2014 (1) TMI 1727 - HC - Income Tax

Interest received on enhanced amount of compensation in respect of acquired land for delayed payment - Held that - Source from receipt of enhanced compensation and interest received thereon was discussed in Sarti vs. Haryana State Industrial & Infrastructure Development Corporation Limited and others 2011 (5) TMI 939 - PUNJAB AND HARYANA HIGH COURT wherein it was observed that interest received on enhanced amount of compensation in respect of acquired land for delayed payment falls for taxation under Section 56 of the Act as income from other sources and is exigible to tax in the year of receipt under cash system of accountancy. It had also been observed that where the assessee is not maintaining books of accounts by adopting any specific method it shall be treated to be cash system of accountancy. In the present case the interest received by the petitioner was on account of delay in making the payment of enhanced compensation. Such payment could not par-take the character of compensation for acquisition of agricultural land and thus was not exempt under the Act. Once that was so the tax at source had been rightly deducted by the payer - Decided against assessee

Summary

Issues:
1. Tax deduction at source on compensation received.
2. Applicability of TDS on interest received under section 28 of the Act.
3. Taxability of interest as income from other sources.
4. Interpretation of legislative provisions regarding taxation of interest on enhanced compensation.

Analysis:
1. The case involved the issue of tax deduction at source (TDS) on the compensation received by the petitioners. The petitioners contended that the TDS by the respondents was illegal as they had received interest under section 28 of the Act. The petitioners relied on a judgment stating that no TDS was deductible in such cases.

2. The learned counsel for the petitioners argued that the interest received under section 28 of the Act should not be subject to TDS. However, the respondents supported their action of deducting TDS on the compensation amount. The court noted that the interest received could be taxable under Section 56 of the Act as income from other sources.

3. The court referred to a previous judgment in a similar case where it was held that interest received on enhanced compensation for delayed payment falls under income from other sources and is taxable under the cash system of accountancy. The court emphasized that the interest received by the petitioners was due to a delay in payment and did not qualify as exempt compensation under the Act, justifying the deduction of TDS by the payer.

4. Referring to legislative provisions and previous judgments, the court concluded that the interest received on enhanced compensation was taxable under Section 56 as income from other sources. The court highlighted that irrespective of the system of accountancy followed by the assessee, the interest on enhanced compensation is taxable in the year of receipt. The court dismissed the petitions, finding no merit in the arguments presented by the petitioners.

In summary, the court upheld the deduction of TDS on the compensation received by the petitioners, considering the interest received as taxable income from other sources under the relevant provisions of the Income Tax Act.