IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 10316 of 2008(C)
1. INFOPARK KERALA, KAKKANAD
... Petitioner
Vs
1. ASISTANT COMMISSIONER OF INCOME TAX
... Respondent
2. COMMISSIONER OF INCOME TAX
3. UNION OF INDIA, MINISTRY OF FINANCE
For Petitioner :SRI.B.S.KRISHNAN (SR.)
For Respondent :SRI.ABRAHAM THOMAS, CGC
The Hon'ble MR. Justice K.M.JOSEPH
Dated :06/10/2008
O R D E R
K.M.JOSEPH, J.
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WP.(C) No. 10316 of 2008
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Dated this the 6th day of October, 2008
JUDGMENT
The question that falls for decision is the scope of Section
194LA of the Income Tax Act, 1961, which reads as follows:
“194LA. Payment of compensation on acquisition of
certain immovable property
Any person responsible for paying to a resident any sum,
being in the nature of compensation or the enhanced
compensation or the consideration or the enhanced
consideration on account of compulsory acquisition, under any
law for the time being in force, of any immovable property
(other than agricultural land), shall, 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, deduct an amount equal to ten
percent of such sum as income-tax thereon.”
Petitioner seeks to quash Ext.P4. Ext.P4 is issued to the CEO of the
petitioner advising the petitioner to take immediate steps to ensure
compliance with the statutory provisions for deduction of tax at source and
remittance of the same to the Government account.
2. Petitioner is a Society established under the Travancore
Cochin Societies Registration Act, 1955. It is managed by a Board
WPC.10316/2008. 2
nominated by the Government of Kerala and it is set up with the objective
of development of Information Technology Parks. Briefly put the case of
the petitioner is as follows:
As and when the land is identified, which is suitable for the
project, Government issues notification under Section 4 of the Land
Acquisition Act, 1894 notifying the lands. A notification is also issued
under Section 6(1) of the Survey and Boundaries Act, 1961. The price of
the land is determined by the District Level Purchase Committee, which
consists of District Collector as Chairman. There is an assessment of the
replacement value of the land and the recommendation of the District Level
Purchase Committee is forwarded to the Empowered Committee for
approval. The Empowered Committee consists of the Chief Secretary of
the State as the Chairman. The other members are the Principal Secretary,
Secretary (Finance), Secretary (PWD), Secretary (Law), Secretary (FTP)
and any other member nominated by the Chief Secretary. It considers the
proposal and would make necessary modifications. The title deeds are to be
verified by the Land Acquisition Officer and there is a scrutiny of the title
deeds by Advocates and on the basis of the opinion expressed by the
counsel and the Land Acquisition Officer, recommendations are issued. It
is the further case of the petitioner that the transaction entered into by the
WPC.10316/2008. 3
petitioner for acquisition of land falls into two categories. The first
category consists of those transactions where the land owners arrive at an
agreement and they execute the sale deed in favour of the petitioner. The
second category consists of cases where negotiated agreement is not arrived
at and acquisition is done under the Land Acquisition Act. According to the
petitioner, in the first category of transaction there is a sale of property,
which is covered by the provisions of Transfer of Property Act and it does
not consist of acquisition of property by the Government for the project. In
a case where there is acquisition of property by the Government, the
procedure involves issuance of a notification under Section 4, which
constitutes a preliminary notification, declaration under Section 6 and
direction under Section 7. Thereafter, the property has to be marked unless
it is marked under Section 4. Under Section 9, the Collector issues notice to
the parties to enable the making of claims, and inquiry has to be held and
finally an award is to be passed under Section 11 of the Act. Section 48 of
the Land Acquisition Act permits withdrawal of the Government from the
acquisition except in a case covered by Section 36 of the Act, that is where
possession has not been taken. Ext.P1 is produced as the guidelines issued
by the Government. Ext.P2 is produced as copy of the notification under
Section 4 of the Land Acquisition Act and Section 6 of the Survey and
WPC.10316/2008. 4
Boundaries Act. Ext.P3 is copy of the sale deed executed by the land
owner. It is while so Ext.P4 is issued. Therein, Section 194 LA of the
Income Tax Act is referred to and it is inter alia stated as follows:
“From the enquiries conducted by this office, I am given
to understand that acquisition of land for Infopark (Smart City
Project) is being done on the strength of the notification issued
by the Government.
The mode of execution may have been through sale deeds after
reaching a negotiated agreement on the amount to be paid as
compensation, but the proceedings are carried out as a
consequence of notification issued under the Land Acquisition
Act, 1894, to acquire the specified land area.
Once a particular area has been notified by Government for
acquisition for a specified purpose, there is no option for the
owners but to sell. The only difference in this case is that it has
been brought under Fast Track Procedure to expedite the
process of land acquisition, and consideration/compensation is
decided through the medium of District Level Purchase
Committee and Grievance Redressal Committees. This being
the case, even if sale deeds are executed, it is, in effect,
compulsory acquisition of land within the meaning of Section
194LA, and tax should therefore be deducted on all such
payments.
