TDS u/s 194LA Not Applicable on Issuance of TDR in Lieu of Compensation: Bombay HC Stays Demand and Penalty Orders [Read Order]
The Court observed that the provision applies only to monetary payments made in cash, by cheque, or by draft, and not to payments in kind
Bombay High Court, TDS u/s 194LA, Penalty Orders
Bombay High Court, TDS u/s 194LA, Penalty Orders
The High Court of Bombay, held that Tax Deducted at Source ( TDS ) under Section 194LA of the Income TaxAct,1961, is not applicable on the issuance of Transferable Development Rights (TDR) in lieu of compensation and stayed the related demand and penalty orders.
Pimpri Chinchwad Municipal Corporation,petitioner-assessee, filed a Writ Petition to quash the orders dated 31st March 2025, passed under Sections 201 and 201(1A) of the Income Tax Act, along with the related demand notice under Section 156. The petitioner also challenged the penalty notice dated 22nd April 2025 under Section 274 read with Section 271C, and the penalty order dated 30th September 2025.
The petitioner was treated as an assessee in default for not deducting TDS under Section 194LA while issuing TDR in exchange for land acquired for public purposes under Section 126 of the MRTP Act, 1966.
The petitioner submitted that Section 194LA of the Income Tax Act dealt with TDS on compensation paid for acquiring immovable property. It argued that the section applied only to monetary payments made in cash, by cheque, or by draft, and not to payments made through TDR.
The petitioner contended that the phrase “or by any other mode” in Section 194LA had to be read in the same context as monetary payments and not as including payments in kind. It pointed out that where the Act intended to cover payments in kind, it specifically provided for it, as seen in Sections 194B and 194R.
Since Section 194LA did not contain such a provision, the petitioner argued that it could not be treated as an assessee in default for not deducting TDS while issuing TDRs in lieu of compensation.
Justice Amit S.Jamsandekar and Justice B.P.Colabawalla heard both sides and found that the case raised arguable issues, leading it to issue Rule. It observed that, prima facie, there was merit in the petitioner’s contention that the phrase “or by any other mode” in Section 194LA had to be interpreted in line with monetary payments made in cash, by cheque, or by draft.
The High Court held that, at least at this stage, Section 194LA did not apply where TDR certificates were issued in lieu of compensation. It noted that Sections 194B and 194R of the Act specifically dealt with payments made in kind, while such a provision was absent in Section 194LA.
Finding a strong prima facie case, the Court granted interim relief and stayed the operation of the impugned order and demand notice dated 31st March 2025, as well as the penalty order dated 30th September 2025. The counsel for the Income Tax Department waived service and sought time to file a reply, which the Court directed to be submitted by 25th November 2025.
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