Section 28 land acquisition interest forms part of enhanced compensation, so no TDS under section 194A.

Interest under section 28 of the Land Acquisition Act, 1894 is treated as an accretion to the value of acquired land and forms part of enhanced compensation, unlike interest under section 34 which compensates delay in payment. On that basis, the amount is covered by enhanced compensation under the Income-tax Act and does not constitute taxable income from other sources under section 56(2)(viii) or interest for section 145A(b). As a result, tax deduction at source under section 194A was not justified, and refusal to issue a certificate under section 197 could not stand.

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Issues: Whether interest payable under section 28 of the Land Acquisition Act, 1894 forms part of enhanced compensation and is therefore not taxable as income from other sources so as to justify deduction of tax at source under section 194A of the Income-tax Act, 1961.

Analysis: The compensation awarded for acquisition of agricultural land included interest computed under section 28 of the Land Acquisition Act, 1894. The governing distinction is between interest under section 28 and interest under section 34 of the 1894 Act. Interest under section 28 is an accretion to the value of the acquired land and is treated as part of enhanced compensation, whereas interest under section 34 is compensation for delay in payment after determination of compensation. The legal position affirmed by the Supreme Court is that amount payable under section 28 falls within enhanced compensation under section 45(5) of the Income-tax Act, 1961. Once so characterised, it does not answer the description of interest received on compensation or enhanced compensation for the purpose of section 145A(b), and it cannot be taxed under section 56(2)(viii) as income from other sources. Consequently, no tax was deductible at source under section 194A, and the refusal to grant a certificate under section 197 was unsustainable.

Conclusion: Interest paid under section 28 of the Land Acquisition Act, 1894 is part of compensation and not taxable as income from other sources. Deduction of tax at source was not justified, and the assessee was entitled to relief.

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