HIGH COURT OF PUNJAB & HARYANA TDS liability of recipient of interest income accrued on delayed payment of enhanced compensation for acquisition of agricultural land

TDS liability of recipient of interest income accrued on delayed payment of enhanced compensation for acquisition of agricultural land



Once interest is regarded as revenue receipt then it would fall within the mischief of section 4 of the Income-tax Act, 1961; therefore, TDS under section 194A of the Act is to be paid by the recipient in respect of the interest income on the delayed payment.



HIGH COURT OF PUNJAB & HARYANA

Karnal Singh

v.

State of Haryana

CWP No. 21077 of 2008

August 13, 2009

RELEVANT EXTRACTS:

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Brief facts of the case are that Shri Kartar Singh, father of the petitioner was owner of land situated in village Ottu, Tehsil Rania, District Sira.On 9.5.200 the said land was acquired under Section 4 of the Land Acquisition Act,1894 (for brevity,‘ the 1894 Act ’)for construction of Darba Ghaggar Drain. On 15.10.2001,award was passed by the Land Acquisition Collector. The father of the petitioner preferred reference under Section 18 of the 1894 Act for enhancement of compensation (Reference No.918LA of 2004)in the Court of learned Additional District Judge, Sirsa. The said reference was consolidated with other land references, which were decided vide award dated 14.6.2007 (P-2).The land reference was eventually allowed partly vide short order dated 11.3.2008.A sum of Rs.5,61,000/-per acre was awarded as compensation for nehri land (P-1).On 14.6.2007,the petitioner received the compensation being the legal heir of Shri Kartar Singh. On 4.9.2008,respondent No.3 issued a notice to the petitioner raising the demand of Rs.4,023/-on account of TDS on the amount of interest of compensation received by the petitioner (P-3). The petitioner has filed the instant petition with the grievance that as per Section 194LA of the Income-tax Act,1961 (for brevity, ‘the Act ’) payment of compensation or enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition of agricultural land could not be subjected to deduction of an amount equal to 10%of such sum as income-tax. It is claimed that the land belonging to the petitioner is covered by the expression ‘agricultural land’ as defined in the explanation.

It is obvious that agricultural land is excluded from the scope of Section 194LA of the Act. The expression ‘agricultural land ’ is further explained in its definition given in Section 2(14)(iii)(a)&(b)of the Act. In order to appreciate the meaning of ‘agricultural land’ it would also be profitable to read clause (iii) sub-section (14)in Section 2 of the Act, which reads thus:-

2.In this Act, unless the context otherwise requires,-

(1)to (13)xxx xxx xxx

(14)“capital asset ” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include –

(i)&(ii)xxx xxx xxx

(iii)agricultural land in India, not being land situate –

(a)in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name)or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or

(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a),as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;”.

It is, therefore, evident that the land in question is ‘agricultural land ’ and it is excluded from the operation of Section 194LA of the Act.. The aforesaid finding that the land in question is ‘agricultural land ’ is further supported by categorical admission made by the respondent State in its affidavit dated 20.5.2009.However,the following question would arise for determination of this Court:

“Whether the interest accrued on the delayed payment of enhanced amount of compensation would partake the character of compensation taken from ‘agricultural land ’ and, therefore, is assessable to deduction of TDS?” The answer to the aforesaid question would depend upon as to whether interest is regarded as revenue receipt attracting the charging section of the Act or it could be described as damages or compensation in lieu of the owners right to retain possession. The controversy had erupted before Hon'ble the Supreme Court in the case of Dr. Sham Lal Narula v. CIT, AIR 1964 SC 1878 .The Supreme Court after considering the concept of interest laid down by the Privy Council and many other judgments has held as under: “In a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use. In no sense of the term can it be described as damages or compensation for the owner’s right to retain possession, for he has no right to retain possession after possession was taken under Section 16 or Section 17 of the Act. We, therefore, hold that the statutory interest paid under Section 34 of the Act is interest paid for the delayed payment of the compensation amount and, therefore, is a revenue receipt liable to tax under the Income Tax Act.”

The aforesaid proposition of law has been consistently reiterated by Hon'ble the Supreme Court in later judgments including the cases of T.K.N.Govindaraja Chetty v.CIT,(1967)66 ITR 465 and K.S.Krishna Rao v.CIT,(1990)181 ITR 408 .Accordingly it has been accepted to be settled law that interest received on delayed payment of compensation is revenue receipt exigable to income tax. The issue came up before Hon'ble the Supreme Court in the case of Bikram Singh v.Land Acquisition Collector,(1997)10 SCC 243 . After referring to various judgments of Hon'ble the Supreme Court it was concluded that interest on delayed payment on the acquisition of immovable property would be revenue receipt and would thus be exigable to tax. The view of Hon'ble the Supreme Court is discernible from the perusal of para 10 of the judgment which reads thus:

“10.But the question is whether the interest on delayed payment on the acquisition of the immovable property under the Acquisition Act would not be exigible to income tax? 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 194-A of the Act has no application for the purpose of this case as it encompasses deduction of the income at the 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.”

Once interest is regarded as revenue receipt then it would fall within the mischief of Section 4 of the Act which is a charging section. Therefore, it follows that TDS under Section 194 A of the Act is to be paid by the petitioner in respect of the interest income on the delayed payment.



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