In respect of payments already made without deducting tax at
source, proceedings under Section 201(1)/201(1A) are
WPC.10316/2008. 5
separately being initiated.”
Consequently advice is given to act in accordance with the statutory
provisions.
3. A counter affidavit is filed by the first respondent inter alia
stating as follows:
The sale deed is being executed in pursuance of Government
notification for land acquisition and Kerala Gazette Notification dated
15.10.2004. It is not an ordinary sale deed as it is understood in normal
property transaction where land is sold by free will and agreed
consideration. Here, the land owner has no choice. Either he agrees to the
negotiated price, enters into a sale deed and hands over the land or urgency
clause as per Section 17 of the Land Acquisition Act is further invoked and
the land is taken possession of by the authorities concerned. In any case, it
is stated that the end result is that he has to hand over the land to the project.
The element of compulsion is always present. It is clear that this is nothing
but compulsory acquisition and upto the execution of the sale deed, there is
a factor of compulsion, because proceedings under the Land Acquisition
Act are on going. Upon the completion of acquisition of property no
proceedings are necessary under the Act and the proceedings are to be
withdrawn. Withdrawal under Section 48 is stated to be a formality as the
WPC.10316/2008. 6
land has already been acquired and passed into the hands of the project
implementing authority. It is stated that after conducting enquiries, issuing
notice under Section 201(1), hearing the petitioner and calling for details
and materials on record, a letter was sent directing the petitioner to prevent
future defaults in tax deduction at source on such payments yet to be made.
It is stated that the letter was rather a written direction to prevent future
default as already committed. Action under Section 201(1) has to be taken
on the assessee in default, that is the petitioner in this case and it is not to
be construed as a threat but as a statutory proceeding as provided in Section
201(1) and 201(1A) of the Income Tax Act. Had there been no notification
and invoking of land acquisition proceedings, the sale deed would not have
been executed. The execution of sale deed expedites the process of land
acquisition but since its very genesis is in the notification for acquisition, it
cannot be termed a completely voluntary act on the part of the seller. The
provisions of Section 194 LA apply to all cases of compulsory acquisition
of immovable property regardless of the instrument used to transfer the
property. There would be no hardship to the petitioner to deduct tax at
source. The fact that the project is of prime importance does not absolve the
concerned authorities from dispensing their duty to deduct tax at source
from payments covered by Section 194 LA. Respondents have also
WPC.10316/2008. 7
produced an annexure to the counter affidavit.
4. Reply affidavit is also filed, wherein it is inter alia stated as
follows:
Sale deeds satisfied the requirements of a contract distinct
from a compulsory acquisition. The price is agreed on the basis of
negotiation. There is negotiation and the price is finally arrived at and the
sale deed is executed on the basis of the agreed price. These situations are
completely lacking in a compulsory acquisition. Reference is placed on the
guidelines. The mere issuance of notification does not necessarily result in
the subsequent steps being taken particularly in so far as there are a number
of further steps to be taken to complete the process of compulsory
acquisition even after the issuance of the notification. The sale deed cannot
be equated to a compulsory acquisition. Even without a notification, there
could have been a negotiated agreement of price and an execution of a sale
deed.
5. A rejoinder affidavit is filed to the reply affidavit by the first
respondent essentially reiterating the stand in the counter affidavit.
6. I heard learned Senior Counsel Sri. V.Ramachandran,
appearing on behalf of the petitioner and Sri. P.K.Raveendranatha Menon,
learned Senior Counsel appearing for the Income Tax Department.
WPC.10316/2008. 8
7. Learned counsel for the petitioner reiterates the contentions
raised in the writ petition. He would submit that the land in question was
acquired under the fast track procedure, in respect of which guidelines have
been issued and which have been produced along with Ext.P1. He would
submit that it contemplates negotiation. In this case, it is pointed out that
there was negotiation. The matter was taken up before the Empowered
Committee and ultimately many of the land owners agreed for selling their
properties and accordingly they entered into sale deeds with the petitioner
and the petitioner became the owner of the said properties. On the strength
of the said title deeds it is submitted that it is inconceivable as to how the
petitioner can be saddled with the liability under Section 194LA of the Act
to deduct 10% of the sale consideration. He reiterated his contentions,
which I have already referred to. He also points out that there are practical
difficulties in calling upon the petitioner to comply with the provisions of
Section 194LA of the Act. It is stated that most of the land owners would
have no income as to render them liable to pay tax. He also relies on the
following decisions:
State of Madhya Pradesh v. Vishnu Prasad Sharma (AIR
1966 SC 1593), Sreenivasa Shenoy v. State of Kerala (AIR 1968 Kerala
WPC.10316/2008. 9
325), Jai Narain v. The Land Acquisition Collector, Delhi (AIR 1976
Delhi 166), Jasraj v. State of Rajasthan (AIR 1977 Rajasthan 150), The
Special Tahsildar v. Sri.Pethavanallur Mayuranathasami Temple (AIR
1978 Madras 406), Special Land Acquisition Officer v. M.s. Godrej and
Boyce (AIR 1987 SC 2421) and Abdul Majeed Sahib v. District
Collector, Kollam (AIR 1994 Kerala 171).
