Dear Shri. Arun Jaitelyji,
As you are aware that Government of Kerala is developing a Deep water International Container Transshipment Terminal at Vizhinjam, near Thiruvanathapuram through Public Private Partnership on BOT basis. Government of Kerala has executed Concession Agreement with Adani Vizhinjam Ports Private Ltd (AVPPL) for the development of Vizhinjam Project, which is expected to become a landmark in the development scenario of the State of Kerala and the work is progressing as scheduled.
Kerala being one of the most populous States in the Country, for speedy and hassle free acquisition, the land required for development of the Port was acquired through negotiated purchase in which land value was fixed by a committee under the Chairmanship of the District Collector, after issuing Notification under Land Acquisition Act 1894. The Income Tax authorities denied benefits from capital gain tax liability u/s 10(37)(ii) of the Income Tax Act 1961 on the ground that only compulsary acquisiion under LA Act attracts the provisions ffv,4- under section 10(37) (ii) of IT Act 1961 and that the land value is reached through negotiated settlement.
In this context kind attention is invited to the judgement of the Hon’ble Supreme Court dated 11-01-2017 in Civil Appeal No. 1607/2010 arising out of SLP(C) 19367/2014 (copy enclosed) wherein the Hon’ble Supreme Court has ordered that, though land is acquired through negotiations, such negotiations are only for the quantum of compensation and cannot change or alter the nature of acquisition which would remain compulsory and ruled that petitioner is eligible for exemption from capital gain tax liability under section 10(37)(ii) of IT Act 1961.
I would also like to bring to your notice that, the Income Tax authorities are denying eligibility for Tax exemption u/s 10(37)(i) of the Income Tax Act on the argument that the acquired land in question belongs to Municipal / Corporation Area. In fact, the Government of Kerala has notified Vizhinjam and Kottukal Grama panchayat areas to become a part of Thiruvananthapuram Corporation with effect from 01-11-2010 as per G.O(P) No.113/10/LSGD dated 08-06-2010 ie., whereas, preliminary notification u/s 4(1) LA Act was issued on 12-03-2010 the acquired land was in Vizhinjam and adjacent Grama panchayat, as such there is eligibility for Tax exemption under section 10(37)(i) of IT Act 1961 considering that the land in question is agriculture land at the time when notification for land Requisition was issued.
I may point out that subsequent developments in Land Acquisition Law also justify a liberal approach to this issue. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) which came into force on 1st January 2014, replacing the Land Acquisition Act of 1894, makes no distinction between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from Income Tax. Circular No. 36/2016 issued on 25th October, 2016 by the Central Board of Direct Taxes makes it clear that compensation received in respect of award or agreement which has been exempted from levy of Income tax under RFCTLARR Act shall also not be taxable under the provisions of the Income tax Act even if there is no specific provisions of exemption for such compensation in the Income tax Act, 1961.
State Government had taken several meetings with the Income Tax authorities on the issues but no tangible outcome has been brought out.
I would therefore request you to kindly intervene in the matter, and to examine the issue in the light of the judgment of the Hon’ble Supreme Court of India in Civil Appeal No. 1607/2010 arising out of SLP(C) 19367/2014 and issue necessary directions to the IT Authorities so as to extend the benefit of exemption from capital gain tax liability under section 10(37)(ii) of IT Act 1961 and tax exemption under section 10(37)(i) of IT Act 1961 to those land owners whose land has been acquired for the development of Vizhinjam Port as a Deep water International Container Transshipment Terminal, treating it as rural agricultural land.
Shri. Arun Jaitley
Hon’ble Minister for Finance & Corporate Affairs,
Government of India,
Room No 134, North Block,