1999 (1) TMI 11 - HC - Income Tax

Summary

Issues:
1. Whether the Land Acquisition Officer can deduct income-tax at source from the interest payable on enhanced compensation under section 18 of the Land Acquisition Act.

Analysis:
The main issue in this case was whether the Land Acquisition Officer had the authority to deduct income-tax at source from the interest payable on the enhanced compensation under section 18 of the Land Acquisition Act. The petitioners contended that no deduction of income-tax should be made as the entire amount as per the decree should be deposited by the Land Acquisition Officer, arguing that the decree debt did not attract income tax. However, the Supreme Court in Rama Bai v. CIT [1990] 181 ITR 400 held that interest on enhanced compensation for land compulsorily acquired under the Land Acquisition Act is liable for income tax, and the person responsible for payment is empowered to deduct income tax. The court clarified that the interest accrued year after year from the date of possession of the land until the order granting enhanced compensation.

The petitioners also cited the decision of the Punjab and Haryana High Court in Baldeep Singh v. Union of India [1993] 199 ITR 628, which held that the executing court is not obligated to deduct income tax at source on interest awarded on enhanced compensation. However, the court differentiated this from the present case where the Income-tax Department directed the Land Acquisition Officer to deduct tax at source, emphasizing that the Officer is responsible for payment of interest and compensation. The decision in Gupta (K. D.) (Lt. Col.) v. Union of India [1990] 181 ITR 530 further supported the obligation of the Officer to deduct income tax at source, even if the decree amount included interest.

Moreover, the Andhra Pradesh High Court in Special Tahsildar and Land Acquisition Officer v. Dandu Saraswatamma [1994] 205 ITR 587, and the Punjab and Haryana High Court in Tuhi Ram v. Land Acquisition Collector [1993] 199 ITR 490, both held that tax can be deducted from the interest payable on enhanced compensation for land acquisition. The court also highlighted the importance of submitting a declaration to the person responsible for payment under section 197(1A) to avoid tax deduction.

In conclusion, the court dismissed the original petition as it found no merit in the petitioners' argument. It emphasized that if the petitioners believed they were not liable to pay income tax, they should seek a refund from the Income-tax Department or utilize the income-tax deduction certificate according to the law.