8. Per contra, learned counsel appearing on behalf of the
respondents 1 and 2 reiterated his contentions and pointed out that once a
notification is issued under the Land Acquisition Act, there is no choice for
the land owner, whose lands are covered by the notification. His lands are
frozen. If he does not negotiate and sell the land by way of transfer,
certainly his lands would come to be acquired under the Land Acquisition
Act. To call a transaction sale, there must be a real choice available to the
owner of the land in the first place as to whether he wishes to sell the land to
anyone. He submits that in a case as the present, where a notification is
issued under the Land Acquisition Act, the land owners may have entered
into sale deeds in the shadow and the threat of the land acquisition
proceedings being taken to their logical conclusion. Even if the land owner
may have had the freedom in the matter of the price of the land and may
have negotiated, he is unlike a land owner, who has the freedom either to
WPC.10316/2008. 10
sell the land or not to sell the land. This fundamental factor may not be lost
sight of , it is submitted. In this context, he relied on the decision of the
Calcutta High Court in the decision reported in Calcutta Electric Supply
Corporation Ltd. v. Commissioner of Income-Tax (Vol.XIX ITR 406).
He also submits that Section 194 LA is a provision geared to collection of
amounts towards tax payable and also he submits that the petitioner has only
to collect the tax and remit it to the Government.
9. In this case, I am concerned with those transactions where
the land owners have executed sale deeds on the basis of negotiations in
favour of the petitioner. In this case, it is an admitted fact that Government
have issued proceedings under Section 48 withdrawing from the acquisition
in respect of properties where the land owners have executed sale deeds in
favour of the petitioner. The effect of withdrawal of the Government from
the notification has been noticed in various decisions. The effect of
withdrawal under Section 48 is the effacement of the notification issued
under Section 4(1) of the land Acquisition Act. (See AIR 1977 Rajasthan
150).
10. As in every other case, the primary duty of the court is to
glean the intention of the law maker. In decoding any legislative device the
first duty cast on the court is to understand the intention of the legislature
WPC.10316/2008. 11
by looking at the plain meaning of the words used in the provision.
Departure from the plain meaning of the provision would be justified if
there is some ambiguity which arises in the interpretation of the provision.
No doubt, if the literal meaning produces a palpable absurdity or manifest
injustice, the court would strive to place an interpretation which has the
effect of avoiding of the said effect.
11. Section 194 LA falls in Chapter 17, which relates to
collection and recovery of tax. Section 190 reads as follows:
“190.Deduction at source and advance payment
(1) Notwithstanding that the regular assessment in
respect of any income is to be made in a later assessment year,
the tax on such income shall be payable by deduction (or
collection) at source or by advance payment (or by payment
under sub-section (1A) of section 192, as the case may be, in
accordance with the provisions of this Chapter.
(2) Nothing in this section shall prejudice the charge of
tax on such income under the provisions of sub-section (1) of
Coming to the terms of Section 194LA, the heading of the section itself
refers to payment of compensation on acquisition of certain immovable
property.
WPC.10316/2008. 12
12. The crucial words in Section 194LA are “any person
responsible”, “any sum being in the nature of compensation or the enhanced
compensation, or the consideration or the enhanced consideration on
account of compulsory acquisition, under any law for the time being in
force.” No doubt, the words ‘any person’ supports the case of the
Department that Section 194 LA would apply even to the petitioner at first
blush. But I find myself unable to accept the interpretation canvassed by the
department on considering the other parts of the section. The sum payable
must be in the nature of compensation or enhanced compensation or the
consideration or enhanced consideration on account of compulsory
acquisition. The words ‘compensation’ and ‘enhanced compensation’ are
concepts which are apparently taken from the provisions of the Land
Acquisition Act. Section 9 of the Land Acquisition Act provides that the
Collector shall give notice in regard to claims to compensation for all
interests in such land may be made to him. Sub section (2) also referred to
the word ‘compensation’. Section 11 also referred to the word
‘compensation’. Section 11 enjoins that the Collector must hold an inquiry
and pass an award. The award must provide for the compensation which, in
his opinion shall be allowed for the land. Sub-section (3) speaks about
determination of the compensation. Section 15 speaks about matters to be
WPC.10316/2008. 13
considered and neglected in determining the amount of compensation,
which is provided under Sections 23 and 24. Section 16 provides for the
power to take possession after the award is passed. Taking of possession
has the effect of vesting absolutely the title in the Government free from all
encumbrances. No doubt Section 17 speaks about the special powers in
cases of urgency. Possession can be taken in such cases on expiry of fifteen
days from the date of publication of the notice mentioned in Section 9 and it
is provided that the land will thereupon vests absolutely with the
Government free from all encumbrances. Sub-section (2) of Section 17 also
provides for taking of possession in certain contingencies contemplated
therein and it is declared that upon taking of possession of such land, it shall
thereupon vest absolutely with the Government free from all encumbrances.
