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2013 (10) TMI 786 - HC - Income TaxTDS on interest paid on compensation - Whether the TDS under the Income Tax Act, 1961 has to be deducted at the source at the rate of 10% or the TDS can only be deducted after spreading it over the number of period for which the payment was made Held that - As per the decision of the Apex court in the case of Bikram Singh and others v. Land Acquisition Collector and others 1996 (9) TMI 6 - SUPREME Court , appellants are entitled to spread over the income for the period for which payment came to be made so as to compute the income for assessing tax for the relevant accounting year - As per division bench of Gujarat High Court in the case of Hansaguri Prafulchandra Ladhani and others v. Oriental Insurance Co. Ltd 2006 (10) TMI 383 - GUJARAT HIGH COURT , it is necessary to obviate such a situation in future for other claimants who may be awarded compensation with interest thereon, and the amount of interest being deposited exceeds Rs. 50,000 but who may not be liable to have any tax deducted at source as per the interpretation placed by us on the provisions of section 194-A of the Act - If the interest for any particular financial year exceeds Rs. 50,000, separately deposit before the Tribunal the amount liable to be deducted at source under the provisions of section 194-A(3)(ix) of the Income Tax Act, 1961 - In view of the conflicting opinion expressed in the two Division Benches, the matter is reffered to the Larger bench of the Tribual.
Issues:
1. Whether TDS under the Income Tax Act should be deducted at a rate of 10% or spread over the period of payment. 2. Obligation of disbursing authority to deduct TDS under the Income Tax Act. 3. Taxable liability consideration by disbursing authority under different Acts. 4. Binding effect of State Government circular on TDS deduction under the Income Tax Act. Analysis: Issue 1: The main issue in this case is whether TDS under the Income Tax Act should be deducted at a rate of 10% or spread over the period of payment. The court referred to a Supreme Court judgment stating that interest on delayed payment of compensation is a revenue receipt and exigible to tax. However, the court also acknowledged a conflicting opinion from another Division Bench and decided to refer the matter to a Larger Bench for clarity on the questions raised. Issue 2: The court considered the obligation of the disbursing authority to deduct TDS under the Income Tax Act. The petitioner argued that TDS should only be deducted after spreading the taxable amount over the number of years for which the payment was made. The court noted conflicting opinions from different Division Benches and decided to refer the case to a Larger Bench to resolve the issue. Issue 3: The court discussed the taxable liability consideration by the disbursing authority under different Acts such as the Land Acquisition Act or Motor Vehicles Act in relation to the Income Tax Act. The court highlighted the need for clarity on whether the disbursing authority should deduct TDS at the time of disbursing compensation or interest, regardless of the recipient's tax status. Issue 4: The court examined the binding effect of a State Government circular directing non-deduction of TDS at 10% on the provisions of the Income Tax Act. The conflicting opinions from different Division Benches led the court to refer the case to a Larger Bench to determine the impact of the circular on the mandatory TDS deduction under the central Income Tax Act. In conclusion, the court referred the entire petition to a Larger Bench to address the legal questions raised and provide clarity on the issues surrounding TDS deduction under the Income Tax Act in the context of compensation and interest payments. The Registrar General was directed to present the case record before the Chief Justice for the constitution of an appropriate Bench to resolve the matter comprehensively.
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