Tax deduction on enhanced land acquisition interest applies under section 194A, unless claimants file the prescribed income declaration.

Interest on enhanced compensation awarded under land acquisition proceedings is treated as interest for the purposes of section 194A of the Income-tax Act and is liable to tax deduction at source, subject to statutory limits and exceptions. The obligation to deposit the withheld interest depends on whether the claimants furnish the prescribed affidavit or statement declaring that their estimated total income for the relevant year will remain below the taxable threshold. If the declaration is filed, the withheld amount must be deposited; if not, deposit need not be made in that petition.

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Issues: (i) Whether interest payable on enhanced compensation for land acquired under the Land Acquisition Act is subject to deduction of income-tax under section 194A of the Income-tax Act, 1961. (ii) Whether the obligation to deduct or deposit the withheld interest depends on the claimants filing an affidavit or statement regarding their estimated total income for the relevant period.

Issue (i): Whether interest payable on enhanced compensation for land acquired under the Land Acquisition Act is subject to deduction of income-tax under section 194A of the Income-tax Act, 1961.

Analysis: Interest awarded on enhanced compensation under a reference under section 18 of the Land Acquisition Act retains the character of interest payable to the claimant. Section 194A authorises deduction of tax at source from interest payments made by the person responsible for payment. The earlier view that the civil court decree could not be treated as a judgment debt outside the provision was held inapplicable to compensation determined under the land acquisition process. The direction in the departmental letter could not override the statutory scheme, but the statutory provision itself was applicable to such interest.

Conclusion: Yes. Interest on enhanced compensation is covered by section 194A and is liable to deduction of income-tax, subject to the statutory limits and exceptions.

Issue (ii): Whether the obligation to deduct or deposit the withheld interest depends on the claimants filing an affidavit or statement regarding their estimated total income for the relevant period.

Analysis: The proviso to section 194A permits the recipient to furnish an affidavit or statement declaring that the estimated total income for the relevant assessment year will be below the taxable limit. As the orders did not disclose the break-up of compensation and interest or the dates necessary to test tax liability in each execution petition, the Court directed the claimants to file such declaration. If the declaration is filed, the Land Acquisition Officer must deposit the withheld interest; if not, the Officer need not deposit the withheld amount in that petition.

Conclusion: Yes. The directions regarding deposit of the withheld interest depend on the filing of the prescribed declaration by the claimants.

Final Conclusion: The revision petitions were disposed of with directions that recognise the applicability of tax deduction on interest on enhanced land acquisition compensation, while preserving the claimants' statutory right to avoid deduction by filing the required declaration of non-liability.

Ratio Decidendi: Interest on enhanced compensation under the Land Acquisition Act is taxable interest within section 194A, and deduction at source is governed by that provision subject to the recipient's statutory declaration of estimated income below the taxable threshold.

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