to the recipient for being invested in the specified assets in order to claim exemption under section 54B of the Act.

(c) As to whether enhanced compensation would be liable to income tax:

In CIT vs. GOVINDBHAIMAMAIYA¹⁹ was held that where compensation given to the assessee i.e., owner of the land acquired would be ‘income’, then the compensation/consideration also becomes ‘income’ by virtue of section 45(5)(b). A Coordinate Bench of this Court in CHIEF CIT v. SMT. SHANTAWA²⁰ said that Section 45(5)(b) will be attracted only when the assessee receives the ‘enhanced compensation’, in pursuance of a final award/order of a court, tribunal or other authority increasing the compensation. If any amount is received after stay of the award, in pursuance of any interim order, as a payment subject to the final result, it will not be an amount received as ‘enhanced compensation’ contemplated under section 45(5)(b), but only an interim payment received subject to final decision. It will attract section 45(5)(b) only when the final decision is rendered. In TOPANDASKUNDANMAL vs. CIT²¹ it was held that the additional compensation which is inchoate or contingent, would not create a debt that only on a final determination of the amount of compensation that the right to such income in the nature of compensation would arise or accrue, and till then, there was no liability in praesenti in respect of the additional amount of compensation claimed by the land-loser in acquisition.

(d) As to whether solatium received forms part of consideration for compulsory acquisition:

In KARVALVES LTD. vs. CIT ²² the assessee, a public limited company was granted a licence by the erstwhile princely State of Cochin to distribute electricity in the Ernakulam area. The Kerala State Electricity Board issued a notice to the assessee to purchase the said electrical undertaking at Ernakulam. One of the questions that arose was: Whether solatium paid for the transfer of the undertaking forms part of the sale consideration and forms part of the capital asset. The Court having examined several decisions held that solatium is part of the sale consideration, the value of which should be taken into account, and that is a capital asset for the purpose of determining the capital gains and on transfer of the business of the Emakulam Electrical Undertaking, levy of capital gains tax was attracted.

(e) As to whether mere negotiation between the parties would alter the nature of acquisition from compulsory to voluntary acceptance:

In BALAKRISHNAN vs. UOI ²³, it is held that merely because the amount of compensation was negotiated resulting into an agreement, the statutory acquisition under the 1894 Act does not cease to be compulsive. Therefore for all practical purposes the award amount would be treated as compensation only and as a consequence exemption u/s.10(37) was available to the assessee. A learned Single Judge of this court in VELLARA FRANCIS THOMAS vs. UOI²⁴ held that the compensation for the land acquired under the 1966 Act is exempt from income tax. We do not subscribe to this broad proposition in view of a Co-ordinate Bench decision in ANIL supra. We need to refer to another Co-ordinate Bench decision in BMRCL vs. M/S.SRI BALAJI CORPORATE SERVICES,²⁵ which gives an impression that the compensation for the lands acquired is exempt from income tax in terms of Section 96 of 2013 Act, although acquisition was made under the provisions of 1966 Act. One important factor that weighed with the Bench was that the said acquisition was commenced post 2013 Act, unlike in the case at hand. The decision of a learned Single Judge in SHARANAPPA VS DEPUTY COMMISSIONER ²⁶ where the exemption from income tax was granted, was on the premise that the notifications although had been issued in 2011, the compensation was paid under the new legislation i.e., 2013 Act. Even otherwise, we do not subscribe to pleaded ratio of the said decision.

4.9.6. As to non-levy of income tax vis-a-vis its exemption:

The heading of section 96 of 2013 Act employs the expression ‘Exemption from income tax…’. However, the substantive provision employs the term ‘No income tax… shall be levied…’. Non-levy of income tax on the compensation awarded for acquisition of land is one thing and exemption from taxability is another. Former is a case of non-applicability of charging section enacted in the 1961 Act, whereas latter is a case of its applicability. A subtle difference lies between these two, and mistaking one for the other may have implications. To put it succinctly, the question of exemption from tax liability arises when the income is otherwise taxable. This logic accords with the opinion of the great jurist of yester decades Mr.Nani A. Palkhivala that Mother Teresa was not taxable because the Nobel Prize was not ‘income’ and therefore, the question of giving her any special exemption did not arise.²⁷ The relevant part of Palkhivala’s letter addressed to the Law Ministry reads as under:

“Some official of the Law Ministry is reported to have expressed the view that Mother Teresa may be held liable to Indian income tax in respect of the value of the Nobel Prize… The correct position in law is that Mother Teresa is not liable to Indian income tax in respect of the Nobel Prize, and therefore the question of giving her any special exemption does not arise… It is only when a certain amount is income in character that the question of seeking exemption for it under section 10 of the Income-tax Act would arise…”

After all, in a statute, a heading of a provision cannot control its text vide MAQBOOL vs STATE OF UP.²⁸ In saying this, we are mindful of the Indian legislative practice that even the headings are voted in the Legislature unlike in England. Therefore, whether it is construed as an exemption or a non-levy, it would still not benefit the land-losers in acquisition notified prior to 2013 Act coming into force and that too when it was done under a State Legislation, i.e., 1966 Act.

