2015 (12) TMI 111 - HC - Income Tax

TDS on enhanced compensation - whether the action of the respondents in charging TDS is not legal and valid as per the law laid down in Ghanshyam s case (2009 (7) TMI 12 - SUPREME COURT ) and the circular dated 13.4.2011 issued by the respondents - Held that - we find merit in the stand taken by the respondent authorities. Admittedly, interest had been awarded to the petitioners on the enhanced compensation on account of acquisition of their land on which TDS was deducted by the respondent authorities. It needs to be noticed that the judgment in Ghanshyam s case (supra) was delivered on 16.7.2009 by the Apex Court. Thereafter, amendments were made to Sections 56 and 145A of the 1961 Act w.e.f 1.4.2010 thereby including income by way of interest received on compensation or on enhanced compensation to be income of the year in which it was received. In view of the said amendments, the interest component on the amount of compensation or enhanced compensation being revenue receipt was exigible to tax in the year of receipt irrespective of the method of accounting employed. Similarly, in Bir Singh s case (2010 (10) TMI 581 - PUNJAB & HARYANA HIGH COURT ), it was held that the interest awarded by court on enhanced compensation was interest under section 28 of the Act and chargeable to tax in the year of receipt. Also decided in Prem Singh s case 2010 (12) TMI 460 - PUNJAB AND HARYANA HIGH COURT the interest component on enhanced compensation under section 28 is liable to be taxed under Section 56 of the Act even when compensation is treated as agricultural income and is not covered by Section 45(c) of the Act. We thus answer the questions in favour of the revenue and modify our order dated 5.7.2010 accordingly. The amount of interest on enhanced compensation is held to be taxable in the year of receipt irrespective of pendency of proceedings against award of enhanced compensation - Decided against assessee.

Summary

Issues:
1. Quashing of tax deduction certificate and refund of tax amount with interest.
2. Interpretation of law regarding tax deduction on interest component of compensation.
3. Applicability of circular exempting TDS on compensation for agricultural land.
4. Taxability of interest on enhanced compensation under Sections 28 and 34 of the Act.

Issue 1 - Quashing of Tax Deduction Certificate and Refund:
The petitioners sought to quash a tax deduction certificate and refund the tax amount with interest, arguing that it was contrary to the law established by the Apex Court in a specific case and a circular. The petitioners owned land acquired by the State for public purposes, and upon receiving enhanced compensation, the authorities deducted tax at the source. The petitioners contended that TDS should not apply to compensation for agricultural land acquisition, citing a relevant circular. The respondents defended their actions based on tax laws and amendments, asserting that the interest component on compensation was taxable in the year of receipt.

Issue 2 - Interpretation of Law on Tax Deduction on Interest Component:
The court examined the legality of tax deduction on the interest component of compensation. It referenced judgments and amendments to tax laws, emphasizing that interest on compensation or enhanced compensation was deemed income of the year received. The court upheld that the interest component on compensation was subject to tax in the year of receipt, irrespective of accounting methods, as per the amended provisions. Previous judgments supported the taxability of interest on enhanced compensation under relevant tax sections.

Issue 3 - Circular Exempting TDS on Compensation for Agricultural Land:
The petitioners relied on a circular exempting TDS on compensation for agricultural land to challenge the tax deduction on their enhanced compensation. However, the respondents argued that the circular's exemption applied only to compensation and not to the interest component received under specific sections of the Income Tax Act. The court noted that the circular did not provide exemption for the interest component, which was taxable under the relevant tax provisions.

Issue 4 - Taxability of Interest on Enhanced Compensation under Sections 28 and 34:
The court addressed the taxability of interest on enhanced compensation under Sections 28 and 34 of the Act. It referenced previous judgments to affirm that interest awarded on enhanced compensation fell under Section 28 and was taxable in the year of receipt. The court dismissed the petition, finding no legal error in the authorities' actions and upheld the taxability of the interest component on the compensation received by the petitioners.

In conclusion, the court dismissed the petition, affirming the tax deduction on the interest component of compensation as per the amended tax laws and previous judicial interpretations.