Court rules TDS not applicable on Land Acquisition Act interest, directs refund

The court ruled in favor of the petitioner in a case challenging the deduction of Tax At Source (TDS) from compensation for land acquisition. The Division Bench held that interest under the Land Acquisition Act is not subject to TDS deduction. The court directed the respondents to stop deducting TDS from the compensation awarded for land acquisition under the Act, allowing the petitioner's claim for a refund of the wrongly deducted amount.

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Issues:
Challenge to deduction of Tax At Source (TDS) from compensation granted for land acquisition under Section 194(A) of the Income Tax Act.

Analysis:
In a petition under Article 226 of the Constitution of India, the petitioner contested the deduction of TDS at a rate of 20% from compensation awarded for the acquisition of land. The petitioner sought relief from deducting TDS and requested the court to quash the relevant clause of the grant memo. Additionally, the petitioner asked for the entire compensation amount to be deposited with interest and disbursed without TDS deductions. The respondents conceded that a previous judgment by a Division Bench remained applicable to the present case.

The Division Bench's decision clarified that interest under Section 28 of the Land Acquisition Act, 1894, is considered compensation and not subject to TDS deduction under Section 194A of the Income Tax Act. The petitioner was found entitled to a refund of the wrongly deducted amount. The court found the law laid down in the previous case directly applicable to the present matter. Following this precedent, the court directed the respondents not to deduct TDS from the compensation awarded for land acquisition under Section 28 of the Land Acquisition Act, 1894.

Despite previous notifications advising against TDS deductions on compensation under Section 28 of the Land Acquisition Act, the respondent did not respond to requests to refrain from such deductions. Consequently, the court issued a clear directive to the respondents to cease deducting TDS from the compensation amount related to the specific land acquisition cases mentioned in the petition. The writ petition was allowed to this extent only, in favor of the petitioner.

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