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Issues: Whether tax deducted at source from interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 was legally deductible and refundable to the petitioners.
Analysis: Interest awarded under Section 28 of the Land Acquisition Act, 1894 is a taxable receipt. The statutory scheme under the Income-tax Act, 1961 treats tax deduction at source as a mode of collection and recovery, and tax deducted on interest is creditable as payment on behalf of the assessee. The amendments made by Finance (No. 2) Act, 2009, including Section 56(2)(viii) and Section 145A(b) of the Income-tax Act, 1961, reinforce that interest on compensation or enhanced compensation is taxable in the year of receipt. The prior decisions relied upon by the petitioners did not alter the settled position that such interest is exigible to tax, and deduction at source under Section 194A of the Income-tax Act, 1961 was therefore justified.
Conclusion: The challenge to deduction of tax at source failed. The petitioners were not entitled to refund on the ground that the amount represented interest on enhanced compensation.
Final Conclusion: Interest received on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 remains taxable under the Income-tax Act, 1961, and tax deduction at source from that amount was upheld.
Ratio Decidendi: Interest on enhanced compensation is a taxable revenue receipt chargeable in the year of receipt, and tax may validly be deducted at source from such payment under the Income-tax Act, 1961.
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