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2017 (7) TMI 1278 - HC - Income TaxRefund of TDS in respect of the amount received by them on account of interest awarded under Section 28 of the Land Acquisition Act - acquisition of the agricultural land - Held that - The TDS is provisional collection of tax by the revenue and is always subject to final determination at the time of filing of the return. The petitioners had received the amount of enhanced compensation and interest thereon. A perusal of Annexures P-3 and P-4 appended by the petitioners clearly shows that tax has been deducted on the element of interest on enhanced compensation and, therefore, would fall under Section 194A of the Act which relates to interest other than interest on securities . Examining the issue of taxability of interest under Section 28 of the Act, in THE COMMISSIONER OF INCOME TAX, FARIDABAD VERSUS BIR SINGH (HUF), BALLABGARH 2010 (10) TMI 581 - PUNJAB & HARYANA HIGH COURT , it was held by the Division Bench of this Court that the interest awarded by court on enhanced compensation under Section 28 of the Act was chargeable to tax as income from other sources in the year of receipt. The tax at source has been rightly deducted and the petitioners can claim the refund, if any, admissible to them by filing the income tax returns in accordance with law - Petition dismissed.
Issues Involved:
1. Legality of Tax Deducted at Source (TDS) on interest from enhanced compensation under the Land Acquisition Act. 2. Entitlement to refund of TDS deducted on the interest component of enhanced compensation. Detailed Analysis: 1. Legality of Tax Deducted at Source (TDS) on interest from enhanced compensation under the Land Acquisition Act: The petitioners challenged the deduction of TDS amounting to ?15,82,907/- on the interest component of the enhanced compensation awarded under the Land Acquisition Act. They referenced judgments from the Apex Court and High Courts, particularly the Supreme Court's ruling in Commissioner of Income-tax v. Ghanshyam (HUF), which distinguished interest under Section 28 of the Land Acquisition Act as part of the compensation rather than a separate interest income. However, the court held that the TDS was correctly deducted under Section 194A of the Income Tax Act, 1961, which pertains to interest other than "interest on securities." The court emphasized that interest on enhanced compensation is taxable as it falls under the definition of "interest" in Section 2(28A) of the Income Tax Act. The amendments made by Finance (No. 2) Act, 2009, to Section 56 and Section 145A of the Income Tax Act, clarified that interest on compensation or enhanced compensation is taxable in the year of receipt, irrespective of the accounting method employed by the assessee. The court referred to several precedents, including Dr. Shamlal Narula v. CIT and Bikram Singh v. Land Acquisition Collector, which consistently held that interest on delayed compensation is a revenue receipt and thus taxable. The court also noted that the Supreme Court had dismissed the Special Leave Petition against the judgment in Manjeet Singh (HUF) Karta Manjeet Singh v. Union of India, which upheld the taxability of such interest. 2. Entitlement to refund of TDS deducted on the interest component of enhanced compensation: The petitioners sought a writ of mandamus directing the respondents to refund the TDS deducted on the interest component of the enhanced compensation. They argued that the interest awarded under Section 28 of the Land Acquisition Act should not be subject to TDS, relying on the Supreme Court's judgment in Ghanshyam (HUF). However, the court found no merit in this argument, reiterating that TDS on interest from enhanced compensation is in accordance with the Income Tax Act. The court dismissed the reliance on Ghanshyam (HUF) and related judgments, stating that the amendments to the Income Tax Act post-2009 clarified the taxability of such interest. The court also referred to the Gujarat High Court's judgment in Movaliya Bhikhuhhai Balabhai v. Income Tax Officer-TDS-1, Surat, but disagreed with its interpretation, noting that the precedent it relied on (Jagmal Singh v. State of Haryana) had been overruled. The court concluded that the petitioners should seek any refund of TDS by filing income tax returns as per the law. The writ petition was dismissed, affirming the legality of the TDS deductions and the petitioners' obligation to claim refunds through the appropriate tax procedures.
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