Compensatory interest for mental agony is not subject to tax deduction at source; enhanced refund interest was refused.

Interest on refunded amounts was maintained at 9% per annum because the remaining complainants were similarly placed to others whose claims had already been settled on that basis, and no separate ground justified enhancement to 12% per annum. The amount payable was also treated as compensation for mental agony and harassment, so it was held not liable to tax deduction at source. The appeals were disposed of accordingly, with limited relief confined to maintaining the existing interest rate and requiring payment without TDS deduction.

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Issues: (i) whether the remaining complainants were entitled to interest at 12% per annum instead of 9% per annum on the refunded amounts; and (ii) whether the interest amount payable as compensation could be subjected to tax deducted at source.

Issue (i): whether the remaining complainants were entitled to interest at 12% per annum instead of 9% per annum on the refunded amounts.

Analysis: The claims of a large number of complainants had already been settled on the basis of interest at 9% per annum. The remaining complainants stood on the same footing, and no separate basis was found to enhance the rate to 12% per annum.

Conclusion: The request for enhancement to 12% per annum was rejected, and interest at 9% per annum was maintained.

Issue (ii): whether the interest amount payable as compensation could be subjected to tax deducted at source.

Analysis: The interest was treated as compensation for mental agony and harassment suffered by the buyers. In that context, the payment was held to be compensatory in character and not liable to deduction of tax at source.

Conclusion: The interest amount was directed to be paid without deduction of tax at source.

Final Conclusion: The appeals were disposed of by maintaining the interest at 9% per annum and directing payment without deduction of tax at source, resulting in only limited relief to the appellants.

Ratio Decidendi: Interest awarded as compensation for mental agony and harassment is not liable to deduction of tax at source.

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