4.9.7 Despite vociferous submission, it has not been demonstrated on behalf of the land-losers that the State has given an undertaking to and the same has been accepted by the Revenue/Central Government so as to be bound by it, to reimburse Income Tax component. If such an undertaking was ever given, that does not exempt the recipients of compensation from paying the tax. In a sense, the pleaded stand of the land-losers presupposes taxability of compensation under the provisions of 1961 Act as discussed already above. However, it is open to the land-losers to take up appropriate proceedings against the State for getting reimbursement of tax paid, in accordance with law.

4.9.8 Lastly, it was submitted by the learned Sr. Counsel appearing for the land-losers that the TDS component having already been refunded to all the land-losers including the respondents herein by the Department, these Appeals have become infructuous. We do not subscribe to that view. Learned Panel Counsel appearing for the Revenue is right in telling us that the payment to these respondents was done under the threat of contempt proceedings and that the benefit was extended to non-litiguous assesses on the principle of parity. According to him, such a grace cannot tax the Revenue. Merely because refund was made to other land-losers who had not initiated any contempt proceedings, one cannot hastily jump to the conclusion that the right to prosecute these pending Appeals would whither away. If the Judgement Debtor complies with the Decree, his pending Appeal against the same thereby does not commit legal suicide. Such compliance is subject to outcome of the Appeals, which if succeed, restitution as a matter of course follows. An argument to the contrary, if accepted, would enormously prejudice the interest of Public Exchequer, as rightly contended on behalf of the Revenue.

4.9.9 AN APPEAL TO THE CENTRAL GOVERNMENT:

a) All the above being said, one cannot turn a Nelson’s Eye to the apparent hostile discrimination of the persons losing land in acquisition process under the statutes other than 2013 Act, are put to: Firstly, the benefit of package availing under the new Act 2013 Act are pretty attractive compared to those contemplated under State legislations such as Karnataka Industrial Areas Development Act 1966, inter alia providing for acquisition. In the new Act, the amount of compensation payable to the land-losers is much higher.

b) Added to the above, under Section 96 of the 2013 Act, the compensation is exempted from the levy of income tax. There are other rehabilitatory facilities too. It is quite obvious that there is a lot of heart-burn in the class of persons who have lost lands in acquisitions accomplished under the statutes other than 2013 Act. As already mentioned above, ordinarily, land-losers in acquisition process, whichever be the statute, do constitute one homogenous class, at least viewed from the angle of recompense. It is high time that the Central Government addresses this aspect of the matter before long and thereby assuages the grievance of land losing farmers, consistent with the policy content & laudable intent enacted in Section 96 of the new Act. Much is not necessary to specify.

In the above circumstances, these Appeals are allowed and the impugned orders of the learned Single Judge are set at naught; the subject Writ Petitions of land-losers are liable to be and accordingly dismissed. Costs made easy.

Registry to send a copy of this Judgement by Speed Post immediately to:

i) The Ministry of Finance, Government of India, New Delhi.

ii) The Chairman, Law Commission of India, New Delhi.

Notes:

¹ AIR 1989 SC 516

² AIR 1962 SC 1044

³ (1979) 3 SCC 431

⁴ (2017) 3 KLJ 573 DB

⁵ AIR 1955 SC 549

⁶ 107 U.S. 147, 152 (1883)

⁷ 542 U.S. 88, 101 (2004)

⁸ 2024 LiveLaw (SC) 512

⁹ (1973) 1 SCC 500

¹⁰ (2019) 9 SCC 304

¹¹ (1901) A.C. 495

¹² [1921] 1 KB 64

¹³ AIR 1980 SC 1789

¹⁴ 2009 315 ITR 1(SC)

¹⁵ (2009) 315 ITR 1 (SC).

¹⁶ (1997) 224 ITR 551 (SC)

¹⁷ [2008] 303 ITR 245 (Madras)

¹⁸ [2007] 295 ITR 444 (Allahabad)

¹⁹ (2014) 367 ITR 498 (SC)

²⁰ [2004] 267 ITR 67

²¹ [1978] 114 ITR 237 (Guj HC)

²² [1992] 60 Taxman 483 (Kerala)

²³ [2017] 80 taxmann.com 84 (SC)

²⁴ [2024] 162 taxmann.com 68 (Karnataka)

²⁵ [2023] 9 TMI 1443

²⁶ [2023] 153 taxmann.com 685 (Karnataka)

²⁷ ‘Nani A.Palkhivala – A Life’ by M.V.Kamath, Pages 74-75

²⁸ AIR 2011 SC 2542