TDS on land acquisition compensation excluded where the payment is referable to section 28 and agricultural land is acquired.

Section 194LA does not require tax deduction at source on compensation or enhanced compensation for compulsory acquisition of agricultural land. Where the amount is referable to section 28 of the Land Acquisition Act, 1894, it is treated as an accretion to the value of the acquired land and forms part of enhanced compensation, bringing it within the statutory exclusion from TDS. The position is different for amounts referable to section 34 interest, but that issue did not govern the present acquisition of agricultural land. The deduction orders were therefore set aside.

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Issues: Whether tax was deductible at source under section 194LA of the Income-tax Act, 1961 from compensation and the component payable under section 28 of the Land Acquisition Act, 1894 for acquisition of agricultural land.

Analysis: Section 194LA applies to compensation or enhanced compensation for compulsory acquisition of immovable property other than agricultural land. Interest payable under section 28 of the Land Acquisition Act, 1894 stands on a different footing from interest under section 34, because section 28 treats the amount as an accretion to the value of the acquired land and part of enhanced compensation. Since the acquisition was of agricultural land and the deposit represented liability under section 28, the amount fell within the statutory exclusion from TDS. The Court also noted that deduction at source is not warranted where the component is referable to section 28, though deduction relating to section 34 would stand on a different footing.

Conclusion: TDS was not deductible on the compensation component relatable to section 28 for acquisition of agricultural land, and the deduction orders were liable to be set aside.

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