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Judgment
Paramjit Singh Patwalia, J.—All the above mentioned three revision petitions i.e. CR Nos. 7953, of 2013, 7964 and 7970 of 2013 have been listed together for hearing. All the above mentioned revision petitions are being disposed of by a common judgment as the common questions of law and facts are involved in these petitions. All the aforementioned three revision petitions are directed against the orders dated 16.11.2013 passed by learned Additional District Judge, Hisar whereby direction has been issued to the petitioner to deposit entire compensation including the Tax Deducted at Source (for short ''TDS'') in the Court or in the account of decree-holders on or before 04.12.2013. For facility of reference, facts are being taken from C.R. No. 7953 of 2013.
I have heard learned counsel for the petitioner and perused the record.
Respondents are owners of agricultural land which has been acquired u/s 28 of the Land Acquisition Act, 1894 (hereinafter referred to as the "Act"). Compensation has been assessed as per the provisions of the Act, however, certain sum has been deposited with Income Tax Department as TDS. Respondent No. 1 was aggrieved against the tax deducted at source from the amount of interest awarded u/s 28 of the Act and moved an application before the Executing Court to direct judgment debtor/petitioner to pay the amount deposited with Income Tax Department, which has been allowed vide impugned order. Hence, this revision petition.
Learned counsel for the petitioner has relied upon judgment of the Division Bench of this Court in CWP No. 14935 of 2011 - Rakesh Kumar and others v. Haryana State Industrial & Infrastructure Development Corporation Ltd. and others, decided on 17.08.2011 and judgment of Single Bench of this Court in C.R. No. 3039 of 2012 - Market Committee, Safidon v. Parveen Kumar and others, decided on 05.08.2013 to contend that tax was rightly deducted at source on interest awarded u/s 28 of the Act.
I have considered the contentions raised by learned counsel for the petitioner.
The issue with regard to deduction of tax at source on the payment of interest on compensation awarded u/s 23 as well as u/s 28 of the Act is no more res Integra. Although tax is liable to be paid on income by way of capital gains which also includes compensation in lieu of compulsory acquisition of land, however, tax liability is based on type of land viz. Rural and Urban, Ministry of Rural Development Department of Land Resources, Government of India has issued circular dated 13.04.2011 to Revenue Secretaries of all the States clarifying the issue of levy of tax on compensation awarded under Land Acquisition Act. As per provisions of Income Tax Act, 1961 explained in said circular, there is no tax liability in respect of compensation received in lieu of acquisition of rural agricultural land. In relation to urban agricultural land, there is exemption from tax liability after 01.04.2004 as per Section 10(37) of the Income Tax Act.
In case the conditions for exemption are not fulfilled in respect of Urban Agricultural land then tax is liable to be paid on capital gain, however, it is not to be deducted at source. In that case also the land owners are entitled to benefit of Sections 54-B, 54-EC and 54-F to reduce tax liability. The tax at source can be, thus, deducted from amount of compensation only in case of acquisition of non-agricultural land as per Section 194LA of the Income Tax Act.
The provisions of Income Tax Act are, thus, clear regarding imposition of tax liability on amount of compensation received in lieu of acquisition of land. It is in this background that I have to determine whether tax is liable to be deducted at source from amount awarded under various provisions of Land Acquisition Act viz Sections 23, 23(1-A), 28 and 34.
The issue of taxability of compensation awarded under these provisions of Land Acquisition Act arose before Hon''ble Supreme Court in Commissioner of Income Tax, Faridabad Vs. Ghanshyam (HUF), however, in a different context. In that case, Hon''ble Supreme Court has decided the question whether the amount of compensation and interest under Land Acquisition Act is taxable in year of receipt. While dealing with this issue, Hon''ble Supreme Court considered the nature of amount awarded under various provisions of Land Acquisition Act to determine its taxability and observed as under:--
"49. As discussed hereinabove, Section 23(1A) provides for additional amount. It takes care of increase in the value at the rate of 12% per annum. Similarly, u/s 23(2) of the 1894 Act there is a provision for solatium which also represents pan of enhanced compensation. Similarly, Section 28 empowers the court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount u/s 23(1A) and solatium u/s 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the court after reference u/s 18 of the 1894 Act. It depends upon the claim, unlike interest u/s 34 which depends on undue delay in making the award.
It is true that "interest" is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest u/s 28 unlike interest u/s 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest u/s 34 of the 1894 Act. So also additional amount u/s 23(1A) and solatium u/s 23(2) of the 1961 Act forms part of enhanced compensation u/s 45(5)(b) of the 1961 Act."
Relying on judgment in Ghanshyam''s case (supra) a Division Bench of this Court in Commissioner of Wealth Tax Vs. Nand Lal, Mohan Lal, etc., and Commissioner of Wealth Tax Vs. Parminder Singh, has held that additional amount u/s 23(1A) and solatium u/s 23(2) forms part of enhanced compensation. Nevertheless the Court held that it will not be exigible to wealth tax as after the acquisition of land by State the assessee did not remain owner thereof. He was only entitled to receive enhanced compensation, if any which does not fall within the preview of ''assets''. The issue involved in Ghanshyam''s case (supra) also came up for consideration before the Division Bench of this Court in CIT Faridabad v. Bir Singh (HUF) Ballabgarh, ITA No. 209 of 2004, decided on 27.10.2010, wherein following observations were made:--
"23. Under the scheme of the 1894 Act, interest u/s 34 is part of compensation while interest u/s 28 is not the interest which partakes the character of compensation and is treated differently. The interest component on enhanced compensation u/s 28 is taxable u/s 56 of the Act as ''income from other sources''.
