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TMI Blog2013 (11) TMI 1651X X X X Extracts X X X X X X X X Extracts X X X X ..... was aggrieved against the TDS to be remitted by the Land Acquisition Collector to the Income Tax Department. The issue with regard to deduction of tax at source on the payment of interest on compensation awarded under Section 23 as well as under Section 28 of the Act is no more res integra. Although tax is liable to be paid on income by way of capital gains which also includes compensation in lieu of compulsory acquisition of land, however, tax liability is based on type of land viz. Rural and Urban, Ministry of Rural Development Department of Land Resources, Government of India has issued circular dated 13.04.2011 to Revenue Secretaries of all the States clarifying the issue of levy of tax on compensation awarded under Land Acquisition Act. As per provisions of Income Tax Act, 1961 explained in said circular, there is no tax liability in respect of compensation received in lieu of acquisition of rural agricultural land. In relation to urban agricultural land, there is exemption from tax liability after 01.04.2004 as per Section 10(37) of the Income Tax Act. In case the conditions for exemption are not fulfilled in respect of Urban Agricultural land then tax is liable to be paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the publication of the notification under section 4, sub-section (1), in respect of such land to the date of the award of the Collector or the date of taking possession of the land, whichever is earlier. Explanation - In computing the period referred to in this subsection, any period or periods during which the proceedings for the acquisition of the land were held up on account of any stay or injunction by the order of any Court shall be excluded. (2) In additional to the market-value of the land as above provided, the Court shall in every case award a sum of thirty per centum on such market-value, in consideration of the compulsory nature of the acquisition." "28. Collector may be directed to pay interest on excess compensation - If the sum which, in the opinion of the Court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of nine per cenum per annum from the date on which he took possession of the land to the date of payment of such excess into Court: Provided that the award of the court may also direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1894 Act. It depends upon the claim, unlike interest under Section 34 which depends on undue delay in making the award. 50. It is true that "interest" is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we 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(1A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act." Relying on judgment in Ghanshyam's case (supra) a Division Bench of this Court in Commissioner of Wealth Tax vs. Nand Lal, Mohan Lal etc. (2010) 232 CTR (P&H) 185 and Commissioner of Wealth Tax vs. Parminder Singh,(2010) 232 CTR (P&H) 195 has held that additional amount under Section 23(1A) and solatium under Section 2392) form part of enhanced compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under Section 34." 25. The apex Court in the aforesaid 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." Apparently there is some conflict between the two judgments as regards nature of interest awarded under Section 28 of the Land Acquisition Act. The spirit of both the judgments is however, same i.e. when interest is awarded for delay in payment it does not form part of compensation and is taxable as `income from other source' whereas intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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