The Collector has to offer in such cases compensation to persons interested
for the standing crops and trees, if any, on the land and for any other
damage. Also the Collector has to tender payment of 80% of the
compensation for such land as estimated by him. Section 18 of the Act
speaks about the right of a person interested, who has not accepted the
award, to file written application before the Collector requiring the matter
to be referred to court for its determination inter alia of the amount of
compensation. Section 19 speaks about duty of the Collector to state for the
WPC.10316/2008. 14
information of the court inter alia the ground on which the compensation
was determined if the objection was on the amount of compensation.
Section 25 provides that the amount of compensation awarded shall not be
less than the amount awarded by the Collector under Section 11. Section 28
provides that the Collector can be directed to pay interest on excess
compensation. Section 29 speaks about apportionment of compensation
when there are other persons interested. Section 30 refers to the dispute
relating to the apportionment of the compensation or any part thereof, or as
to the persons to whom the same or any part thereof is payable leading to
the reference of the same by the Collector to the court. Section 31 sub
sections (1) (3) and (4) reads as follows:
“31.Payment of compensation or deposit of same in Court.-
(1) On making an award under Section 11, the Collector shall
tender payment of the compensation awarded by him to the
persons interested entitled thereto according to the award, and
shall pay it to them unless prevented by some one or more of
the contingencies mentioned in the next sub-section.
xxxxx xxxxx
(3) Notwithstanding anything in this section, the Collector
may, with the sanction of the appropriate Government, instead
of awarding a money compensation in respect of any land,
make any arrangement with a person having a limited interest
in such land, either by the grant of other lands in exchange, the
WPC.10316/2008. 15
remission of land revenue on other lands held under the same
title, or in such other way as may be equitable having regard to
the interest of the parties concerned.
(4) Nothing in the last foregoing sub-section shall be
construed to interfere with or limit the power of the Collector
to enter into any arrangement with any person interested in the
land and competent to contract in respect thereof.”
Section 34 speaks about payment of interest on compensation which is not
paid or deposited on or before taking of possession. Section 54 provides
for appeals to the High Court from the award or from any part of the award
of the court. It is also important to refer Section 28A. Section 28A
provides for the right to claim excess compensation with persons who had
not sought for reference under Section 18. The word ‘compensation’ occurs
in Section 9. The notification under Section 4 of the Act must be followed
by the issuance of declaration under Section 6 of the Act. Thereafter, the
Collector is obliged to issue notice under Section 9, consider the claims and
pass an award fixing compensation. There can be no doubt that Section
194LA of the Income Tax Act will apply to the compensation awarded by
the Collector under the Land Acquisition Act by way of passing the award.
If the claimant is not satisfied with the award of the Collector and seeks a
valid reference and the Collector makes a reference to the court, it is open
WPC.10316/2008. 16
to the court to award higher compensation or enhanced compensation. If
the claimant is still dissatisfied, he may file an appeal to the High Court and
also take the matter still to the highest court and claim enhanced
compensation. Thus the concepts ‘compensation’ or ‘enhanced
compensation’ are concepts which are drawn by the legislature bearing in
mind the meaning it has come to acquire under the Land Acquisition Act.
In other words, the word ‘compensation’ must mean compensation which is
given under an award passed by the appropriate Collector and the words
‘enhanced compensation’ means the enhanced compensation becoming
payable under the award of the civil court or the High Court or of the Apex
Court or under Section 28(A).
13. A question may arise whether the petitioner is liable to
comply with Ext.P8 in view of the use of the words ‘consideration’ and
‘enhanced consideration’. In this context, learned counsel for the petitioner
would submit that the said words are used in view of the various statutes,
which provide for acquisition of assets, that is laws other than the Land
Acquisition Act. For instance he relied on the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980 and the Burmah Oil
Company (Acquisition of Shares of Oil India Limited and the Undertakings
in India of Assam Oil Company Limited and the Burmah Oil Company
WPC.10316/2008. 17
(India Trading) Limited Act, 1981. In the latter Act, Section 10 provides
for payment of a sum of more than Rs.21 Crores apparently in consideration
of the transfer to and vesting in the Central Government of the shares of the
Oil Company and also the right, title and interest of each specified
Company in terms of its undertaking in India. Likewise, Section 6 of the
Banking Companies Act also provide for payment of amount in respect of
the transfer as was specified in such schedule.
14. I notice that both these Acts are much prior to the insertion
of Section 194LA of the Income Tax Act. I notice that both the words
‘compensation’ and ‘consideration’ as also ‘enhanced compensation’ and
‘enhanced consideration must be payable on account of compulsory
acquisition under any law. The words ‘consideration’ and ‘enhanced
consideration’ are to be read along with the words compulsory acquisition
under a law. The examples of legislation canvassed by the petitioner
though anterior in time, in my view provide the answer to the question as to
the import of the words. In other words ‘consideration’ and ‘enhanced
consideration’ mean amounts payable under any law providing for
compulsory acquisition.
