2009 (10) TMI 494 - HC - Income Tax

Land Acquisition - In the year 1994 the agricultural land of the petitioners was acquired for construction of a canal. As against the award passed granting compensation a reference under section 18 of the Land Acquisition Act, 1894 was filed and the compensation amount was enhanced. Respondent No. 3 deposited the enhanced compensation in the executing court, after deducting a sum of Rs. 2,19,779 as tax at source. Further Petitioner No. 1 was asked to deposit another sum of Rs. 8,79,116 as tax under the provisions of section 194A read with section 194LA of the Act. Held that - under section 194A of the Act, tax could be deducted at source from the interest realized from enhanced compensation because it was regarded as revenue receipt.

Summary

Issues:
Petition for refund of deducted sum and legality of further tax demand under Income-tax Act.

Analysis:
The petitioners sought a refund of Rs. 2,19,779 deducted as tax at source (TDS) by the Executive Engineer while disbursing enhanced compensation against an award. Additionally, a demand of Rs. 8,79,116 was raised under the Income-tax Act, which the petitioners deemed illegal and arbitrary. The land was acquired in 1994, and an award was passed in 1995, with enhanced compensation granted later. The question arose whether interest accrued on delayed compensation payment qualifies as revenue receipt liable to TDS under the Act.

The court referred to a previous case and discussed the concept of interest as revenue receipt based on Supreme Court precedents. It was established that interest on delayed payment of compensation is a revenue receipt exigible to income tax, as clarified in various judgments. The court emphasized that interest received on delayed payment is a revenue receipt and falls under the charging section of the Act. Therefore, TDS under section 194A of the Act is applicable to interest income on delayed payments. The argument that interest income is akin to enhanced compensation classified as agricultural income was rejected.

The court dismissed the petition, citing consistency with previous judgments. The court noted that the issues raised were already addressed in a previous judgment, leading to the dismissal of the current petition. The decision aligned with the stance taken in similar cases, reinforcing the application of TDS to interest income on delayed compensation payments. The court's ruling was based on established legal principles and interpretations of revenue receipts under the Income-tax Act.

In conclusion, the court upheld the legality of TDS on interest income from delayed compensation payments, emphasizing its classification as a revenue receipt. The judgment reinforced the applicability of TDS under section 194A of the Income-tax Act to such interest income, rejecting arguments to categorize it as agricultural income. The dismissal of the petition was based on established legal precedents and the consistent interpretation of revenue receipts in similar cases.