Sant Ram and Another vs Union of India (UOI) and Others

M.M. Kumar, J.—This petition filed under Article 226 of the Constitution prays for issuance of direction to the Respondents to refund a sum of Rs. 2,19,779, which has been deducted by the Executive Engineer P. W. D. (Water Supply and Sanitation Division, Gurgaon-Respondent No. 3, as tax at source (TDS) while, disbursing the payment of enhanced compensation against award No. 3 of February 28, 1995. A further demand of Rs. 8,79,116 has also been raised by Respondent No. 3, vide letter dated March 13, 2008 (P-l), which, according to the Petitioners, is illegal and arbitrary.

The brief facts of the case are that in the year 1994 the agricultural land of the Petitioners was acquired by the State of Haryana for construction of Yamuna Canal at Village Dhanwapur, Tehsil and District Gurgaon. On February 28, 1995, award No. 3 was passed granting compensation to the Petitioners. They filed reference u/s 18 of the Land Acquisition Act, 1894. The Additional District Judge, Gurgaon, enhanced the compensation, vide the award dated November 24, 1998. Respondent No. 3 deposited the enhanced compensation in the Executing Court, Gurgaon, however, a sum of Rs. 2,19,779 was deducted as tax at source (TDS). On March 13, 2008, Petitioner No. 1 was asked to deposit another sum of Rs. 8,79,116 as tax under the provisions of Section 194A read with Section 194LA of the Income Tax Act, 1961 (for brevity, "the Act").

It appears to be well-settled that u/s 194A of the Act, TDS could be deducted from the interest realised from enhanced compensation because it is regarded as revenue receipt. A similar petition came up for our consideration in the case of Karnail Singh v. State of Haryana (C.W.P. No. 21077 of 2008, decided on August 13, 2009 - [2010] 326 ITR 501 (P&H)). After discussing the relevant provision of Section 194LA of the Act and the expression of "agricultural land" as defined in Section 2(14)(iii)(a) and (b) of the Act as also Notification No. 9447 (F. No. 164/3/87-IT(A-l) dated January 6, 1994, issued by the Central Government, the following question of law was framed in the said case (page 506):

Whether the interest accrued on the delayed payment of enhanced amount of compensation would partake of the character of compensation taken from ''agricultural land'' and, therefore, is assessable to deduction of TDS ?

We have answered the aforementioned question in the following terms (page 506):

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. Shamlal Narula Vs. Commissioner of Income Tax, Punjab, . The Supreme Court after considering the concept of interest laid down by the Privy Council and many other judgments has held as under (page 158):

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 u/s 16 or Section 17 of the Act. We, therefore, hold that the statutory interest paid u/s 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 the hon''ble Supreme Court in later judgments including the cases of T.N.K. Govindarajulu Chetty Vs. Commissioner of Income Tax, Madras, and K.S. Krishna Rao Vs. Commissioner of Income Tax, Andhra Pradesh, . Accordingly it has been accepted to be settled law that interest received on delayed payment of compensation is revenue receipt exigible to Income Tax.

The issue came up before the hon''ble Supreme Court in the case of Bikram Singh and Others Vs. Land Acquisition Collector and Others, . After referring to various judgments of the hon''ble Supreme Court it was concluded that interest on delayed payment on the acquisition of immovable property would be revenue receipt and would thus be exigible to tax. The view of hon''ble the Supreme Court is discernible from the perusal of paragraph 10 of the judgment which reads thus (page 557 of 224 ITR):

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 u/s 28 or 31 of the Acquisition Act is; a taxable event. Therefore, we hold that it is a revenue receipt exigible to tax u/s 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 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 u/s 194A of the Act is to be paid by the Petitioner in respect of the interest income on the delayed payment.

The argument of the counsel for the Petitioner that interest income would partake of the character of the enhanced amount of compensation which is agricultural income has to be answered in the negative and against the Assessee.

As a sequel to the aforesaid discussion, the instant petition fails and the same is dismissed.

The same view has been followed by us in the case of Bhula Ram v. Union of India C.W.P. No. 1493 of 2001, decided on September 23, 2009).

Having heard learned Counsel for the parties and perusing the paper book, no doubt is left that the issues raised in the instant petition are squarely covered by our judgment rendered in the case of Karnail Singh [2010] 326 ITR 501 . Accordingly, the instant petition fails and the same is dismissed in terms of our judgment rendered in the case of Karnail Singh [2010] 326 ITR 501 .