No TDS Under Section 194-IA On Rural Agricultural Land Transactions: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) 26 March, held that buyers of rural agricultural land are not required to deduct TDS under Section 194-IA of the Income Tax Act, and interest under Section 201(1A) is not leviable.

The Bench, comprising Vice-President Dr. B.R.R. Kumar and Judicial Member Suchitra Kamble, dismissed the Revenue's appeal while confirming that Tarun Santramdas Varma (taxpayer) did not owe TDS on certain rural agricultural land transactions. The Tribunal held:

"Since the lands in question are held to be agricultural and outside the scope of section 194-IA, the assessee cannot be treated as an assessee in default u/s 201(1) of the Act and the interest charged u/s 201(1A) is also therefore not sustainable."

The Assessing Officer (AO) initiated proceedings under Sections 201/201(1A), claiming the taxpayer failed to deduct TDS on multiple land parcels whose total consideration exceeded Rs. 50 lakh. The AO treated the taxpayer as an assessee in default and raised a demand of Rs. 1.69 crore, including interest.

The taxpayer argued that each transaction involved multiple buyers and sellers, and payments to individual sellers were below the Rs. 50 lakh threshold under Section 194-IA.

The CIT(A) upheld this, noting that the AO incorrectly aggregated transaction values across buyers and sellers, contrary to legislative intent at the time.

The ITAT noted that Section 194-IA, introduced by the Finance Act, 2013, requires buyers to deduct 1% TDS on immovable property (excluding rural agricultural land) when purchasing from a resident seller if the individual sale value exceeds Rs. 50 lakh. Amendments under the Finance Act, 2024, which allowed aggregation across buyers or sellers, applied prospectively and did not affect the assessment year in question.

The Bench also relied on certificates from the Gandhinagar Urban Development Authority, revenue records, and census data, confirming that the land parcels were rural agricultural land beyond six kilometres from Gandhinagar Municipal Corporation limits.

The Tribunal rejected the Revenue's objection to admitting these documents, noting that no prejudice was shown. The Bench further observed:

"The Ld. CIT(A) has based his conclusion on certificates issued by the Gandhinagar Urban Development Authority, revenue records and census data to hold that the land parcels are situated beyond the prescribed distance from the municipal limits. The Assessing Officer has not carried out any independent verification nor brought any conclusive evidence on record to establish that the lands fall within the specified distance."

Accordingly, the ITAT confirmed that the taxpayer was not liable to deduct TDS under Section 194-IA, and dismissed the interest demand under Section 201(1A).

For Appellant: Abhijit, Sr.DR

For Respondent: Tushar Hemani, Sr. Advocate