2015 (12) TMI 1066 - HC - Income Tax

Release of amount of TDS from the compensation of their acquired land seeked - Held that - Examining the issue of taxability of interest under Section 28 of the Act in Commissioner of Income Tax v. Bir Singh (HUF) 2010 (10) TMI 581 - PUNJAB & HARYANA HIGH COURT it was held by the Division Bench of this Court that the interest awarded by court on enhanced compensation under Section 28 of the Act was chargeable to tax as income from other sources in the year of receipt In view of the above the tax at source has been rightly deducted and the petitioners can claim the refund if any admissible to them by filing the income tax returns in accordance with law. - Decided against assessee.

Summary

Issues Involved:
1. Entitlement to refund of Tax Deducted at Source (TDS) on interest awarded under Section 28 of the Land Acquisition Act, 1894.
2. Applicability of Section 194A of the Income Tax Act, 1961 to interest on enhanced compensation.
3. Impact of amendments to Section 56(2) and Section 145A of the Income Tax Act, 1961.
4. Interpretation of Supreme Court judgments on the nature of interest under Section 28 of the Land Acquisition Act.

Issue-wise Detailed Analysis:

1. Entitlement to Refund of TDS on Interest Awarded under Section 28 of the Land Acquisition Act, 1894:
The petitioners sought a writ of mandamus to direct the respondents to release the TDS deducted from the compensation for their acquired land. They argued that they were entitled to a refund of TDS on the interest awarded under Section 28 of the Land Acquisition Act, 1894, citing the Supreme Court judgment in Commissioner of Income-tax v. Ghanshyam (HUF) and a decision by the High Court in Jagmal Singh and another v. State of Haryana and another.

2. Applicability of Section 194A of the Income Tax Act, 1961 to Interest on Enhanced Compensation:
The court found no merit in the writ petition, emphasizing that the TDS was correctly deducted under Section 194A of the Income Tax Act, 1961, which pertains to interest other than "interest on securities." The court noted that the tax deducted at source is a provisional collection of tax and subject to final determination at the time of filing the return.

3. Impact of Amendments to Section 56(2) and Section 145A of the Income Tax Act, 1961:
The judgment highlighted amendments made by the Finance (No.2) Act, 2009, effective from 1.4.2010, which included interest on compensation or enhanced compensation as income of the year in which it is received. This amendment clarified that the interest component on the amount of compensation or enhanced compensation is taxable in the year of receipt, regardless of the accounting method employed by the assessee.

4. Interpretation of Supreme Court Judgments on the Nature of Interest under Section 28 of the Land Acquisition Act:
The court referred to several Supreme Court judgments, including Dr. Shamlal Narula v. CIT and Bikram Singh vs. Land Acquisition Collector, which consistently held that interest awarded under Section 28 of the Land Acquisition Act is a revenue receipt and taxable. The court distinguished the case of Ghanshyam (HUF), noting that the petitioners could not derive any benefit from it due to subsequent authoritative pronouncements and amendments to the Income Tax Act.

Conclusion:
The court concluded that the tax deducted at source on the interest component of the enhanced compensation was correctly done. The petitioners were advised to claim any refund by filing income tax returns in accordance with the law. The writ petitions were dismissed with these observations.