By K. B. BHUJLE, Advocate
Movaliya Bhikhubhai Balabhai vs. ITO; 388
ITR 343 (Guj):
Pursuant to acquisition of land of the
assessee, by a Court order dated 23/03/2011, additional compensation was
awarded with interest. The executive engineer proposed to deduct tax at source
of Rs. 2,07,416/- u/s. 194A. The assessee made an application to the Assessing
Officer u/s. 197 to issue certificate
for Nil deduction of tax. The Assessing Officer rejected the application.
The Gujarat High Court allowed the writ
petition filed by the assessee and held as under:
“i) In the case of CIT vs.
Ghanshyam (HUF) 315 ITR 1 (SC), the Supreme Court held that it is clear
that whereas interest u/s. 34 of the Land Acquisition Act, 1894 is not treated
as a part of income subject to tax, interest earned u/s. 28, which is on
enhanced compensation or consideration making it exigible to tax u/s.
45(5). The substitution of section 145A
by the Finance (No. 2) Act, 2009 was not in connection with the decision of the
Supreme Court in CIT vs. Ghanshyam (HUF) 315 ITR 1 (SC), but brought to
mitigate the hardship caused to the assessee on account of the decision of the
Supreme Court in Rama Bai vs. CIT 181 ITR 400 (SC), whereby it was held
that arrears of interest computed on delayed or enhanced compensation shall be
taxable on accrual basis.
ii) Therefore, the words
“interest received on compensation or enhanced compensation” in section 145A of
the Act have to be construed in the manner interpreted by the Supreme Court in CIT
vs. Ghanshyam (HUF) 315 ITR 1 (SC). As a necessary corollary, therefore,
the payment made u/s. 28 of the 1894 Act is interest as envisaged u/s.
145A and cannot be treated as income
from other sources.
iii) The Assessing Officer was not
justified in requiring the deduction of tax at source u/s. 194A in respect of
such interest. The assessee was, therefore, entitled to refund of the amount
wrongly deducted u/s. 194A .”