15. The contention of the Standing Counsel would appear to
be that there is no sale even though sale deeds may have been executed by
WPC.10316/2008. 18
certain land owners. It is his contention that there can be a sale only when
the seller decides to sell the property as a free agent and when he has a
choice either to sell or not to sell. Sri.P.K.Raveendranatha Menon would
submit that it may be true that there were negotiations. But those
negotiations, it is submitted, related only to the question of price. There
was an element of compulsion in regard to the question of sale and the
freedom at best which the land owners enjoyed was limited to the amount
and the mode of payment of the consideration. In such circumstances, he
points out that it amounts to compulsory acquisition under a law in force.
16. In Calcutta Electric Supply Corporation Ltd. v.
Commissioner of Income-Tax, West Bengal (19 ITR 406) relied on by
the respondents, the question which arose was whether the transaction by
which the Government had acquired the plant would be regarded as a sale
within the meaning of Section 10(2)(vii) of the Indian Income-Tax Act. In
that case during the war Government requisitioned an electricity generating
plant of the assessees under Rule 83(1) of the Defence of India Rules. The
assessees were not willing to sell the plant and they requested the
Government to review the matter. But the Government refused to rescind
the order. The amounts which the assessees eventually received as the
price or compensation exceeded the written down value of the plant by
WPC.10316/2008. 19
Rs.3,27,840/-. It is in this context that the Bench of the Calcutta High
Court took the view that there was no sale. It is important to notice Section
10(2)(vii)of the Indian Income Tax Act. Section 10(2)(vii) reads as
follows:
“(2) Such profits or gains shall be computed after
making the following allowances, namely:-
(vii)in respect of any ……… machinery or plant which has
been sold or discarded ………. the amount by which the written
down value of machinery or plant exceeds the amount for
which the ………… machinery or plant ………. is actually sold or
its scrap value:”
It was in the context of the said statutory provision the court proceeded to
hold as follows:
“The word “sale” is not defined in the Indian
Income-tax Act and, therefore, it must be given its ordinary
grammatical meaning. According to the Oxford Dictionary
“sale” means “an act of selling or making over to another for a
price.” It has also been defined as an exchange of a thing for a
price. Making over anything for a price or exchanging it for a
price suggests that the act is voluntary. The ordinary
conception of “sale” is that something is handed over for a
price as the result of negotiation and agreement. There is an
agreement between the parties whereby one person known as
the seller hands over a thing or property to the other person
WPC.10316/2008. 20
known as the buyer for a consideration usually in terms of
money which has been agreed between the parties. That is the
ordinary English conception of a “sale”.
xxxxx xxxxx
It seems to me quite clear that the acquisition of this
plant by the Government could never be said to be a “sale” as
that word is ordinarily used in the English language. There was
nothing voluntary about the transaction. Against the wishes of
the assessees Government requisitioned this property. The
assessees asked Government to stay their hand and cancel the
order depriving them of their property. But Government
refused to do so and stated that they would determine the
amount payable and they were paying Rs.5,00,000/- on
account. In short, the order of requisition deprived the
assessees of property which they had no desire whatsoever to
lose. Inf act, it deprived them of property which quite clearly
they wanted to retain.”
In this context it is apposite to remember that the issuance of a notification
under Section 4(1) of the Land Acquisition Act does not divest a land owner
of his title in his land unless progress is made under the Act to the stage
where under the award passed possession is taken under Section 16
whereupon the land will vest upon the Government free from
encumbrances. No doubt if possession is taken earlier under Section 17 of
the Land Acquisition Act, 1894 also there is vesting of title. It could not be
WPC.10316/2008. 21
said that there is an actual acquisition till then under the law relating to
compulsory acquisition. In this context it is apposite to refer to the
following observations of the Apex Court in the decision reported in
Special Land Acquisition Officer, Bombay v. M/s. Godrej and Boyce
( AIR 1987 SC 2421):
“Under the scheme of the Act, neither the notification
under S.4 nor the declaration under S.6nor the notice under S.9
is sufficient to divest the original owner of, or other person
interested in, the land of his rights therein. Section 16 makes it
clear beyond doubt that the title to the land vests in the
Government only when possession is taken by the Government.
Till that point of time, the land continues to be with the original
owner and he is also free (except where there is specific
legislation to the contrary) to deal with the land just as he likes,
although it may be that on account of the pendency of
proceedings for acquisition intending purchasers may be chary
of coming near the land. So long as possession is not taken
over, the mere fact of a notification under S.4 or declaration
under S.6 having been made does not divest the owner of his
rights in respect of the land or relieve him of the duty to take
care of the land and protect it against encroachment.”
