2008 (2) TMI 589 - HC - Income Tax

TDS on interest compulsory acquisition delayed payment of compensation - deduction of income-tax on interest payable under section 28 or 34 of the Land Acquisition Act Held that - it is clear that the apex court has held in unequivocal terms that the interest received on belated payment of compensation is a revenue receipt exigible to income-tax and it is income and the claimants are liable to pay the tax as provided under the relevant provisions of the Income-tax Act. TDS is liable to be deducted at source order of trial court reversed.

Summary

Issues Involved:
1. Interpretation of provisions of the Income-tax Act regarding deduction of income-tax on interest payable under the Land Acquisition Act.
2. Application of settled legal principles on revenue receipts exigible to income-tax.
3. Consideration of relevant provisions of the Income-tax Act in the context of compensation received under the Land Acquisition Act.

Issue 1: Interpretation of provisions of the Income-tax Act regarding deduction of income-tax on interest payable under the Land Acquisition Act:
The petitioner challenged the common order passed by the execution court, contending that the deduction of income-tax on interest payable under sections 28 or 34 of the Land Acquisition Act is permissible under the Income-tax Act. The petitioner argued that the court erred in holding otherwise, citing the judgment in the case of Bikram Singh v. Land Acquisition Collector and the Division Bench of Delhi High Court in the case of Shankar v. Union of India. The court noted that the execution court's order was contrary to the provisions of the Income-tax Act, specifically sections 194A and 194L proviso. The court emphasized that income-tax is applicable on belated payment of interest received by claimants, and the order for deduction of income-tax should have been made accordingly.

Issue 2: Application of settled legal principles on revenue receipts exigible to income-tax:
The court referred to the judgment in CIT v. All India Tea and Trading Co. Ltd., highlighting that interest received on delayed payment of compensation is a revenue receipt exigible to income-tax. The court reiterated that unless there is an exemption under the Income-tax Act, such revenue receipts are taxable events. The court emphasized that the interest received on delayed payment of compensation under sections 28 or 34 of the Land Acquisition Act is a revenue receipt and is exigible to tax under section 4 of the Income-tax Act.

Issue 3: Consideration of relevant provisions of the Income-tax Act in the context of compensation received under the Land Acquisition Act:
The court observed that the trial court had relied on judgments from the apex court and the Andhra Pradesh High Court regarding deduction of income-tax at source from compensation amounts. However, the court noted that the issue of whether claimants are liable to pay tax on such compensation was not adequately addressed in those judgments. The court held that the trial court's decision to reject objections raised by the petitioner and the Assistant Commissioner/Land Acquisition Officer was erroneous. Consequently, the court set aside the impugned common order passed by the execution court in favor of the petitioner.

In conclusion, the High Court of Karnataka allowed all 15 civil revision petitions, setting aside the common order passed by the execution court on the grounds of misinterpretation of the Income-tax Act provisions and failure to consider the tax liability of claimants on compensation received under the Land Acquisition Act.