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TMI Blog2016 (5) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... the above communication has become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and not interest, the second respondent was not justified in deducting tax at source under section 194A of the I.T. Act in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted under section 194A of the I.T. Act. For the foregoing reasons, the petition succeeds and is accordingly allowed. The second respondent having wrongly deducted an amount of ₹ 2,07,416/- by way of tax deducted at source out of the amount of ₹ 20,74,157/- payable to the petitioner under section 28 of the Act of 1894 and having deposited the same with the income-tax authorities, taking a cue from the decision of the Punjab and Haryana High Court in Jagmal Singh v. State of Haryana (2013 (7) TMI 774 - PUNJAB & HARYANA HIGH COURT ), the first respondent is directed to forthwith deposit such amount with the Reference Court, which shall thereafter disburse such amount to the petitioner herein. Rule is made absolute accordingly with costs. - Decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the petitioner invited the attention of the court to the statement showing the amount of compensation to be deposited in the court in terms of the award dated 23rd March, 2011 passed by the learned Principal Senior Civil Judge, to point out that the amount referred to in Column No.15 was the amount of interest payable under section 28 of the Act of 1894. It was pointed out that in terms of Column No.18 of the said statement, out of the amount of interest of ₹ 20,74,157/-, income tax of ₹ 2,07,416/- is required to be deducted at source. It was pointed out that the petitioner s application for a certificate for no deduction of income tax under section 197 of the I.T. Act has been rejected on the ground that the interest amount on delayed payment of compensation and enhanced value of compensation is taxable as per section 57(iv) read with sections 56(2)(viii) and 145A(b) of the Income Tax Act. Reference was made to the decision of the Supreme Court in the case of Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF), (2009) 8 SCC 412, to point out that the court in the said case has held that interest under section 28 of the Act of 1894 is part of the amount of compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art 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. The court observed that in the facts of the said case, compensation assessed and the interest calculated were for acquiring agricultural land and the amount deposited represented the liability under section 28 of the Act of 1894 and hence, there was no requirement of collecting TDS for this amount. The court clarified that any liability which goes towards interest calculated under section 34 of the Act of 1894 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 the land owners to directly 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed deduction of income tax on interest of ₹ 20,74,157/- which was worked out at ₹ 2,07,416/- in terms of the provisions of section 194A of the Income Tax Act. It was submitted that the Income Tax Officer, TDS-1, Surat while rejecting the application made by the petitioner under section 197 of the I.T. Act, has taken into consideration the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of that Act. According to the learned counsel, the action of the Assessing Officer in rejecting the application is just, legal and valid because in terms of the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of the I.T. Act, tax is required to be deducted at source under section 194A of the I.T. Act at the rate of 10% from the interest payable under section 28 of the Act of 1894. Referring to the provisions of section 56 of the I.T. Act, it was pointed out that sub-clause (viii) of sub-section (2) thereof provides that income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A is chargeable to income tax under the head Income from other sources . It was point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decision has held that interest directed by the Collector is to be treated as part of compensation while the interest on the enhanced compensation directed by the Court is not. Even though there is little confusion in reference to the relevant sections but as per discussion, it is clear that interest directed by the Collector partakes the character of compensation and forms part thereof under Section 34 of the Act whereas the interest ordered by the Court falls under Section 28 of the Act. 26. To conclude, from the above it emerges:- (a) that income from Business or profession and income from other sources are ascertained on the basis of system of accountancy followed by the assessee; (b) where assessee is not maintaining books of accounts by adopting any specific method, it shall be treated to be cash system of accountancy; (c) the interest under Section 34 to be awarded by the Collector partakes the character of compensation and is taxable in the year of receipt in view of Section 45(5)(b) of the Act; and (d) under cash system of accountancy, the element of interest awarded by the Court received on enhanced amount of compensation under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent view that interest paid under section 28 of the Act of 1894 is in the nature of income from other sources and is taxable under section 56 of the Act. Under the circumstances, the second respondent was wholly justified in deducting tax at source under section 194A of the I.T. Act and that the first respondent was justified in rejecting the application for issuance of certificate under section 197 of the I.T. Act for no deduction of tax. It was, accordingly, urged that the petition being devoid of merits, deserves to be dismissed. 6. The facts as emerging from the record are that the petitioner s agricultural lands came to be acquired under the provisions of the Act of 1894 for the public purpose of the Ozat-2 Irrigation Scheme. The award passed by the Collector came to be challenged by the petitioner before the learned Principal Senior Civil Judge, Junagadh (hereinafter referred to as the Reference Court ), who by an order dated 20th March, 2011 awarded additional compensation of ₹ 5,01,846/- in favour of the petitioner together with other statutory benefits. Pursuant to such award, the second respondent calculated the amount payable to the petitioner and in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a measure to offset the effect of inflation and the continuous rise in the value of properties. Therefore, the amount payable under section 23(1-A) of the Act is an additional compensation in respect to the acquisition and has to be reckoned as part of the market value of the land. The court further held that the award of interest under section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the court awards excess amount. In such cases, interest on that excess alone is payable. Section 28 empowers the court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the court includes the additional compensation awarded under section 23(1-A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the court. It was further held that section 28 is applicable only in respect of the excess amount which is determined by the court after a reference under section 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have to go by the provisions of the 1894 Act which awards interest both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23(1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act. Thus, the court has held that interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. Such decision was, therefore, rendered in favour of the revenue. 8. The above referred decision in the case of Ghanshyam (HUF) came to be followed by the Supreme Court in the case of Commissioner of Income Tax, Rajkot v. Govindbhai Mamaiya, (2014) 16 SCC 449, wherein the court after referring to the above decision in the case of C.I.T. v. Ghanshyam (HUF) (supra) held that it is clear that whereas interest under section 34 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be the income of the year in which it is received. Clause (viii) of subsection (2) of section 56 of the I.T. Act provides for income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A which is chargeable as income from other sources. The first respondent Income Tax Officer seeks to tax the interest received by the petitioner under section 28 of the Act of 1894 as income from other sources under section 56(2)(viii) read with section 145A(b) of the I.T. Act. In the opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression interest as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the compensation and, therefore, forms part of the compensation. At this stage it may be apt to quote the following part of the decision of the Supreme Court in Ghanshyam (HUF) (supra): 54. Section 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to the substitution of section 145A of the I.T. Act by Finance (No.2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope and effect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No.5/2010, dated 3.6.2010, as follows: Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.- 46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head Profits and gains of business or profession or Income from other sources , shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further the Hon ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax, Faridabad v. Bir Singh (HUF), Ballabgarh (supra), the Punjab and Haryana High Court has held that under the scheme of the 1894 Act, interest under section 34 is part of compensation while interest under section 28 is not the interest which partakes the character of compensation and is treated differently. In the opinion of this court, the above view of the Punjab and Haryana High Court is contrary to what has been held in the decision of the Supreme Court in Ghanshyam (HUF) (supra) wherein it has been held that interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. This court is in agreement with the view adopted by the Punjab and Haryana High Court in Jagmal Singh v. State of Haryana (supra), which has been extensively referred to in paragraph 4.1 above. The decision of the Delhi High Court in Commissioner of Income-tax v. Sharda Kochhar (supra), having been rendered in the context of a different controversy would have no applicability to the facts of the present case. 13. The upshot of the above discus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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