Tax deduction on land acquisition compensation and interest was held unlawful where the underlying receipt was not taxable.

Compensation and interest received under a land acquisition award were not liable to tax, so there was no legal basis for deduction of tax at source from those amounts. The Gujarat HC noted that the issue was already covered by its binding earlier on the same question, and the acquiring body could not justify the deduction from the award amount. The TDS deduction from the compensation and interest was therefore illegal and was set aside.

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Issues: Whether tax was deductible at source from the compensation and interest received by the petitioner under the land acquisition award.

Analysis: The land was acquired for a public purpose and the petitioner received additional compensation as well as interest under the land acquisition proceedings. The amounts were not liable to tax, and once the underlying receipt was not taxable there was no basis for deduction of tax at source. The issue was covered by the binding decision of the Court in an earlier matter on the same question, and the acquiring body could not justify the deduction made from the award amount.

Conclusion: The deduction of tax at source from the compensation and interest was illegal and was set aside.

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