TDS on compensation for acquired agricultural land must be examined by the Assessing Officer under income-tax law.

In compulsory acquisition matters, whether tax at source is deductible from compensation or enhanced compensation depends on the Income-tax Act framework, including whether the land is agricultural and how compensation and interest are treated. The factual inquiry must be made by the Assessing Officer on the basis of the returns filed by the claimants, because entitlement to exemption or refund turns on the facts of each case. A direction requiring the Land Acquisition Collector to decide deductibility and refund was inconsistent with that statutory scheme and was set aside. The claim for refund must therefore be pursued before the Assessing Officer, with the applicable provisions on interest on compensation also taken into account.

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Issues: Whether tax at source was deductible from compensation or enhanced compensation paid on compulsory acquisition of agricultural land, and whether the determination of the nature of the land and entitlement to refund was to be made by the Land Acquisition Collector or by the Assessing Officer.

Analysis: The compensation had already suffered deduction at source and the question whether the land was agricultural required application of the Income-tax Act, including the definition of agricultural land and the treatment of compensation and interest. The proper course was to require the claimants to approach the Assessing Officer by filing appropriate returns, so that the facts of each case could be examined under the Income-tax Act. The direction requiring the Land Acquisition Collector to decide deductibility and refund was inconsistent with that statutory scheme. While determining the entitlement, the Assessing Officer was also required to keep in view the statutory provisions governing interest on compensation and the law on whether such interest forms part of compensation.

Conclusion: The direction to the Land Acquisition Collector to determine whether tax at source was deductible was set aside. The respondents were required to pursue the claim for refund before the Assessing Officer, and refund would follow where the compensation related to agricultural land.

Ratio Decidendi: In matters of compulsory acquisition, the question whether compensation is exempt from TDS because the land is agricultural is to be determined under the Income-tax Act by the Assessing Officer on the facts of each case, not by the Land Acquisition Collector.

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