2016 (6) TMI 1458 - AT - Income Tax

TDS u/s 194A - payment of interest on compensation of agricultural land - enhanced / additionalf compensation paid and recorded as interest in the Award of Compensation of the Punjab Government - assessee submitted that amount on which TDS has been proposed to be deducted is not interest but enhanced compensation as per Standing order No. 28 of Punjab Government under which land has been acquired which has been paid to land owner @ 12% from the date of initial notification - Also submitted that as per record no interest has been paid on account of delayed payment i.e. from date of award till date of payment - CIT-A held amount was additional compensation paid as per section 23(IA) of the Land Acquisition Act of 1894 and not liable to deduction of tax - HELD THAT - We find that as per Provisions of clause (b) of section 145A of the Income Tax Act 1961 interest received by an assessee on compensation or on enhanced compensation as the case may be shall be deemed to be the income of the year in which it is received. As per provisions of section 56 (viii) of the Income Tax Act 1961 income by way of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A shall be chargeable to income-tax under the head Income from other sources. TDS is deducted U/s 194A on the payment of interest other than Interest on securities . Also as per provisions of Section 194LA TDS is deducted on payment of compensation on acquisition of certain immovable property other than agricultural land - competent authority in this regard has clearly clarified that word interest has been wrongly used. It is in fact an enhanced compensation. This statement of the competent authority is unambiguous and it has also been accepted by the Assessing officer in the remand report. It is undisputed that the payment in this regard does not relate to any award by the Court regarding payment of interest. The payment has been made as per section 23 (1A) of the Land Acquisition Act 1894 which was erroneously mentioned as interest in the award of competent authority. The clarification in regard has been issued by the Special Secretary Revenue Government of Punjab. Letter was also issued to the Chief Commissioner of Income Tax Chandigarh clarifying the position. We agree with the CIT(A) that impugned amount was additional compensation paid as per section 23(IA) of the Land Acquisition Act of 1894 and not liable to deduction of tax u/s 194A - It is settled law that it is the substance of the transaction which has to be taken into account in assessment proceedings and not the nomenclature to the same. The Revenue in grounds of appeal has referred to the decision of Manjit Singh (HUF) Vs. UOI and others 2015 (12) TMI 1123 - PUNJAB HARYANA HIGH COURT - DR was not at all in a position to explain us to how this decision helps the case of Revenue. Accordingly we do not find any merit in the grounds raised by the Revenue. Accordingly we uphold the order of Ld. CIT(A). Appeal filed by the Revenue stands dismissed.

Summary

Issues Involved:
1. Whether the payment of 12% per annum recorded as interest in the "Award of Compensation" is to be treated as enhanced compensation or interest.
2. Whether the failure to deduct TDS on the said amount constitutes a default under section 194A of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Treatment of 12% per annum Payment as Enhanced Compensation or Interest
The primary issue revolves around whether the payment of 12% per annum, mentioned as interest in the "Award of Compensation" by the Punjab Government, should be treated as enhanced compensation or interest. The assessee argued that this amount is part of the land compensation and not interest on delayed payment, citing the Land Acquisition Act. The Assessing Officer (AO) disagreed, treating the amount as interest and holding the assessee in default for not deducting TDS under section 194A.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] considered the assessee's submission and the remand report from the AO, which included a clarification from the Special Secretary Revenue and the District Revenue Officer, Ludhiana. These authorities clarified that the term "interest" was a misnomer and should be read as "enhanced compensation" as per the Land Acquisition Act, 1894. The CIT(A) referenced the Supreme Court's decision in CIT Faridabad Vs. Ghanshayam (HUF), which distinguished between interest and additional compensation under Section 23(1A) of the Land Acquisition Act, 1894. The CIT(A) concluded that the 12% per annum payment is additional compensation, not interest, and thus not liable for TDS under section 194A.

Issue 2: Default in TDS Deduction under Section 194A
The AO's position was that the assessee defaulted in deducting TDS on the interest component of the compensation. However, the CIT(A) and the Tribunal found that the payment was additional compensation under Section 23(1A) of the Land Acquisition Act, 1894, and not interest. The Tribunal upheld the CIT(A)'s decision, emphasizing that the substance of the transaction should be considered over its nomenclature. The Tribunal noted that the competent authority's clarification, accepted by the AO, indicated that the payment was indeed enhanced compensation. Consequently, there was no requirement to deduct TDS under section 194A.

Conclusion:
The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A) that the 12% per annum payment was enhanced compensation and not interest. Therefore, the assessee was not in default for not deducting TDS under section 194A. The Tribunal emphasized the importance of the substance of the transaction over its nomenclature and found no merit in the Revenue's grounds of appeal. The decision was based on the clear distinction between interest and additional compensation as established by the Supreme Court and the clarifications provided by the competent authorities.