Case Law Details
Land Acquisition Officer Vs DCIT (TDS) (ITAT Delhi)
In the case of Land Acquisition Officer vs. DCIT (TDS), the Delhi ITAT ruled that interest awarded under Section 28 of the Land Acquisition Act (LA Act) does not attract TDS under Section 194A of the Income-tax Act, 1961. The appeal pertained to the assessment year 2013-14, involving proceedings under Sections 201(1) and 201(1A) of the Act. The ITAT overturned the Revenue’s claim that TDS at 20% was mandatory for recipients without a PAN, affirming that such interest constitutes compensation and not taxable income from other sources.
The ITAT cited earlier rulings, including Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC), to justify condoning the 47-day delay in filing the appeal. The tribunal also referred to its own prior decisions for assessment years 2010-12, where it held that interest under Section 28 of the LA Act is an integral part of compensation and not subject to TDS provisions. The distinction between interest under Sections 28 and 34 of the LA Act was critical. While Section 28 interest enhances the value of compensation, Section 34 interest compensates for delayed payment and is taxable as income from other sources.
Judicial precedents, including Jagmal Singh vs. State of Haryana (Punjab & Haryana HC) and Ghanshyam (HUF) vs. CIT (SC), reinforced the ITAT’s position. The Supreme Court in Ghanshyam (HUF) clarified that interest under Section 28 is part of the compensation and exempt from tax under Section 10(37) of the Income-tax Act when related to agricultural land. These rulings underscored the nature of such interest as non-taxable in the hands of landowners and exempt from TDS provisions.
The ITAT further noted that any income arising from the transfer of agricultural land by compulsory acquisition is exempt from capital gains tax under Section 10(37). As the Revenue failed to distinguish the facts of this case from prior rulings, the ITAT allowed the assessee’s appeal, holding that there was no legal obligation for the Land Acquisition Officer to deduct TDS on interest under Section 28.
This ruling provides clarity on the tax treatment of interest under Section 28 of the LA Act, establishing that it forms part of compensation and does not fall within the scope of taxable income or TDS provisions under Section 194A.
FULL TEXT OF THE ORDER OF ITAT DELHI
This assessee’s appeal for assessment year 2013-14, arises against the Commissioner of Income Tax (Appeals)-1 [in short, the “CIT(A)”], Gurgaon’s order dated 28.03.2017 passed in case No. 212/15-16 involving proceedings under section 201(1)/201(1A) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. Case called twice. None appeared at the assessee’s behest. We accordingly proceeded ex-parte against him.
3. It is next noticed with the able assistance coming from the Revenue side that the CIT(A) has declined the assessee’s lower appeal in limine on the ground that he had failed to explain 47 days’ delay in filing thereof. It is noticed in this factual backdrop that the assessee had duly filed the corresponding contention petition explaining the impugned delay on the ground of circumstances beyond control. That being the case, we quote Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC) that assessee’s lower appeal ought to have been admitted since the said delay of 47 days stood duly explained.
4. We now come to merits of the assessee’s sole substantive ground, wherein he has been treated as the assessee in default under section 201(1) read with section 201(1)(A) of the Act for not having deducted TDS on land acquisition compensation and interest thereupon, as the case may be, paid to the landowners.
5. The Revenue vehemently contends in the light of the said findings that it was very much incumbent for the assessee to have deducted 20% TDS as the corresponding recipients/deductees had not disclosed their PAN’s.
6. We do not see any merit in the Revenue’s instant vehement contentions once it has come on record that this tribunal in assessee’s appeal ITA Nos. 39 to 41/Del/2021 for the immediately preceding as many assessment years 2010-12 to 2012-13; has already accepted his contentions as under:
“7. We have heard the Ld. Representatives of the parties and carefully considered their arguments. We have also perused the material on record. The assessee is Land Acquisition Office and is governed by the provisions of Land Acquisition Act, 1984. The LAO acquired land from the land owners under compulsory acquisition for public purposes as per the directions of Haryana Urban Development Authority (HUDA). The land owners got enhanced compensation which was awarded by the court on which they received interest.
7.1 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
ITA Nos. 39 40 41/06/2011 Land Acquishia Offices vs DCTT 11 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.
7.2 It has also been urged in the additional grounds that interest on enhanced compensation under section 28 of LA Act, being an integral part of consideration is exempt from capital gains tax under section 10(37) of the Act. We agree. Agricultural land situate in any area referred to in item (a) or item (b) of section 2(14)(iii) of the Act do not fall within the ambit of agricultural land and thus constitute ‘capital asset’ under section 2(14) of the Act. Compulsory acquisition of capital asset under any law is ‘transfer under section 2(47)(iii) of the Act. Accordingly, any profit or gain arising from transfer of such a capital asset is exigible to capital gains tax under section 45 of the Act in the previous year in which the transfer took place. However, capital gains arising from transfer of agricultural land situate in any area referred to in item (a) or item (b) of section 2(14)(iii) by way of compulsory acquisition under any law is exempt from tax under section 10(37) of the Act. Accordingly, any income by way of capital gains engrained in the receipt of compensation and/ ог enhanced compensation is exempt in the hands of the recipient land owners. This is obvious from the reading of the provisions of section 10(37) of the Act.
8. In the light of the legal provisions set out above and following the judgment of the Hon’ble Supreme Court in Ghanshyam (HUF) (supra), we hold that interest received by the land owners on enhanced compensation awarded to them by the court under section 28 of the LA Act is not in the nature of income from other sources in the hands of the recipient land owners under section 56 of the Act and therefore, the LAO was not under any legal obligation to comply with the TDS provisions of section 194A of the Act. Accordingly, we allow the grounds raised by the assessee by way of additional grounds taken before the Tribunal. The assesse succeeds. The original grounds become infructuous.”
8. We make it clear that the Revenue have not pointed out any distinction of facts or law, as the case may be, in all these assessment years.
9. This assessee’s appeal is allowed in above terms.
Order pronounced in the open court on 5th December, 2024
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