The Times of India             27.08.2013

Tax on compensation for land surrendered can only be 1%: HC

KOCHI: People who willingly surrender land for development projects of the government should be taxed only at one per cent of the compensation, instead of the prevailing practice of levying 10% tax, the Kerala high court has held.

The ruling by Justice V Chitambaresh came while considering a petition filed by M C Thomas of Kalamassery challenging the 10% tax imposed on him after he willingly surrendered four cents for the metro project.

Directing the government not to levy tax at 10%, the court said the one per cent tax applicable in such cases should be levied at the time of paying compensation itself.

In the petition filed through advocate M M Saidu Muhammed, it was pointed out that the land and its records were handed over to the government even before the procedure of land acquisition for the project was completed.

As the land was surrendered willingly, the tax specified in land acquisition law is not applicable, the counsel argued. Therefore, levying of tax at 10% should be quashed and the extra tax collected should be repaid, it was demanded.

Allowing the plea, the court pointed out that Income Tax Act was amended on June 1 this year to facilitate retaining of tax on compensation at the time of payment itself. This is intended to speed up the process of transferring land required for public projects, the court said.

The court said the amendment allows levying of tax at one per cent for those who surrender land willingly, instead of government taking over land through proceedings under Land Acquisition Act, if the compensation is above Rs 50 lakh.

Moreover, those who get compensation below Rs 50 lakh or those who lose agricultural land during acquisition for public projects need not pay tax at all, the court said.