1992 (3) TMI 11 - HC - Income Tax

Court rules interest on compensation under Land Acquisition Act not subject to income tax without claimant being an assessee.

The court held that the Revenue Department cannot deduct income tax from interest accrued on compensation under the Land Acquisition Act unless the ... Income Issues:1. Whether the Revenue Department is entitled to deduct income-tax from interest accrued on compensation amount under the Land Acquisition Act.Analysis:The judgment addressed the common question of whether the Revenue Department can deduct income tax from interest accrued on compensation under the Land Acquisition Act. The case stemmed from a D.O. letter by the Commissioner of Income-tax instructing officers to deduct tax on interest payments. The Land Acquisition Officers deducted tax on interest accrued on compensation amounts, leading to objections from decree-holders. The Subordinate judge, relying on a Supreme Court decision, held that income tax deduction was not applicable unless the decree-holder was an assessee. The State, aggrieved by this decision, filed revision petitions. The Government Pleader argued that the Supreme Court's decision did not apply as the compensation was under the Land Acquisition Act, not a civil court decree. The judgment emphasized that the nature of the decree in Land Acquisition Act cases differs from civil court decrees. It highlighted the Supreme Court's ruling that interest on enhanced compensation accrues year after year, not in a lump sum, and cannot be assessed for tax in one year.The judgment also discussed the circulars issued by the Commissioner of Income-tax and the Central Board of Direct Taxes, stating that they were not binding on the court unless the Act's provisions were applicable. It referenced a Supreme Court decision in Rama Bai's case, clarifying that interest on enhanced compensation for land acquired under the Land Acquisition Act accrues yearly and cannot be taxed in a lump sum. The judgment highlighted the proviso to section 194A, allowing the assessee to declare estimated income to avoid tax deduction. It noted that the lack of details in the orders under revision made it impossible to determine the tax liability of individual claimants. The court directed claimants to file affidavits declaring their estimated income, and the Land Acquisition Officers were instructed to deposit withheld interest based on these declarations.In conclusion, the judgment disposed of the revision petitions with specific directions for claimants to declare their estimated income and for the deposit of withheld interest accordingly. The court emphasized the unique nature of compensation under the Land Acquisition Act and clarified the tax implications regarding interest on enhanced compensation.