2012 (7) TMI 756 - HC - Income Tax

Deduction of tax under Section 194-A - Interest received on delay payment of compensation - award was passed on 7.9.2001 and the compensation was paid somewhere in the years 2009 Held that - Interest received on delayed payment is a revenue receipt exigible to Income-tax - where a compensation awarded under the Land Acquisition Act or on further appeals, interest on enhanced compensation cannot be taxed all in a lump sum as having accrued on the date on which the Court passes order for enhanced compensation; the interest has to be spread over on annual basis right from the date of delivery of possession till the date of order on a time basis - Income-tax Department shall while assessing the liability of tax of the individual assessee shall take into consideration the fact that the interest received is from the years 2001 to 2009

Issues Involved:
1. Legality of the deduction of TDS on compensation for agricultural land.
2. Application of Section 194LA and Section 194A of the Income-tax Act.
3. Compliance with Section 271-C of the Income-tax Act.
4. Treatment of interest on delayed compensation as revenue receipt exigible to tax.

Detailed Analysis:

1. Legality of the Deduction of TDS on Compensation for Agricultural Land:
The petitioners contested the deduction of TDS by the respondent on the compensation awarded for the acquisition of agricultural land. They argued that under Section 194LA of the Income-tax Act, no TDS should be deducted for compensation related to agricultural land. The petitioners cited the Karnataka High Court decision in Mysore Urban Development Authority v. ITO, which clarified that agricultural land is excluded from the immovable property covered by Section 194LA.

2. Application of Section 194LA and Section 194A of the Income-tax Act:
The respondent justified the deduction of TDS by referring to Section 194A of the Income-tax Act, which mandates TDS on interest payments. The respondent also relied on a departmental circular and the Supreme Court ruling that interest payments under the Land Acquisition Act are subject to TDS. The court acknowledged that while Section 194LA excludes agricultural land from TDS on compensation, Section 194A applies to interest accrued on delayed payments, making it taxable.

3. Compliance with Section 271-C of the Income-tax Act:
The respondent argued that failing to deduct TDS would result in penalties under Section 271-C of the Income-tax Act. The court noted the necessity for the respondent to comply with TDS provisions to avoid penalties. The court found that the respondent's action of deducting TDS on interest payments was in compliance with the law to prevent such penalties.

4. Treatment of Interest on Delayed Compensation as Revenue Receipt Exigible to Tax:
The court referenced the Supreme Court decision in Bikram Singh v. Land Acquisition Collector, which held that interest on delayed compensation is a revenue receipt and subject to tax. The court further cited Rama Bai v. CIT, which clarified that interest should be considered accrued annually from the date of possession until the date of the court order. Consequently, the interest received by the petitioners from 2001 to 2009 was deemed taxable on an annual basis.

Conclusion:
The court upheld the respondent's action of deducting TDS on the interest component of the compensation, as it was in compliance with Section 194A of the Income-tax Act. The court directed the respondent to issue Form No. 16-A to the petitioners upon receipt of their PAN, allowing the petitioners to claim the deducted amount from the Income-tax Department. The petition was disposed of with these directions, emphasizing the annual accrual of interest for tax purposes. No order as to costs was made.

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