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Issues: Whether interest awarded under Section 28 of the Land Acquisition Act, 1894 on enhanced compensation was taxable income in the year of receipt and whether tax deducted at source from such amount was rightly withheld.
Analysis: The Court held that tax deduction at source is only a mode of collection and does not affect the charge of tax. It noted that Section 199 of the Income-tax Act, 1961 treats tax deducted as payment on behalf of the assessee, and that the certificates showed deduction under Section 194A of that Act. Relying on the statutory amendments made by Finance (No. 2) Act, 2009 to Section 56(2) and Section 145A of the Income-tax Act, 1961, the Court held that interest received on compensation or enhanced compensation is deemed income of the year of receipt. The Court further relied on the settled position that interest under Section 28 of the Land Acquisition Act, 1894 is a revenue receipt and taxable, and held that the earlier contrary view could not assist the petitioners.
Conclusion: The interest component on enhanced compensation was held taxable in the year of receipt, the deduction of TDS was held to be valid, and the petitioners were left to seek any admissible refund through income tax returns.
Final Conclusion: The writ petition failed on merits because the amount in question was exigible to tax and the deduction at source was not illegal.
Ratio Decidendi: Interest awarded under Section 28 of the Land Acquisition Act, 1894 on enhanced compensation is taxable income in the year of receipt and is liable to tax deduction at source under the Income-tax Act, 1961.
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