Tax deduction at source applies to interest on enhanced land acquisition compensation despite its inclusion in a decree amount.

Interest on enhanced compensation awarded in land acquisition proceedings is taxable, and the person responsible for payment may deduct tax at source under section 194A of the Income-tax Act, 1961. The fact that the interest forms part of a decree amount does not prevent deduction at source. The interest is treated as accruing year by year from the date of possession until the award or decree, so it cannot be assessed as a single lump sum. Any dispute about liability or excess deduction must be taken before the income-tax authorities; no court direction was warranted once the amount had already been remitted to the tax department.

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Issues: Whether income-tax could be deducted at source from interest payable on enhanced compensation awarded in land acquisition proceedings.

Analysis: Interest on enhanced compensation awarded on a reference under section 18 of the Land Acquisition Act, 1894 is liable to income-tax, and the person responsible for making such payment is empowered to deduct tax at source under section 194A of the Income-tax Act, 1961. The fact that the amount forms part of the decree does not prevent deduction at source. The interest is to be treated as accruing year after year from the date of possession until the date of the award or decree, and assessment cannot be made in one lump sum. In the absence of the income-tax authorities as parties, and where the amount had already been remitted to the tax department, no direction could be issued to deposit the deducted amount in court. Any grievance regarding liability or excess deduction was left to be pursued before the income-tax authorities in accordance with law.

Conclusion: Deduction of income-tax at source from interest on enhanced compensation was held permissible and the challenge to such deduction failed.

Ratio Decidendi: Interest on enhanced compensation in land acquisition proceedings is taxable and tax may be deducted at source by the person responsible for payment, notwithstanding that the sum is part of a decree amount.

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