Agricultural land acquisition compensation is not subject to tax deduction at source, and wrongly withheld sums must be refunded with interest.
Compensation awarded for compulsory acquisition of agricultural land was held not liable to income tax deduction at source, because the statutory scheme and the land's agricultural character took the award outside such withholding. As the deduction was impermissible, the wrongly withheld amount had to be refunded. The Court further held that interest was payable on the deducted sum from the date of deduction until realisation, and directed the acquiring authorities to make restitution, with liberty to recover the amount from the Income Tax Department if already remitted.
Issues: (i) Whether income tax could be deducted at source from compensation awarded for acquisition of agricultural land. (ii) Whether the petitioners were entitled to refund of the deducted amount with interest.
Issue (i): Whether income tax could be deducted at source from compensation awarded for acquisition of agricultural land.
Analysis: The land acquired was agricultural land, and the record showed that the compensation related to such land. The statutory scheme and the earlier judicial view relied upon made it clear that compensation for agricultural land acquired compulsorily is not liable to income tax deduction at source. The later land acquisition provision and the income-tax provision considered by the Court supported the conclusion that no tax was payable on such awarded compensation.
Conclusion: Income tax could not be deducted at source from the compensation awarded for acquisition of the agricultural land.
Issue (ii): Whether the petitioners were entitled to refund of the deducted amount with interest.
Analysis: Since the deduction was found to be impermissible, the amount wrongly deducted had to be returned. The Court also held that interest was payable on the wrongly withheld amount from the date of deduction till realisation, and directed refund by the acquiring authorities, with liberty to recover from the Income Tax Department if payment had already been made over.
Conclusion: The petitioners were entitled to refund of the deducted amount with interest at 15% per annum.
Final Conclusion: The writ petition succeeded, and the respondents were directed to restore the wrongly deducted tax amount and pay interest, affirming that compensation for agricultural land acquisition was not liable to such deduction.
Ratio Decidendi: Compensation awarded for compulsory acquisition of agricultural land is not subject to income tax deduction at source, and any amount wrongly deducted must be refunded with appropriate interest.
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