Substance over nomenclature in land acquisition payments: enhanced compensation mislabeled as interest was not subject to TDS under section 194A.

An amount described in a land acquisition award as "interest" was treated as enhanced compensation because the competent authority clarified that the label was used inadvertently and the payment was intended as additional compensation under the Land Acquisition Act. The tax character of the payment was determined by its substance, not by the mistaken nomenclature in the award. As the amount formed part of the compensation mechanism for acquisition of agricultural land, it was not interest for delay in payment within section 194A of the Income-tax Act and was not subject to tax deduction at source. The Revenue's challenge failed and the Commissioner (Appeals) was upheld.

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Issues: Whether the amount described in the land acquisition award as "interest" at 12% per annum was enhanced compensation under the land acquisition law and, if so, whether it was liable for deduction of tax at source under section 194A of the Income-tax Act, 1961.

Analysis: The award and the clarification issued by the competent authority showed that the word "interest" had been used inadvertently and that the amount was intended to be additional compensation at 12% per annum under section 23(1A) of the Land Acquisition Act, 1894. The Assessing Officer's remand report also accepted this clarification. The payment was not interest for delay in payment within the meaning of section 194A, but part of the compensation mechanism for acquisition of agricultural land. The substance of the transaction, and not the mistaken nomenclature in the award, was decisive.

Conclusion: The amount was enhanced compensation and not interest income liable for deduction of tax at source under section 194A. The Revenue's challenge failed and the order of the Commissioner (Appeals) was sustained.

Ratio Decidendi: For tax deduction purposes, the real character of the payment governs, and an amount forming part of enhanced compensation under land acquisition law does not become interest merely because it is mistakenly described as such in the award.

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