2013 (7) TMI 774 - HC - Income Tax

Deduction for TDS on Compensation u/s 28 of Land acquisition Act - Held that - interest under Section 28 is, unlike under Section 34 of the 1894 Act, an accretion in value and regarded as part of the compensation itself which is not the case of interest under Section 34 - any component of compensation that goes towards the discharge of liability under Section 28 must be taken as part of the compensation to which Section 194 LA shall apply and that compensation being the value of agricultural land, then the exclusion as provided under the Section shall also be attracted. - there was no requirement for collecting TDS for this amount. Any liability which goes towards interest calculated under Section 34 would not obtain the benefit and if there is any deduction for TDS for such a component of interest, it shall be perfectly justified. While any deduction made under TDS will not cause any serious prejudice even if the amount ought not to have been deducted by enabling a party applying for refund, if, it might involve a large number of cases, it shall be quite unnecessary for land owners to be directed to apply for income tax for refund in every case. Such a requirement is a needless circuitous exercise. What can be prevented even in the first place by not requiring a TDS to be applied for compensation relatable to Section 23 (IA), 23(2) and 28 of the Land Acquisition Act, in respect of the acquisition of agricultural land, it shall not be unnecessarily gone through. Collector directed not to deduct TDS - Decided in favour of assessee.

Summary

Issues:
1. Compensation deduction for TDS under Section 28 of the Land Acquisition Act.
2. Interpretation of Section 194LA of the Income Tax Act in relation to compensation for acquisition of immovable property.
3. Applicability of TDS on interest paid under Section 28 of the Land Acquisition Act.
4. Comparison of interest under Section 28 and Section 34 of the Land Acquisition Act.
5. Legal requirement for TDS on compensation related to agricultural land acquisition.
6. Refund process for TDS deductions in land acquisition cases.

Analysis:
1. The revision-petitioner, a landowner entitled to compensation for property acquisition, contested the TDS deduction made by the Collector under Section 28 of the Land Acquisition Act. The petitioner argued that interest paid under Section 28 should be considered as compensation, exempted under Section 194LA of the Income Tax Act for agricultural land acquisitions.

2. Section 194LA mandates a 10% TDS deduction on compensation for immovable property acquisitions other than agricultural land. The court examined the nature of compensation and the specific provisions of TDS requirements under the Income Tax Act in relation to land acquisitions.

3. The court addressed the issue of TDS applicability on interest paid under Section 28. Referring to relevant judgments, it was established that interest under Section 28 is considered an accretion to the value of acquired land and part of the compensation itself, differentiating it from interest under Section 34.

4. A comparison between interest under Section 28 and Section 34 was made, emphasizing that interest under Section 28 is part of the compensation for agricultural land acquisitions and should not be subject to TDS deductions as per Section 194LA.

5. The court highlighted the unnecessary burden on landowners to claim TDS refunds for compensation related to agricultural land acquisitions. It directed the Collector not to apply TDS for such cases, ensuring a more straightforward process without involving the Income Tax Department for refunds.

6. All impugned orders were set aside, and Civil Revision No. 7740 of 2012 and Civil Revision No. 5644 of 2010 were allowed, providing clarity on the TDS deduction issue in land acquisition cases and streamlining the refund process for affected parties.