Land Acquisition Office Vs DCIT (TDS) (ITAT Delhi)
The issue for consideration is whether the impugned interest received by the land owners on enhanced compensation is ‘income from other sources’ under section 56 of the Act attracting the TDS provision enshrined under section 194A of the Act. In the assessment proceedings for the assessment year 2012-13 the assessee submitted before the Ld. AO that no TDS is required to be deducted on the interest payments which fall under section 28 of the LA Act relying on the decision of the Hon’ble Jurisdictional High Court in the case of Jagmal Singh (supra) and during appellate proceedings filed an affidavit that interest on enhanced compensation was paid to the recipient land owners under section 28 of the LA Act and submitted that the provision of section 194A do not apply for the reason that interest under section 28 is a part of the amount of compensation itself. It was pointed out that there is vital difference between interest awarded under section 28 and interest paid under section 34 of the LA Act. Interest under section 28, unlike under section 34 is an accretion in value and regarded as part of the compensation itself which is not the case of interest under section 34 of the LA Act. Interest under section 34 is for delay in making payment after the amount is determined. In the additional grounds taken before us also it has been urged that interest under section 28 of LA Act is in the nature of compensation and not interest which is taxable as income from other sources under section 56 of the Act. Following the judgment of Hon’ble Punjab & Haryana High Court in Jagmal Singh (supra) and the judgment of the Hon’ble Supreme Court in Ghanshyam (HUF) (supra) we hold that the interest received by the land owners on enhanced compensation awarded by the court is not in the nature of income from other sources under section 56 of the Act. Consequently, the TDS provisions of section 194A will not be attracted.
FULL TEXT OF THE ORDER OF ITAT DELHI
These three appeals of the assessee Land Acquisition Office (“LAO”) are filed against the order dated 5.11.2015 under section 201(1) and 201(1A) of the Income Tax Act, 1961 (the “Act”) for the assessment years 2010-11 and 2011-12 and order dated 23.12.2015 for the assessment year 2012-13 passed by the Commissioner of Income Tax (Appeals)-2, Gurgaon (“CIT(A)”). These appeals were heard together and are being disposed of by this common order.
2. It is a case of TDS survey/inspection which was conducted by ACIT, TDS Circle, Gurgaon (“AO”) on 19.4.2012 at the office premises of the deductor, LAO. During the course of inspection and subsequent follow up, the Ld. AO found that the deductor LAO had deducted tax at source from the payment of interest to the farmers (land owners) on enhanced compensation in assessment year 2010-11 and 2011-12 at normal rate (which is 10%) whereas deduction should have been made @ 20% as the deductor had not been able to prove that PAN of each deductee was taken at the time of payment. In response to show cause notice, the assessee furnished explanation which was not acceptable to the Ld. AO who observed that the assessee failed to deduct tax at source as per the provisions of section 194A of the Act and raised demand of Rs. 23,99,524/- and Rs. 34,99,95,274/- for the assessment year 2010-11 and 2011-12 respectively under section 201(1) and 201(1A) of the Act.
2.1 During proceedings for assessment year 2012-13 on 17.1.2014 the assessee filed a letter stating that in view of judgment dated 18.7.2013 of the Hon’ble Punjab & Haryana High Court in the case of Jagmal Singh vs. State of Haryana (Civil Revision No. 7740 of 2012) the proceedings be dropped as in that case it has been held that no TDS is required to be deducted on the interest payments which fall under section 28 of Land Acquisition Act, 1894 (“LA Act”), being a part of compensation only. The Ld. AO replied back to the assessee on 17.2.2014 stating, inter alia, that the decision in the case of Jagmal Singh (supra) is case specific and is not applicable to the assessee and that the assessee having paid interest on compensation/ enhanced compensation was liable to deduct tax at source under section 194A of the Act. Accordingly, on the lines of earlier years, the Ld. AO raised the demand of Rs. 52,18,90,623/- under section 201(1) and 201(1A) of the Act for assessment year 2012-13.
3. Before the Ld. CIT(A), the assessee reiterated its stand and filed an affidavit stating that the entire interest had been paid on enhanced compensation under section 28 of the LA Act and no amount of interest was paid under section 34 of the LA Act and that the interest paid by the assessee has been held to be a part of compensation itself by the Hon’ble Jurisdictional High Court in the case of Jagmal Singh (supra) and by the Hon’ble Supreme Court in the case of CIT, Faridabad vs. Ghanshyam (HUF) (Civil Appeal No. 440 of 2009). It was also stated that additional grounds of appeal were taken before the Ld. CIT(A) vide letter dated 26.09.2014. The Ld. CIT(A) did not give relief to the assessee on the ground that the issue whether the interest received under section 28 of the LA Act is taxable as income under section 56 of the Act or not and whether such payments are liable to TDS provisions are debatable issues. He further observed that no ground of appeal has been raised by the assessee on these issues in any of the two assessment years 2010-11 and 2011-12.
3.1 In the appellate order for assessment year 2012-13, Ld. CIT(A) reproduced the written submissions dated 30.10.2015 of the assessee in para 3.3 as under:-
“3.3. The AR of the appellant filed written submissions dated 30.10.2015. Relevant part of the written submissions is reproduced as under:-
It is humbly submitted in respect of demand raised for A. Y. 2012-13 on TDS on interest payment made u/s 28 of Land Acquisition Act, 1894 on enhanced compensation by treating it wrongly as interest whereas it is a part of the compensation itself.
It is humbly submitted as under:-
1. The appellant is Land Acquisition Office (LAO) and is governed by provisions of Land Acquisition Act.
2. The LAO acquire land under compulsory acquisition for public purposes as per the directions of Haryana Urban Development Authority (HUDA).
3. The LAO acquires agriculture land in various parts of the
Gurgoan for public purpose like water treatment, roads, plants etc.
4. The farmers were awarded compensation as per the provisions, rules and regulations of the HUDA Act.
5. Being aggrieved by the amount of compensation, the farmers went to court for getting the enhance compensation.
6. On enhancement of compensation the farmers got interest also as per the provisions of Section 28 of the Land Acquisition Act.
7. This interest has been held to be a part of compensation itself by Hon’ble jurisdiction Punjab & Haryana High Court in the case of Jagmal Singh & other Vs State of Haryana. Date of decision 18th July, 2013 and by the Hon’ble Supreme Court in CIT Vs Ghanshyam 2009 (8) SCC 412 And it has been held that interest under section 28 of the Act is an accretion to the value and hence it is a part of enhance compensation.
8. Therefore provisions of section 194LA is applicable to us on which tax cannot be deducted in respect of compensation/ enhance compensation payable on account of compulsory acquisition of agriculture land (whether land is situated in urban area or rural area) – Mysore Urban Development Authority Vs ITO (2008) 175 Taxman 307 (kar).
9. The provisions of section 194A is not applicable to us because it is not interest but a part of compensation itself as this amount has been paid as per the provisions of section 28 of the Land Acquisition Act.