The Apex Court in Ghanshyam (HUF)''s case (supra), considered this aspect as under:
".... The award of interest u/s 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded u/s 23(1-A) and the solatium u/s 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the Court. Section 28 is applicable only in respect of the excess amount which is determined by the Court after a reference u/s 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compensation. See: Ram Chand and Others Vs. Union of India (UOI) and Others, In the case of Shree Vijay Cotton and Oil Mills Ltd. Vs. State of Gujarat, this Court has held that interest is different from compensation.
To sum up, interest is different from compensation. However, interest paid on the excess amount u/s 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest u/s 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest u/s 28 is part of the amount of compensation whereas interest u/s 34 is only for delay in making payment after the compensation amount is determined. Interest u/s 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest u/s 34."
The apex Court in the aforesaid decision has held that interest directed by the Collector is to be treated as part of compensation while the interest on the enhanced compensation directed by the Court is not. Even though there is little confusion in reference to the relevant sections but as per discussion, it is clear that interest directed by the Collector partakes the character of compensation and forms part thereof u/s 34 of the Act whereas the interest ordered by the Court falls u/s 28 of the Act."
Apparently there is some conflict between the two judgments as regards nature of interest awarded u/s 28 of the Land Acquisition Act. The spirit of both the judgments is however, same i.e. when interest is awarded for delay in payment it does not form part of compensation and is taxable as ''income from other source'' whereas interest awarded on enhanced amount of compensation is accretion of value of land and partakes character of compensation and is, thus, taxable as capital gain unless exempted.
The issue of deduction of tax at source from amount awarded u/s 28 in respect of acquisition of rural agricultural land came up before same Division Bench of this Court in Sarti v. HSIDC - CWP No. 9739 of 2011 and Rakesh Kumar & Others v. Haryana State Industrial & Infrastructure Development Corporation Ltd. (HSIDC) & Ors, CWP No. 14935 of 2011, decided on 17.08.2011, which decided Bir Singh (HUF), Ballabgarh (supra). While observing that interest awarded was for delay in payment of compensation it was held that tax had rightly been deducted at source as it was observed that interest in that case would not form part of compensation and exemption in respect of compensation awarded in lieu of acquisition of agricultural land would not be applicable.
Thereafter, a Co-ordinate Bench of this Court in Jagmal Singh and another v. State of Haryana and another, Civil Revision No. 7740 of 2012, decided on 18.07.2013 Jagmal Singh and Another Vs. State of Haryana and Another while considering all the aforesaid judgments observed as under:--
"It is clear from the observations of the Supreme Court that interest u/s 28 is, unlike u/s 34 of the 1894 Act, an accretion in value and regarded as part of the compensation itself which is not the case of interest u/s 34. With a clear statement of law obtaining through the Supreme Court, I would have no difficulty in saying that any component of compensation that goes towards the discharge of liability u/s 28 must be taken as part of the compensation to which Section 194LA shall apply and that compensation being the value of agricultural land, then the exclusion as provided under the Section shall also be attracted. In this case, compensation assessed and the interest calculated are for acquiring agricultural land and the amount deposited represented the liability u/s 28. I have no doubt in my mind that there was no requirement for collecting TDS for this amount. I clarify that in terms of the judgment of the Supreme Court any liability which goes towards interest calculated u/s 34 would not obtain the benefit and if there is any deduction for TDS for such a component of interest, it shall be perfectly justified.''''
Considering the relevant provisions of Land Acquisition Act and Income Tax Act and law laid down in aforesaid judgments, this Court in C.R. No. 2509 of 2012 - Haryana State Industrial Development Corporation Ltd. v. Savitri and another, decided on 29.11.2013 has held that no tax is to be deducted at source from compensation awarded in lieu of acquisition of agricultural land. In respect of ''interest'' it has to be seen whether interest is a part of compensation. If answer is in affirmative then tax cannot be deducted at source. If, however, it is for delay in making payment it does not form part of compensation and tax may be deducted at source. In view of specific finding of Hon''ble Supreme Court in Ghanshyam''s case (supra) amount awarded u/s 28 of the Land Acquisition Act is accretion in value of land and interest thereon forms part of compensation; income tax cannot be deducted at source when land acquired is agricultural land. CR Nos. 7953, 7964 & 7970 of 2013 10 Admittedly, in the instant case the land was agricultural land and enhanced compensation and interest was awarded u/s 28 of the Act, The aforesaid three revision petitions are squarely covered by the decision of this Court in Savitri''s case (supra):
In view of above, I do not find any illegality or perversity in the impugned order.
All the aforementioned three civil revisions are dismissed.