The High Court of Andhra Pradesh at Amaravati Bench has held that Section 96 of the RFCTLARR Act, 2013, read with the second proviso to Section 194LA of the Income Tax Act, 1961, operates as a complete statutory bar on the levy and deduction of income tax on any award or agreement for compensation made under the RFCTLARR Act, except in cases falling under Section 46 of the RFCTLARR Act.
The Court clarified that the statutory exemption is reinforced by CBDT Circular No. 36 of 2016 dated Oct 25, 2016, which clarifies that no tax can be levied on land acquired under Section 96 of the RFCTLARR Act. Consequently, the Executing Court fell into error in relegating the petitioners to the Income Tax authority under Section 197 of the Income Tax Act, since the exemption under Section 96 of the RFCTLARR Act is self-executing and does not require any separate claim or adjudication before the Income Tax authorities.
A Single Judge Bench of Justice Tarlada Rajasekhar Rao observed that extracted Section 96 of the RFCTLARR Act, which unambiguously states that no income tax or stamp duty shall be levied on any award or agreement made under the Act, except under Section 46 thereof, and that no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.
The Court also extracted Section 194LA of the Income Tax Act, including the second proviso thereto, which expressly provides that no deduction shall be made under that section where the payment is made in respect of any award or agreement which has been exempted from levy of income-tax under Section 96 of the RFCTLARR Act, 2013.
The Court noted that the RFCTLARR Act came into effect from 1st January, 2014, and that Section 96 read with the second proviso to Section 194LA creates a clear statutory exemption from income tax on compensation received for compulsory acquisition of land under the RFCTLARR Act, save and except awards or agreements falling under Section 46 of the RFCTLARR Act.
Briefly, the petition has been filed by decree holders in Land Acquisition Original Petitions arising out of the Somasila Project in YSR Kadapa District. The petitioners had moved Execution Applications under Rules 231 to 235 of the Civil Rules of Practice, seeking transfer of the compensation amount through the CFMS online system directly into their bank accounts. The Special Deputy Collector-cum-Land Acquisition Officer, Somasila Project, Unit-IV, Rajampet, opposed these applications on the ground that the cheques were being issued towards compensation awarded for structures standing on the acquired lands, and therefore income tax was required to be deducted at source in terms of Section 194LA of the Income Tax Act.
The officer relied on the position that while compensation for agricultural land is exempt from TDS under Section 194LA, the compensation attributable to structures standing on such agricultural land remains taxable. The Executing Court allowed the applications only partly and granted liberty to the petitioners to claim exemption before the competent Income Tax authority under Section 197 of the Income Tax Act.
