Tax Deduction on Compensation & Interest Under Land Acquisition Act: High Court Ruling

The High Court held that tax deduction at source must be done on the entire compensation amount, including interest awarded under Section 28 of the Land Acquisition Act, 1894. The Court referred to a previous Apex Court judgment distinguishing between compensation for land and statutory interest. It directed the petitioners to approach the Income-Tax Officer for potential refund of excess TDS deducted on both compensation and interest. The Court partially allowed the writ petitions and restrained further forwarding of deducted amounts until resolution, with refunds to be issued if necessary.

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Issues Involved:
The issue involves whether tax has been deducted at source on the entire amount of compensation awarded in Land Acquisition proceedings, specifically focusing on the distinction between interest awarded under Section 28 and Section 34 of the Land Acquisition Act, 1894.

Judgment Details:

1. The petitioners argue that tax deduction has been done on the entire compensation amount, excluding interest awarded under Section 28 of the Act. The Assistant Solicitor General disputes this, stating that there is no distinction between interest granted under Section 28 and Section 34.

2. The High Court finds that the issue is covered by a larger Bench judgment of the Apex court in "Bikram Singh Vs. Land Acquisition Officer," which distinguishes between compensation awarded over land and interest paid statutorily.

3. Sections 28 and 34 of the Act impose obligations on the Collector and the Court, respectively, to pay interest after compensation is determined. The nature of interest remains the same under both sections, and TDS must be deducted on the increased compensation amount if interest is awarded under Section 28.

4. The main dispute is whether TDS has been deducted only on the compensation amount or also on the interest awarded.

5. The Court directs the petitioners to represent the matter to the Income-Tax Officer within four weeks. If excess TDS has been deducted on both compensation and interest, it should be refunded to the petitioners.

6. Reference is made to the Apex Court judgment in "Commissioner of Income Tax, Faridabad Vs. Ghanshyam," which distinguishes between interest payable under Section 28 and Section 34. However, the High Court follows the larger Bench judgment in "Bikram Singh," as the former did not consider the latter.

7. In specific cases mentioned, where only 50% of the deducted amount has been forwarded to the Income Tax Officer, the Court restrains further forwarding until the matter is resolved. Refunds should be made if TDS is found to be incorrectly deducted on both compensation and interest.

8. The writ petitions are partly allowed and disposed of accordingly.

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