Concept of ‘pay when paid’ is not sustainable, Karnataka high court tells KIADB

The court allowed the petition filed by the company which had entered into a lease-cum-sale agreement with KIADB over certain lands at Doddakallasandra

The High Court of Karnataka has directed the Karnataka Industrial Areas Development Board (KIADB) to make balance compensation amount of Rs 1.37 crore to a company within eight weeks, observing that the concept of ‘pay when paid’ is not sustainable.

Justice Suraj Govindaraj passed this order while allowing the petition filed by the company which had entered into a lease-cum-sale agreement with KIADB over certain lands at Doddakallasandra in Bengaluru.

When the firm was holding the lease-cum-sale agreement, a portion of the land was acquired for Namma Metro project through KIADB in 2015. The compensation payment was made to the KIADB as a stop-gap arrangement inasmuch as at that point of time KIADB was shown as the owner. Subsequently, a sale deed was executed in July 2017.

However, the firm had to move the High Court claiming that out of the Rs 13.68 crore compensation released by Special Land Acquisition Officer (SLAO), the KIADB withheld Rs 1.37 crore compensation, on the premise that the board has some dispute with the Income Tax Department regarding exemption from TDS.

The petitioner contended that as per Section 199 of the Income Tax Act, 1961, the tax deducted and remitted with the income tax department would form the income of the assessee, KIADB in this case, on whose behalf the tax has been deducted and remitted. Hence, the amount deducted at source is also compensation and forms part of the compensation which the petitioner would be entitled for, it was argued.

On the other hand, KIADB argued that in the dispute with the income tax department, it is claimed that the Board is a charitable organisation and hence exempted from payment of income tax. It was further submitted that various litigations are going on and if payment as claimed by the petitioner is made, then KIADB would pay be out of pocket.

“I am unable to accept the ‘out of pocket’ argument since the amount already stands to the credit of the KIADB and there would be no question of being ‘out of pocket’. If the KIADB is right in its submission, the amount standing to its credit will be refunded. If the KIADB is wrong in its submission, the amount standing to its credit will be appropriated for income tax dues. Thus, the concept of ‘pay when paid’ is alien to the transaction at hand and is unacceptable or sustainable,” the court said.