In the case before me, where, the land owners, may be in the context of the
notification under Section 4(1) have executed sale deeds in favour of the
petitioner, it cannot be held that it is still not a sale of property, the
WPC.10316/2008. 22
incidents which would be governed by the provisions of the Transfer of
Property Act and title passed upon the registration of the sale deeds. The
decision reported in Fazilka Electric Supply Co. Ltd. v. Commissioner of
Income-Tax, Delhi ((1959) 36 ITR 411) is also relied on by the counsel for
the respondents. The question which arose was whether there was a sale
within the meaning of Section 10(2) (vii) of the Income Tax Act, 1922. The
assessee in the said case carried on business of generation and supply of
electricity. Under the terms of its licence, a clause empowered the
Government to exercise its option to purchase the undertaking. The
price paid by the Government was in excess of the written down value of
the assets. Therein the court proceeded to hold that a transaction which
amounts to compulsory acquisition does not come within the purview of
Section 10(2)(vii) of the Income Tax Act. I have already extracted Section
10(2)(vii) of the Income Tax Act. The court proceeded to hold that if a
transaction amounts to compulsory acquisition, then the transaction does
not come under Section 10(2)(vii) of the Income Tax Act. They proceeded
to hold as follows:
“The question arises whether the present transaction does
or does not amount to compulsory acquisition. The contention
raised on behalf of the assessee company is that it is acquisition
because section 7 itself describes the transaction as compulsory
WPC.10316/2008. 23
purchase. The learned counsel argued that “compulsory
purchase’ is only another and equivalent expression for
“compulsory acquisition”. This is not correct. The term
“compulsory purchase” is not defined in the Electricity Act.
We must therefore consider its meaning as commonly
understood in this country. Lord Morton of Henryton in
Hudson’s case gave his dissenting judgment and based it on the
argument that compulsory acquisition of property had been
described in the legislative practice of Great Britain as
compulsory sale. The Supreme Court in Dunkerley’s case
noticed this argument and held that this ratio does not apply to
our country (vide paragraph 32 of the judgment) and approved
of the majority view in Hudson’s case to the effect that bargain
is an essential element in a transaction of sale. Even in England
Lord Simonds in Hundson’s case when considering the
expression “compulsory sale’ observed as follows:
“There are aspects of a so-called compulsory sale which
clearly distinguish it from a sale stricto sensu and I am not
satisfied that without some context to aid it the word ‘sale’ in an
Act of Parliament should be held to include a transaction which
is more accurately, and, I think, now more commonly,
described as a compulsory acquisition ………………….. It has not
those elections which in some degree assimilate a compulsory
sale to a sale simpliciter and make the name, if a misnomer, at
least a convenient misnomer. It was easy to describe as a
purchase or sale with the qualifying adjective ‘compulsory’, a
WPC.10316/2008. 24
transaction in which the parties were placed in a position to
negotiate and, apart from the power of compulsion in the
background, were not unlike an ordinary vendor and purchaser’.
It is clear from these observations that a compulsory sale
is brought about by negotiations. I am, therefore, of the
opinion that neither ‘compulsory sale’ nor ‘compulsory
purchase’ equates with ‘compulsory acquisition’. That being so
there was no compulsory acquisition in the present case.
xxxxx xxxxx
Both in England and in India one of the essential factors of a
transaction of sale is that there must be an agreement express or
implied to sell, i.e., there must be a mutual assent between the
parties.”
The court proceeded to ultimately hold that the transaction amounted to sale
under Section 10(2)(vii) of the Income Tax Act. In the course of the
judgment, the court proceeded to repel the stand of the Company that the
element of mutuality is lacking in the case holding that the rules show that a
draft licence has to be sent by an applicant for licence containing definite
and specific terms on which the licence is sought, which amounts to an
offer, which the Government accepts or rejects and the licence itself amount
to a contract between the parties.
17. In Matajog v. H.C. Bhari (AIR 1956 Sc 44) one of the
questions which arose was whether there was implied power to remove the
WPC.10316/2008. 25
obstruction caused to the discharge of his duties by the officer under the
Taxation on Income (Investigation Commission) Act. The court proceeded
to hold as follows:
“Where power is conferred or a duty imposed by
statute or otherwise, and there is nothing said expressly
inhibiting the exercise of the power or the performance of the
duty by any limitations or restrictions, it is reasonable to hold
that it carries with it the power of doing all such acts or
employing such means as are reasonably necessary for such
execution.”
Learned counsel for the respondents 1 and 2 apparently seeks to invoke the
principle laid down in the said decision to contend that when the
notification under Section 4 is issued so that the land may be acquired, it
should be understood as also containing the implicit power to acquire the
property by way of purchase of the property by way of execution of sale
deeds and therefore the sale deeds executed in this case by the land owners
must be treated as fulfilling the statutory manthra of they being compulsory
acquisition under the law relating to acquisition. Learned counsel also took
me through the terms of the sale deed. It is pointed out that the sale deed
executed has the following statements:
“(1) AND WHEREAS the aforesaid properties were
ordered to be acquired for the development of Info Park Kerala
WPC.10316/2008. 26
as per Govt. Order (MS) No.46/2005 dated 10.5.2005 ITD and
as per Govt. Order No.24/2005 dated 6.10.2005 the said
acquisition was included by the Govt. under Fast Track
Proceedings.
