By TIOL News Service

AHEMDABAD, DEC 20, 2016: THE ISSUE IS - Whether compensation & interest awarded to an assessee in pursuence of acquisition of his land for public purposes under the provisions of Land Acquisition Act, can be subjected to Income Tax. NO IS THE VERDICT.

Facts of the case:

The assessee, in pursuence to an award passed by the Reference Court, Junagadh, was held to be entitled to a sum of Rs. 92,56,980/- towards additional compensation and a sum of Rs. 3,06,39,391/- towards interest on the additional amount of compensation. While disposing of the said amount by the Reference Court, the District Development Officer (DDO) ie., the acquiring body, deducted Rs. 10,48,885/- towards TDS, Surcharge and Education Cess under the Income-tax Act, in respect of an amount of additional compensation of Rs. 92,56,980/- as well as deducted a further sum of Rs. 34,71,442/- towards TDS, surcharge and cess under the I-T Act in respect of the total amount of interest ie., Rs. 3,06,39,391/- and the DDO deposited the aforesaid amount ie., Rs. 45,20,257/- to the office of the ITO. Accordingly, the assessee challenged the action of DDO in illegally deducting and depositing an amount of Rs. 45,20,257/= towards TDS from the total amount of compensation and interest.

On appeal, the HC held that,

++ It is noted that the land of assessee was acquired for public purpose and he received compensation of Rs. 92,56,980/-, being additional amount of additional compensation and Rs. 3,06,39,391/- towards interest under the provisions of Land Acquisition Act, the assessee was not liable to pay any tax on the aforesaid amount received by him. Once on the aforesaid amounts, the petitioner was not liable to pay tax and/or the aforesaid sum of amount was not subject to tax, there was no question of deducting any tax at source. Therefore, in view of the case of Movaliya Bhikhubhai Balabhai v. ITO, the impugned action of the DDO in deducting and depositing a sum of Rs. 45,20,257/- towards TDS on the amount of compensation and interest received thereon pursuant to judgment and award of the Land Acquisition Reference is hereby quashed and set-aside. The DDO is hereby directed to deposit the said amount with the Reference Court within a period of six weeks from the date of receipt of the present order, which shall thereafter disburse such amount to the assessee.

(See 2016-TIOL-3056-HC-AHM-IT)