1996 (9) TMI 6 - SC - Income Tax

Interest on compensation paid under Land Acquisition Act - held that section 2(28A) covers such interest

Summary

Issues:
1. Taxability of delayed interest on compensation under the Land Acquisition Act under the Income-tax Act, 1961.
2. Interpretation of the definition of "interest" under section 2(28A) of the Income-tax Act.
3. Applicability of section 194A of the Income-tax Act to the interest on delayed payment under the Land Acquisition Act.

Analysis:
The Supreme Court heard an appeal challenging the judgment of the High Court regarding the taxability of delayed interest on compensation under the Land Acquisition Act. The High Court had held that interest received on compensation is a revenue receipt liable to tax under the Income-tax Act. The appellants argued that the definition of "interest" under section 2(28A) is limited to money-lending transactions and does not cover interest paid under the Land Acquisition Act. However, the Court disagreed, citing previous judgments that established such interest as taxable income. The Court emphasized that interest on delayed compensation is a revenue receipt and thus subject to tax under section 4 of the Income-tax Act, despite the amended definition of "interest." The Court clarified that section 194A, which deals with deduction of income tax at the source, does not apply in this context. The appellants were allowed to spread over the income for tax assessment purposes. Ultimately, the Court upheld the High Court's judgment, dismissing the appeals without costs.

In conclusion, the Supreme Court affirmed the taxability of delayed interest on compensation under the Land Acquisition Act, rejecting the appellants' arguments based on the definition of "interest." The Court reiterated that such interest constitutes a revenue receipt and is subject to tax under the Income-tax Act. The judgment underscores the consistent legal position that interest on delayed compensation is taxable income, despite the inclusive definition of "interest" in the Act. The Court clarified the inapplicability of section 194A in this context and permitted the appellants to spread over the income for tax assessment purposes. The appeals were dismissed, upholding the High Court's decision without imposing costs.