2009 (8) TMI 665 - HC - Income Tax

Deduction of Tax at source- The demand for TDS has been raised on account of interest for enhanced amount of compensation in respect of acquired agricultural land belonging to the predecessor-in-interest of the petitioner. Held that- interest on delayed payment of compensation for acquisition of land being a revenue receipt the assessee was liable to be subjected to deduction of tax at source on interest for delayed payment of enhanced compensation for acquisition of agricultural land.

Summary

Issues Involved:
1. Legitimacy of TDS demand on interest for enhanced compensation.
2. Classification of the land as "agricultural land".
3. Applicability of Section 194LA and Section 194A of the Income-tax Act, 1961.
4. Nature of interest on delayed compensation as taxable revenue receipt.

Issue-wise Detailed Analysis:

1. Legitimacy of TDS demand on interest for enhanced compensation:
The primary issue is the challenge against the notice dated September 4, 2008, issued by the Sub-Divisional Officer demanding Rs. 4,023 as TDS on the interest for enhanced compensation related to acquired agricultural land. The petitioner contended that, under Section 194LA of the Income-tax Act, 1961, such a deduction was not permissible for agricultural land.

2. Classification of the land as "agricultural land":
The court examined whether the land in question qualified as "agricultural land" under the Income-tax Act. The respondents, in their affidavit dated May 20, 2009, admitted that the land was indeed "agricultural land" as per the revenue records and the award details. This classification is crucial because Section 194LA excludes agricultural land from its purview, thereby impacting the applicability of TDS.

3. Applicability of Section 194LA and Section 194A of the Income-tax Act, 1961:
Section 194LA pertains to the deduction of TDS on compensation for the compulsory acquisition of immovable property, excluding agricultural land. The court noted that the land in question was agricultural and thus outside the scope of Section 194LA. However, the respondents argued that Section 194A, which mandates TDS on interest income, was applicable. The court had to determine whether the interest on delayed compensation was subject to TDS under Section 194A.

4. Nature of interest on delayed compensation as taxable revenue receipt:
The court referred to precedents, including the Supreme Court's ruling in Dr. Shamlal Narula v. CIT, which held that interest on delayed compensation is a revenue receipt liable to tax. The court reiterated that such interest is not compensation for the loss of possession but a revenue receipt for the delayed payment of compensation. Consequently, it falls under the charging section of the Income-tax Act, making it subject to TDS under Section 194A.

Conclusion:
The court concluded that the interest on delayed payment of enhanced compensation is a taxable revenue receipt. Despite the land being classified as agricultural, the interest received on the delayed payment is subject to TDS under Section 194A. Therefore, the petitioner's argument that such interest should be treated as part of the agricultural compensation was rejected. The petition was dismissed, and the demand for TDS was upheld.