Recently, in Balakrishnan v. Union of India, the two-judge bench of the Supreme Court categorically held that negotiation on amount compensation between the parties for compulsory land acquisition do not make a sale ‘voluntary’, and therefore, the same cannot be made chargeable to tax under the head ‘Capital gain’. The bench comprising of Justice A.K. Sikri and Justice R.K Agarwal, overruled the decision in Info Park Kerala vs. Assistant Commissioner of Income Tax, and clarified that merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale.
The Government of Kerala sought to acquire the aforesaid property of the appellant for the public purpose namely, ‘3rd phase of development of Techno Park’ as per the provisions of Land Acquisition Act, 1894. Subsequently, the declaration under Section 6 of the LA Act was issued on 02.09.2006 wherein the Government had declared that it was decided to acquire the land for the aforesaid purpose.After the acquisition, the Land Acquisition Collector (Special Tahsildar) passed an award of Rs. 14,36,616/- to the appellant which was not acceptable to him. after negotiation, the Techno park agreed to pay a sum of Rs. 38,42,489/-.Accepting the same, the appellant agreed to execute a sale deed of the property in question in favour of Techno Park.While disbursing the aforesaid amount of sale, consideration, the Techno Park deducted 10% of the amount of TDS and it was later refunded to the appellant by the Income Tax Department finding that no capital gain was payable on the said amount since the same was exempted under Section 10(37) of the Income Tax Act, 1961.
The grievance of the appellant-assessee was that re-assessment proceedings has been initiated against him by the IT Department on ground that capital gain is chargeable to the above transaction since the amount of compensation/consideration received by the appellant-assessee against the aforesaid land was not the result of compulsory acquisition and on the contrary it was the voluntary sale made to the Techno Park. Appellate authorities, including the high court affirmed the order.
Analyzing the provisions of s. 10(37), the Court observed that capital gain tax is not applicable on the transfer of agricultural land by way of compulsory acquisition under any law. The bench noted that the while refunding the TDS amount, the IT Department were of the view that capital gain is chargeable on the same.
The bench noted that, in the present case,the compensation as fixed by the Land Acquisition Collector was not acceptable to the appellant. It was further noted that the LA Act provides for making a reference under Section 18 of the Act to the District Judge for determining the compensation and to decide as to whether the compensation fixed by the Land Acquisition Collector was proper or not. In the opinion of the bench, the appellant had objection only with regard to the quantum of objection, which he had an option to approach the Court under s. 18 of the Land Acquisiotion Act to determine the market value.Instead, the appellant negotiated with Techno Park and arrived at amicable settlement by agreeing to receive the compensation in the sum of Rs. 38,42,489/-. For this purpose, after entering into the agreement, the appellant agreed to execute the sale deed as well which was a necessary consequence and a step which the appellant had to take.
“In our view, insofar as acquisition of the land is concerned, the same was compulsorily acquired as the entire procedure prescribed under the LA Act was followed. The settlement took place only qua the amount of the compensation which was to be received by the appellant for the land which had been acquired. It goes without saying that had steps not been taken by the Government under Sections 4 & 6 followed by award under Section 9 of the LA Act, the appellant would not have agreed to divest the land belonging to him to Techno Park. He was compelled to do so because of the compulsory acquisition and to avoid litigation entered into negotiations and settled the final compensation. Merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale. It may be mentioned that this is now the procedure which is laid down even under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 as per whichthe Collector can pass rehabilitation and resettlement award with the consent of the parties/land owners. Nonetheless, the character of acquisition remains compulsory.”
The bench further overruled the decision Info Park Kerala vs. Assistant Commissioner of Income Tax wherein it was held that since the title in the property was passed by the land owners on the strength of sale deeds executed by them, it was not a compulsory acquisition.
The bench said, “We are not in agreement with the aforesaid view. It is clear that but for Notification under Section 4 and Award under Section 9 of the LA Act, the appellant would not have entered into any negotiations for the compensation of the consideration which he was to receive for the said land. As far as the acquisition of the land in question is concerned, there was no consent. The appellant was put in such a condition that he knew that his land had been acquired and he cannot reiterate the same. The appellant, therefore, only wanted to salvage the situation by receiving as much compensation as possible commensurate with the market value thereof and in the process avoid the litigation so that the appellant is able to receive the compensation well in time. If for this purpose the appellant entered into the negotiations, such negotiations would be confined to the quantum of compensation only and cannot change or alter the nature of acquisition which would remain compulsory.”
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