The Kerala High Court on Monday held that when land is handed over to the government, deduction of tax at 1 per cent from the sale amount will be applicable if the property is not an agriculture land and the amount comes to Rs 50 lakh or more.

Justice V Chidambaresh passed the order while considering a petition filed by M C Thomas of Kalamassery seeking a directive to the government to disburse the entire sale consideration for the land taken for Kochi Metro Rail without deducting any amount as tax.

The petitioner had agreed to transfer his 3.98 cents in Aluva municipality for the Metro Rail Project. A district-level purchase committee constituted for the purpose had negotiated with the petitioner, in regard to the price of the property. Later, the sale consideration was fixed at the rate of Rs 17 lakh.

The petitioner had handed over the consent letter and original documents, including title deeds.

“When there is no compulsory acquisition of land, Section 194LA of Income Tax Act is not applicable and they are not bound to deduct any amount as Tax Deducted at Source (TDS),” the petitioner submitted.

The Court pointed out that Section 194LA of the Act has been introduced, in effect from June 1, in order to have a mechanism for reporting transactions in the real estate sector and collect tax at the earliest point of time.

It provides that from every transferee, at the time of making a payment as sale consideration for transfer of immovable property to a resident transferor, tax should be deducted.

This will be applicable only if the property is not agricultural land and the total sale consideration is `50 lakhs or more.

The petitioner’s land is situated within the Aluva Municipality.

“If the land is situated within the limits of a municipality or a municipal corporation, it is not treated as an agricultural land, irrespective of the nature of the land,” the court held.

The Court also directed the District Collector to disburse the sale consideration amount to the petitioner, after deducting income tax at 1 per cent of the sum.