In the matter of Registrar, University of Agricultural Science Versus Fakiragowda and others [2010 -TMI - 78167 - KARNATAKA HIGH COURT], high court has held that interest received on belated payment of compensation is a revenue receipt exigible to income-tax and it is income and the claimants are liable to pay the tax as provided under the relevant provisions of the Income-tax Act. TDS is liable to be deducted under section 194A read with 194L.

While pronouncing the above decision, HC has followed the Apex Court's ruling in the matter of Bikram Singh v. Land Acquisition Collector [2008 -TMI - 5560 - SUPREME Court], in this case, honorable SC held that: -

"It is seen that this court has consistently taken the view that it is a revenue receipt. The amended definition of "interest" was not intended to exclude the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that the interest received as income on the delayed payment of the compensation determined under section 28 or 31 of the Acquisition Act is a taxable event. Therefore, we hold that it is a revenue receipt exigible to tax under section 4 of the Income-tax Act. Section 194A of the Act has no application for the purpose of this case as it encompasses deduction of the income-tax at source. However, the appellants are entitled to spread over the income for the period for which payment came to be made so as to compute the income for assessing tax for the relevant accounting year."

 

Taxability of interest on delayed compensation: interest is taxable income and subject to TDS obligations. Interest on delayed or enhanced compensation is a revenue receipt taxable under the Income-tax framework and may be apportioned over the period of receipt; payors must deduct tax at source on such interest payments in accordance with applicable TDS rules.