(2) On the basis of my agreeing to the above order fully,
subject to orders, the Land Acquisition Special Tahsildar,
Kochi Refineries, Vyttila, Tripunithura has taken possession of
the said properties including the Schedule property, as per
above order, on 13.9.2007 and made over to Info park, Kerala
for the development of Info Park, Kerala.”
Thus it is contended that reference is made to the sale being in consequence
of the acquisition proceedings under the Land Acquisition Act and the
possession being handed over to the Tahsildar. However, it is also apposite
to refer to the other portions of the sale deed, the free translation of which is
produced as Ext.R1(b). After referring to the Government Order, which I
have already extracted, it is stated as follows:
“In pursuance of this, due to the disputes raised by
the owners of the properties including the scheduled
properties, a District Level Purchase Committee headed
by the District Collector was formed and the said
committee after holding discussions with the land owners
about the value of land, submitted its recommendations
to the Government. However, since the land owners did
not agree to the land value so approved by the
WPC.10316/2008. 27
Government and thereupon a Grievance Redressal Cell
headed by the District Collector met on 19.9.2006 and
submitted revised recommendations to the Government.
Accordingly, the Grievance Redressal Cell headed by the
District Collector fixed a value of Rs.84,268/- ( Eighty
four thousand two hundred sixty eight) in respect of 2.40
ares of land described in the schedule which has got
tarred road access, which was approved by the
Government by G.O.(MS) 26/06 vi.sa.va dated
22.12.2006 and this was fully agreed to by us. In order to
rehabilitate the 42 residents from the acquired land the
Government issued orders on 20.4.2007 to assign 5 cents
each free of cost. But not being satisfied with this, when
the evacuees including us resorted to agitational methods
and legal action, the District Collector submitted a new
rehabilitation package to the State Level Empowered
Committee (SLEC) to acquire land under Fast Track
Scheme and the SLEC after discussions, submitted the
same for the consideration of the Cabinet and the
Government after examining the Scheme, canceling the
earlier order to assign 5 cents to the 42 residents, issued
order as per M.S. 12/07 vis.a.va dated 29.6.2007 wherein
it was ordered to assign 6 cents of land each free of cost
to 59 residents including the 41 residents including us
and the 18 nuclear families residing with them and to
allow grant of Rs.1 Lakh each to such extra families
WPC.10316/2008. 28
residing with 41 residents for construction of house and
to those 31 families who surrender more than 15 cents to
give 5 cents of lands extra at Government rates and to
allow 50% more than the value fixed for the buildings in
2005 to the building owners towards the value of the
building and to allow to dismantle the building and to
take the usable things therefrom without any cost and to
allow a lumpsum for dismantling the building and
promised that the basis amenities for rehabilitation like
road, electricity, water will be arranged.
Though the amount fixed as aforesaid was more
than the market value of the properties including the
schedule properties that was prevailing at the time of
issue of notification u/s 4(1) of the Land Acquisition Act,
it was in view of the peculiar circumstances of Info Park,
Kerala that an amount which was more than a sum
consisting of the market value, its solatium and other
compensation amounts that are payable when properties
are acquired under the Land Acquisition Act and other
better benefits demanded by us became liable to be paid
to us who are the land owners, in the circumstances
aforesaid, by the Govt. and Info Park, Kerala.”
The recitals in Ext.R1(b) would trace the title of the vendor and it further
goes on to show that the vendor has given consent letter willingly as per
mutual agreement in consideration of total amount consisting of the cost
WPC.10316/2008. 29
towards the price of the land and also in terms of the package which formed
the total consideration, which included the value of the trees and
improvements and also six cents of land separately allowed to the vendor
free of cost as per G.O.(MS) 12/07 besides the enhanced value of the
building, demolition charges and further amounts being paid to the land
owner. It is further stated that the vendor absolutely agree to transfer the
property by way of sale and they agreed that the petitioner may possess the
properties, pay tax in their name and apply for mutation. The usual
covenants found in a sale are also to be found in the document.
18. After having considered the terms of the sale as also the
attendant circumstances, and the circumstances which began with the
issuance of notification under Section 4(1), I am of the firm view that the
sale deeds would constitute sale under the Transfer of Property Act and
cannot be treated as a compulsory acquisition under the law for acquisition
of immovable property. As already noticed, there was no divesting of the
title of the land owners under Section 16 of the Land Acquisition Act,
namely, passing of an award, and possession being taken thereunder or by
possession being taken earlier under the urgency clause, namely Section 17.
