Taxability of interest on enhanced compensation: TDS under the Income-tax Act was upheld as justified.

Interest received under Section 28 of the Land Acquisition Act on enhanced compensation is treated as a separate revenue receipt and is taxable as income in the year of receipt under the Income-tax Act. The statutory scheme, including the definitions and provisions governing income from interest and taxation on receipt basis, applies to such interest, and it is not exempt merely because it arises from land acquisition proceedings. On that basis, tax deduction at source under Section 194A was held to be justified, and any refund, if otherwise permissible, must be pursued through the income tax return process.

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Issues: Whether interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 is taxable under the Income-tax Act, 1961 and whether tax deducted at source from such interest was rightly deducted.

Analysis: Interest deducted from the compensation represented the interest component on enhanced compensation and fell within the charging and collection machinery of the Income-tax Act, 1961. Interest is a separate receipt from compensation, and the statutory scheme, including Section 2(28A), Section 56(2)(viii) and Section 145A(b) of the Income-tax Act, 1961, treats interest on compensation or enhanced compensation as income taxable in the year of receipt. The Court also relied on the settled position that interest under Section 28 of the Land Acquisition Act, 1894 is a revenue receipt and not exempt merely because it arises from land acquisition proceedings. On that basis, the deduction of tax at source under Section 194A of the Income-tax Act, 1961 was held to be justified, leaving the petitioners to seek any permissible refund through their income tax returns.

Conclusion: The petitioners were not entitled to refund of the tax deducted at source, and the deduction was upheld.

Final Conclusion: The writ petitions failed on the taxability of interest awarded on enhanced compensation, and the challenge to the TDS deduction was rejected.

Ratio Decidendi: Interest awarded under Section 28 of the Land Acquisition Act, 1894 on enhanced compensation is taxable as income in the year of receipt and is subject to deduction of tax at source under the Income-tax Act, 1961.

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