Sections 194L, 194J and 260A – TDS – Acquisition of capital asset – Compensation payment (Encroached land) – Section 194L – Where land belonging to State was encroached upon, and such encroachment was removed by assessee, and encroaching squatters/hutment dwellers were rehabilitated, there was no question of land being acquired by assessee and, therefore, provisions of section 194L would not be applicable

19. CIT(TDS) vs. Mumbai
Metropolitan Regional Development Authority; [2018] 97 taxmann.com 461 (Bom):

Date of the order: 6^th
September, 2018

A. Ys. 2008-09 and 2009-10

Sections 194L, 194J and 260A – TDS – Acquisition of capital asset
– Compensation payment (Encroached land) – Section 194L – Where land belonging
to State was encroached upon, and such encroachment was removed by assessee,
and encroaching squatters/hutment dwellers were rehabilitated, there was no
question of land being acquired by assessee and, therefore, provisions of
section 194L would not be applicable

TDS – Fees for professional or technical services (Maintenance
services) – Section 194J – Where assessee made payments in respect of
maintenance contracts which related to minor repairs, replacement of some spare
parts, greasing of machinery etc., since, these services did not required any
technical expertise, same could not be categorised as ‘technical services’ as
contemplated u/s. 194J

For the purpose of implementing
scheme of Government relating to road widening near railway track, assessee
evacuated illegal/unauthorised persons who were squatters/hutment dwellers –
Since, possession of these persons was unauthorised and illegal and they were
not owners of land on which they had squatted/built their illegal hutments the
Assessing Officer was of the firm opinion that there had been acquisition of
immovable property, for which the affected persons were compensated as per the
Land Acquisition Act, 1894. Since, the assessee had not deducted Tax at Source
as per the provisions of section 194L/194LA of the Act, the Assessing Officer
treated the assessee as an assessee in default and computed the payment of tax
u/s. 201(1) and that for interest u/s. 201(1A). Additionally, for A. Ys.
2008-09 and 2009-10 the Assessing Officer noticed that the assessee had made
payment towards Annual Maintenance Contracts (AMCs) for Air Conditioners and
Lifts on which TDS was deducted u/s. 194C when, according to the Assessing
Officer, the same ought to have been deducted u/s. 194J. Since, the assessee
had deducted TDS u/s. 194C, the Assessing Officer proceeded by levying the
liability u/s. 201(1) and also held the assessee liable to pay interest u/s.
201(1A). In relation to section 194L/194LA,
the Commissioner (Appeals) accepted that there was no payment of compensation
for acquisition of any land or immovable property, and therefore, the said
sections had no application to the facts of the present case. Accordingly, he
deleted the demand raised by the Assessing Officer u/s. 201(1) and 201(1A).
Similarly, the Commissioner (Appeals) observed that the Annual Maintenance
Contracts were contracts for periodical inspection and routine maintenance work
along with supply of several parts. He was, therefore, of the view that such
services did not constitute technical services, and therefore, section 194J had
no application to the facts and circumstances of the present case. In these
circumstances, the Commissioner (Appeals) held that the assessee had correctly
deducted the TDS u/s. 194C and was not required to deduct TDS as per the
provisions of section 194J thereof. He, therefore, deleted the demand of
tax/interest u/s. 201(1) and section 201(1A). The Tribunal upheld the order of
the Commissioner (Appeals) and dismissed the appeals filed by the revenue.

On appeal by the Revenue, the
Bombay High Court upheld the decision of the Tribunal and held as under:

“i)    Section194LA inter alia deals with payment
of compensation on acquisition of certain immovable property. Section 194LA was
brought into force with effect from 01/10/2004. Section 194L, deals with
payment of compensation on acquisition of a capital asset and was omitted with
effect from 01/06/2016. Basically, what both these provisions provide is that
any person responsible for paying to a resident any sum in the nature of
compensation or enhanced compensation or consideration or enhanced
consideration on account of compulsory acquisition, under any law for the time
being in force of any capital asset, 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, is
liable to deduct an amount equal to 10 per cent of such sum as TDS on the
income comprised therein. The provisos to said sections are not really relevant
or germane for our purpose. What can be seen from the aforesaid provisions is
that TDS is to be deducted when compensation is paid on account of compulsory
acquisition under any law for the time being in force. In the facts of the
present case, as correctly recorded by the Tribunal, for the purpose of
implementing the scheme of the Government relating to road widening near the
railway track, the assessee evacuated the illegal/unauthorised persons who were
squatters/hutment dwellers.

ii)    The
fact of the matter was that the possession of these persons was unauthorised
and illegal and they were not the owners of the land on which they had
squatted/built their illegal hutments. In fact, they were trespassers. This
being the case, there was no question of the land being acquired by the
assessee. In fact the Tribunal, came to the conclusion that the land always
belonged to the State; it was encroached upon, which encroachment was removed
by the assessee; and the encroaching squatters/hutment dwellers were rehabilitated.
This being the case, section 194L or section 194LA had absolutely no
application to the facts and circumstances of the present case. The revenue has
totally misunderstood the law when it assumes that the squatters/hutment
dwellers are deemed owners of the land on which they squat or encroach upon.
The squatters/hutment dwellers have absolutely no title in the land on which
they squat or build their illegal and unauthorised hutments. This being the
case, there is no question of there being any compulsory acquisition from them
under any law either under the Land Acquisition Act, 1894 or any other
enactments which permit compulsory acquisition of land. This being the case,
section 194L or section 194LA has absolutely no application to the facts and
circumstances of the present case.

iii)    In this regard the Tribunal correctly held that the assessee had
made payments only in respect of maintenance contracts which relate to minor
repairs, replacement of some spare parts, greasing of machinery etc. These
services do not require any technical expertise, and therefore, could not be
categorized as ‘technical services’ as contemplated u/s. 194J. Section 194J,
deals with fees for professional or technical services. In contrast, section
194C deals with payments to contractors. In the facts and circumstances of the
present case, the assessee had correctly deducted TDS under the provisions of
section 194C and not as per the provisions of section 194J thereof. This being
the case, even the additional question of law (for the A. Ys. 2008-09 and
2009-10 does not give rise to any substantial question of law which would
require to admit the present appeals.

iv)   They
are all, accordingly, dismissed.”