Facts of the Case

The petitioner, Rohtash Kumar Bhati, filed a petition challenging the tax deducted at source (TDS) by the Land Acquisition Collector. Following the enhancement of compensation by the Additional District Judge under Section 18 of the Land Acquisition Act, the petitioner received a payment of Rs. 64,76,672/-. Out of this amount, the Collector deducted Rs. 4,28,026/- under Section 194 of the Income Tax Act, 1961, treating the interest awarded under Section 28 of the Land Acquisition Act as taxable income

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Issues Involved

·         Whether interest awarded on delayed payment of compensation under the Land Acquisition Act constitutes a "capital receipt" or a "revenue receipt".

·         Whether such interest is liable to income tax and subject to TDS under the Income Tax Act.

Petitioner’s Arguments

The petitioner contended that the interest awarded on delayed compensation is a capital receipt and, therefore, not liable to income tax. Furthermore, the petitioner argued that they were deprived of the interest amount for a significant duration, and thus, should not be held liable for tax on that receipt.

Respondent’s Arguments

The respondent maintained that the deduction of tax was in accordance with the provisions of the Income Tax Act, as the interest received on compensation constitutes a revenue receipt taxable under the law.

Court Order and Findings

The Delhi High Court, relying on the Supreme Court judgment in Bikram Singh and Others vs. Land Acquisition Collector and Others (1997) 224 ITR 551, held that:

·         Interest received on delayed payment of compensation under the Land Acquisition Act is a revenue receipt and is exigible to tax under Section 4 of the Income Tax Act.

·         The Court clarified that the interest is taxable, and the petitioner’s argument regarding the delay in receipt of interest does not exempt the amount from taxability.

·         Important Clarification: While the taxability of the receipt was upheld, the Court granted limited relief, stating that the petitioner is entitled to spread over the income over the period for which the payment was made to compute the tax liability for the relevant accounting years. The petitioner was advised to take appropriate steps under the law to avail of this benefit.

Important Clarification

·         While the Court upheld the taxability of the receipt, it granted limited relief to the petitioner.

·         The Court clarified that the petitioner is entitled to "spread over" the income for the period for which the payment was made.

·         This means the petitioner may allocate the interest income across the relevant accounting years during which the delay occurred to compute the tax liability more accurately.

·         The Court directed the petitioner to take the appropriate and suitable steps under the law to exercise this right.

Sections Involved

·         Land Acquisition Act: Section 18 (Reference to Court for enhancement of compensation), Section 28 (Interest on compensation), and Section 31 (Payment of compensation).

·         Income Tax Act, 1961: Section 4 (Charge of income-tax) and Section 194A (TDS on interest other than "Interest on Securities"). (Note: The judgment references Section 194, but specifically discusses the application of Section 194A regarding TDS on interest income).

 


Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2004:DHC:21863-DB/BCP12012004CW41661994_111352.pdf

 

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