The Bombay High Court has held the over Rs9.91 crore deducted towards TDS by the Brihanmumbai Municipal Corporation (BMC) for acquisition of 9302.7 sq mtrs of land from Bombay Real Estate Development Company Private Limited for cemetery in suburban Kandivali was illegal.
The court has observed that even though the amount was reached after negotiation and was not an award, the character of the acquisition under the Land Acquisition Act of 2013 does not change, and hence the same is not liable for taxation.
The HC was hearing a petition filed by the company and its Managing Director Kaikhushru Dinshaw challenging the BMC’s decision to deduct Rss.9,91,95,076 as TDS and sought the refund of the same.
The BMC acquired the land in Kandivali Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Under the Development Control and Promotion Regulations, 2034, the land was reserved for the public purpose of setting up a Cemetery.
The BMC negotiated with the company and agreed to pay compensation of Rs99,19,50,752. It took possession of the land on November 4, 2022 and the transfer deed was signed on January 12, 2023, which recorded that the civic body would pay compensation of over Rs99.19 crore.
However, on February 15, 2023, the company received only Rs89,27,55,676 towards the land acquisition. The BMC informed that the remaining amount was deducted as TDS and the same was deposited with the Income Tax department.
Company’s advocate Farhan Dubhash the Acquisition Act of 2013 specifically recognises acquisition through negotiation followed by an agreement. Merely because the compensation amount was agreed upon does not change the character of acquisition from that of compulsory acquisition to a voluntary sale.
Dubhash submitted that a circular issued by the Central Board of Direct Taxes (CBDT) on October 25, 2016 has clarified that the compensation received in respect of an award or agreement has been exempted from Income Tax levy and hence the same not be taxable.
BMC advocate Meena Dhuri submitted that the deduction was bona fide and the amount was remitted to the IT department. In case, the company has any issue with the same, it can raise the dispute with the tax department directly. She justified that the 10% TDS was deducted as the acquisition was not compulsory but a voluntary sale.
The high court, however, said that as per section 96 of the Acquisition Act, land acquired either through the process of an Award or as a result of negotiation and agreement, would still retain its character of “compulsory acquisition".
“Accordingly, no tax could be levied on the compensation for such acquisition,” a bench of Justices MS Sonak and Kamal Khata said on July 25. Further, the CBDT has also clarified that such a compensation would not be taxable. The bench noted that the “deduction of an amount of Rs.9,91,95,076 towards TDS by the BMC was not legal or proper”.
The HC has asked the BMC to file a correction statement with the I-T Department regarding the remission of the amount of Rs9.91 crore within thirty days, stating that this amount deducted by the BMC was not liable to be deducted. The I-T department has then been directed to process this in accordance with the law.
