Compensation under land acquisition law is not interest for TDS purposes, so tax deduction was impermissible and refund required.

Amounts awarded under section 28 of the Land Acquisition Act, 1894 were treated as compensation, not interest, for the purpose of section 194A of the Income-tax Act, 1961. On that basis, tax deduction at source from such amounts was impermissible, and any deduction already made was required to be refunded to the claimant. The court also followed the earlier Division Bench view on the same question, confirming that compensation paid under section 28 does not attract TDS as interest.

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Issues: Whether tax at source could be deducted under section 194A of the Income-tax Act, 1961 from the amount awarded under section 28 of the Land Acquisition Act, 1894 and, if deducted, whether the amount was liable to be refunded to the claimant.

Analysis: The amount payable under section 28 of the Land Acquisition Act, 1894 was treated as part of the compensation and not as interest within the meaning of section 194A of the Income-tax Act, 1961. The Court followed the settled legal position that such amount does not attract deduction of tax at source, and that deduction already made from the compensation was not justified. The Court also accepted the applicability of the earlier Division Bench view on the same question.

Conclusion: Deduction of TDS from the compensation amount under section 28 of the Land Acquisition Act, 1894 was held impermissible, and any tax so deducted was directed to be refunded to the petitioner.

Final Conclusion: The writ petition succeeded to the extent that the respondents were restrained from deducting tax at source from the compensation awarded under section 28 of the Land Acquisition Act, 1894, and any amount already deducted was required to be refunded.

Ratio Decidendi: Amounts awarded under section 28 of the Land Acquisition Act, 1894, being in the nature of compensation, do not constitute interest for the purpose of section 194A of the Income-tax Act, 1961 and are not subject to deduction of tax at source.

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