The mere issuance of notification under Section 4(1) does not have the
effect of divesting of title of the land owner. Only if there were such
WPC.10316/2008. 30
divesting of the title of the land owner, and amounts were paid either as
compensation or as enhanced compensation, could it be said that there is
compulsory acquisition under the law for the time being in force. It may be
true that when the notification under Section 4 was issued, the choice of
action of the land owners became limited. Faced with the notification under
Section 4 of the Land Acquisition Act, there are three courses of action,
which can be contemplated. Land owner may prefer writ petition
challenging the notification itself. Instead if he is so advised, he may decide
to transfer his right to the Government. If neither of the two happens and
the Government does not decide to withdraw from the notification, the
proceedings may be continued under the Land Acquisition Act where it
reaches the stage where an award is passed determining the compensation
and unless possession is taken under the urgency clause earlier possession is
taken and Government becomes the owner of the property. I would think
that unlike the facts in the case law cited by the learned counsel for the
respondents, this is not a case where the property was requisitioned or
otherwise acquired. The title passed to the petitioner only on the strength of
the sale deeds executed by the land owners concerned. A perusal of the sale
deeds also would appear to clearly support the contention of the petitioner
that there was a voluntary transaction entered into by a willing owner to
WPC.10316/2008. 31
transfer after a number of negotiations, which consumed considerable time.
Even if the choice were limited, the question posed before me being
whether there was a compulsory acquisition under the law in force, the
answer can only be that there was no compulsory acquisition even though it
may be true that, but, for the execution of the sale deeds, it may have led to
compulsory acquisition under the Land Acquisition Act. But short of that
stage being reached, it is not open to the respondent department to contend
merely because the notification is issued under the Land Acquisition Act
and even assuming that a declaration is also issued, which according to the
petitioner, was not issued, Section 194LA is attracted. The fact that
Government itself invoked Section 48 withdrawing from the acquisition is
another circumstance which I feel should weigh the matter in favour of the
petitioner. It is clear therefrom that possession was not taken under the Act,
that is either under Section 17or Section 16. In the decision reported in
Jasraj v. State (AIR 1977 Rajasthan 150) the court held as follows:
“The effect of an order under S.48 of the Act is to
completely take away S.4 notification. Once that order i.e.
Under S.48 of the Act has been passed, result is that the
Government has withdrawn from the acquisition land which
formed the subject matter of S.4 notification. Thereafter, if it
wants for any reason to start acquisition proceedings, the only
WPC.10316/2008. 32
manner permissible in law is by issuing a fresh notification
under S.4 of the Act. It cannot by resort to the power under
S.23 of the General Clauses Act revive and bring back S.4
notification which was wiped away and ceased to exist when
order under S.48(1) of the Act was passed. The position under
the law is that an order under S.48 of the Act has the result of
withdrawing the notification issued under Section 4. This
means that there is a clear slate and if subsequently the
Government wants to acquire the land it must start from the
stage of issuing a fresh notification under Section 4 of the Act.”
Once a notification under Section 4 is effaced by way of withdrawal, the
only way it can restart the acquisition proceedings, if so advised, is to issue
a fresh notification. This means, in the facts of this case, that even though
Government started out by issuing a notification under Section 4 of the
Land Acquisition Act, it became unnecessary to proceed with the
acquisition as the land owners had executed sale deeds in favour of the
petitioner. It is not in dispute that the Government adopted Ext.P1
guidelines relating to the fast track procedure and in keeping with the fast
track procedure in one stream of cases, where land owners were agreeable
with the negotiations, the sale deeds were executed. The other stream
where negotiations did not yield the desired result, left the Government with
no choice but to proceed under the law relating to acquisition. Regarding
WPC.10316/2008. 33
the first stream of cases, it is clear that though there was a shadow of
acquisition under the Land Acquisition Act, the parties felt it advisable to
ward off the actual acquisition under the Act and instead proceeded to
execute sale deeds. There is no case of any fraud, misrepresentation or
other vitiating elements afflicting the sale deeds. It cannot be said that the
sale deeds have been executed under the Land Acquisition Act. There is no
provision in the Land Acquisition Act which empowers or enables the
execution of the sale deed as done in this case. There is no merit in the
contention of the respondents that the sale deeds were executed in exercise
of the incidental power. It may be true that the Land Acquisition Act does
not prohibit a sale in favour of the Government or authority. In fact even
after the notification is issued and till there is vesting of the title with the
Government under Section 16 or under Section 17, there is no prohibition
against a sale by a land owner. But the absence of a prohibition does not
mean that the sale deed is executed in the exercise of incidental powers.
There is no warrant or need to trace the right of the landowner to any such
incidental power in the matter of an inter vivos transaction as a sale even
after a notification under the Act or a declaration is not prohibited.
In such circumstances, I am of the view that invoking
Section 194LA of the Income Tax Act in respect of cases where sale deeds
WPC.10316/2008. 34
were executed in favour of the petitioner was totally without jurisdiction.
Ext.P4 palpably has no legs to stand on. Accordingly, the writ petition is
only to be allowed and I do so. I quash Ext.P4.
(K.M. JOSEPH, JUDGE)
sb
