1. We find it convenient to dispose of this bunch of 11 appeals by this consolidated order. The common dispute involved in this appeal is as to whether the appellant was liable to deduct tax from the interest paid on enhanced compensation in respect of the land compulsorily acquired by the Municipal Committee, Sirsa. The AO had observed that the Municipal Committee, Sirsa, had paid interest on enhanced compensation to the land owner in respect of which deduction of tax was to be made in accordance with provisions of Section 194A. Since the assessee had failed to deduct tax from the said payment, the AO by invoking provisions of Section 201 rule with Section 201(1 A) held the assessee as a defaulter in respect of non-deduction of tax from the interest payment on enhanced compensation. Accordingly, the AO created following demands in respect of the payments made to the following persons : In respect of the above persons, the assessments have been made and an information furnished before the Revenue authorities as well as before us. In respect of the following persons, the assessee has not been able to collect the information about any tax paid by the recipient :Name of the person Asst. yr.
Complete AddressSh. Ram Kishore 1988-89 202, General Kari Appa Agra Cantt,U.P.Sh. Shyam Lal 1987-88 S/o Sh. Ram Chander, Near Hissaria Bazar, Sirsa.Sh. Shyam Lal 1988-89 S/o Sh. Ram Chander, Near Hissaria Bazar, Sirsa.Sh. Shyam Lal 1985-86 S/o Sh. Ram Chander, Near Hissaria Bazar, Sirsa.Sh. Shyam Lal 1996-97 S/o Sh. Ram Chander, Near Hissaria Bazar, Sirsa.Smt. Rajni Bansal, 1988-89 D/o Sh. Ram Kishore, 202, General Kari, Sirsa Appa Agra Cantt, U.P.Suman 1988-89 D/o Sh. Ram Kishore, 202, General Kari Appa Agra Cantt, U.P.Saruti 1988-89 W/o Sh. Ashok Bansal S/o Sh. Ram Chander 202, General Kari Appa Agra, Cantt,U.P.2. The assessee appealed to the CIT(A) but without success. The CIT(A) has referred to the decision of the Supreme Court in the case of Rama Bai v. CIT wherein the Hon'ble Supreme Court has held that interest on enhanced compensation is taxable as a revenue receipt.
Reference has also been made to the decision of the Punjab and Haryana High Court in the case of Tuhi Ram v. Land Acquisition Collector . It has been pointed out by the CIT(A) that Punjab and Haryana High Court has referred to the decision of the Supreme Court in the case of Sham Lal Narula v. CIT , wherein it has been held that the interest under Section 34 of the Land Acquisition Act is paid for delayed payment of compensation and the same as a revenue receipt is liable to income-tax under the IT Act. The CIT(A) has also referred to the CBDT Circular No. 526, dt. 5th Dec., 1988 wherein it has been clarified that tax is to be deducted at source from the payment of compensation/interest paid to the land owners for compulsory acquisition of land.
3. The learned Counsel for the assessee contended before us that the Allahabad High Court in the case of Bihari Lal v. ITO AIR 1941 All 135 had held that the interest awarded in respect of enhanced compensation is discretionary with the Court and that the interest so awarded by the Court is not taxable under the IT Act. The assessee had also sought legal opinion about the TDS and it was opined that no tax was to be deducted out of the interest payment awarded by the Court for enhanced compensation. The learned Counsel pointed out that CBDT Circular No.526 is dt. 5th Dec., 1988. Though the said circular was not available to the assessee, yet most of the payments on account of interest have been made by the assessee are prior to 5th Dec., 1988. It was further contended that only four payments were made by the assessee after the date of issue of the CBDT circular. It was contended that major payments out of the four persons was made to Shri Mangat Ram of 26,69,640. The assessee was required to deduct tax @ 10 per cent as per the version of the AO. The said assessee has paid advance tax on 6th March, 1999 and assessment in his case was also made under Section 143(3) on 21st Jan., 2001. Copy of the assessment order in respect of the various persons to whom interest was paid by the assessee had been placed on record of the AO. In the case of some of the land, owners, the assessment record could not be obtained. So however, their income is meager. Reliance was placed on the decision of the Madhya Pradesh High Court in the case of CIT v. Divisional Manager, New India Assurance Co. Ltd. , wherein it has been held that where a regular assessment of a payee has been made and tax has been fully paid, the AO would not be justified in creating demand under Section 201 of the IT Act for non-deduction of tax. Same view has been taken in the following cases :CIT v. Manager, Madhya Pradesh State Co-op. Development Bank Ltd. 4. Relying upon the following decisions of the Tribunal, it was contended that where the assessee has acted under a bona fide belief that no tax is to be deducted, the AO would not be justified in demanding interest under Section 201(1 A) of the IT Act, 1961 :Oil and Natural Gas Corporation Ltd. v. ITO (1998) 60 TTJ (And) 408 (ii) Gujarat Narmadha Valley Fertilizers Co. Ltd. v. ITO (2000) 66 TTJ (And) 121 (iii) Chief Electoral Officer, Haryana v. ITO (1999) 64 TTJ (Chd) 231 5. The learned Counsel also invited our attention to the decision of the Supreme Court in the case of Bikram Singh and Ors. v. Land Acquisition Collector and Ors.
