Statutory interest in land acquisition is taxable separately from compensation, while excess deduction from compensation must be refunded.

Statutory interest awarded in land acquisition matters remains distinct from compensation, so tax deducted at source may validly apply to interest under Sections 28 and 34 of the Land Acquisition Act, 1894. The Bombay HC followed the larger Bench view that such court-awarded interest does not lose its character as interest, and declined to adopt the later contrary distinction. If tax was deducted from compensation itself, the affected party could make a representation to the Income-tax Officer and obtain refund of any excess deduction established on verification.

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Issues: Whether tax deducted at source from amounts arising in land acquisition matters could validly be deducted from interest awarded under Sections 28 and 34 of the Land Acquisition Act, 1894, and whether any excess deduction from compensation was liable to be refunded.

Analysis: The amount awarded as compensation for acquisition of land is distinct from interest payable on that compensation. The judgment follows the larger Bench ruling that interest paid under Section 28, like interest under Section 34, is statutory interest and does not alter its character merely because it is awarded by the Court. The later decision relied upon for a contrary distinction was held not to have considered the earlier larger Bench ruling, and the larger Bench view was followed. On the factual aspect, the petitioners were permitted to make a representation to the Income-tax Officer, and if tax had been deducted not only from interest but also from compensation, the excess amount was to be refunded.

Conclusion: Deduction of tax at source from interest awarded under Sections 28 and 34 was upheld, but any deduction made from compensation itself was directed to be refunded if established on representation.

Final Conclusion: The petitions succeeded only to the limited extent of securing scrutiny and refund of any excess deduction from compensation, while the legal position on TDS applicability to statutory interest was affirmed.

Ratio Decidendi: Statutory interest awarded in land acquisition matters remains interest and is distinct from compensation, so tax deduction at source may apply to such interest, while any deduction from compensation beyond the lawful extent is refundable.

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