Lordships of Supreme Court held that interest on delayed payments of compensation for land acquisition is a revenue receipt eligible to income-tax. In this very case, according to the learned Counsel for the assessee their Lordships laid down that Section 1.94A has no application to such payments. It was accordingly contended that in view of the law laid down by the Supreme Court as also by the Hon'ble Allahabad High Court and the opinion sought by the assessee, no tax was to be deducted from the interest on delayed payments of compensation for land acquisition.
6. It was accordingly pleaded that the orders passed by the Revenue authorities may be set aside and demand cancelled.
7. The learned Departmental Representative, on the other hand, contended that the interest paid on enhanced compensation for acquisition of land is liable to tax as revenue receipt and, therefore, the assessee was required to deduct tax from the interest payments to the land owners. The assessee having failed to deduct tax, the AO was justified in creating the demand under Sections. 201 and 201(1A) for non-deduction of tax. According to the learned Departmental Representative, there has been an amendment by insertion of Section 194L w.e.f. 1st June, 1999 by virtue of which it has been clearly laid down that tax is to be deducted in respect of interest on enhanced compensation. According to the learned Departmental Representative, the said amendment is clarificatory and applicable retrospectively. It was accordingly, pleaded that the appeal of the assessee may be dismissed.
8. We have given our careful consideration to the rival contentions. In order to decide the issue involved in these appeals it would be necessary to determine as to whether the assessee was required to deduct tax at source under Section 194A from the interest paid on delayed payment of enhanced compensation. As already pointed out, the learned Counsel for the assessee has heavily relied on the decision of the Supreme Court in the case of Bikram Singh v. Land Acquisition Collector (supra) in support of the contention that provisions of Section 194A are not attracted in this case. We have gone through the decision of the Supreme Court referred to above and find the contention advanced on behalf of the assessee as not well founded. The issue involved in the case of Bikram Singh v. Land Acquisition Collector (supra) was as to whether notice issued by the Land Acquisition Officer for payment of income-tax on the delayed interest amount recovered under the Land Acquisition Act, 1894, was valid in law. The petitioners in that case had received notices from the Land Acquisition Collector on 31st July, 1991 for payment of income-tax on the delayed interest amount. A writ petition was filed in the Punjab and Haryana High Court being Civil Writ Petn. No. 1558 of 1991 challenging the said notice. It was claimed before the Hon'ble High Court that the compensation had been paid for the acquisition of agricultural land and interest was paid for the delayed payment of compensation and as such no income-tax was payable even in respect of the interest granted for the delayed payment of compensation. The Hon'ble High Court relying upon various decisions of the Supreme Court dismissed the writ petition and held, "The Land Acquisition Collection is, therefore, perfectly justified in retaining the amount of interest payable to the holders of agricultural land compulsorily acquired in terms of Section 194A of the Act. The Land Acquisition Collector is also justified in demanding the sum paid on account of interest under Section 194A of the Act. The notices issues and challenged in this petition are, therefore, valid and perfectly justified." Appeal was filed to the Hon'ble Supreme Court against the decision of the Punjab and Haryana High Court. As per para 4 of the report in the case of Bikram Singh v. Land Acquisition Collector (supra), the question for consideration before the Hon'ble Supreme Court was, "whether the delayed interest on the compensation paid under the Land Acquisition Act is chargeable to income-tax under Sections. 4 and 5 of the IT Act, 1961." Their Lordships of the Supreme Court held, "Therefore, we hold that it is a regular receipt exigible to tax under Section 4 of the IT Act, 1961." Their Lordships further observed that Section 194A of the Act has no application for the purposes of this case as it encompasses deduction of income-tax at source." The learned Counsel for the assessee has relied upon the observations of the Hon'ble Supreme Court relating to non-applicability of Section 194A. In our considered view, the observation of the Hon'ble Supreme Court has got to be seen in the context in which it has been made. The issue before the Hon'ble Supreme Court was not about the applicability of provisions of Section 194A. As held by the Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. decision of the Court has got to be seen in the context in which it has been rendered. Fallacy of the contention advanced on behalf of the assessee is exposed when it is seen that the judgment of Hon'ble Punjab and Haryana High Court has been confirmed by the Hon'ble Supreme Court.
The Hon'ble Supreme Court has quoted the relevant portion of the High Court judgment in its own decision and it is observed from the quoted portion of the decision that the Hon'ble High Court held that the Land Acquisition Collector was justified to demand tax on account of interest under Section 194A of the Act. Moreover, the issue had come up before the Punjab and Haryana High Court again in the case of Tuhi Ram v. Land Acquisition Collector (supra). In the said case, their Lordships of the Punjab and Haryana High ' Court held as under : "Interest received as a consequence of compulsory acquisition of land/agricultural land is income exigible to'tax. By force of Section 194A, at the time of credit of such income to the account of the payee or at the time of payment either in cash or by issue of cheque or draft or other mode, the person responsible for payment is entitled to deduct income-tax thereon at the rates in force. No deduction, however, shall be made in a case where the person (not being a company or a registered firm) entitled to receive such income furnishes to the person responsible for making the payment: (a) an affidavit, or (b) statement, in writing, declaring that his estimated total income assessable for the assessment year next following the financial year in which the income is credited or paid would be less than the minimum liable to income-tax." Again, in the case of Baldeep Singh v. Union of India , the issue that arose before the Punjab and Haryana High Court was as to who is the person responsible for deduction of tax at source from the payment of interest on enhanced compensation. Their Lordships of Punjab and Haryana High Court held, "The real person for paying the income by way of interest is the Land Acquisition Collector who had the money in his possession and was responsible for making the payment of that income. The Court only acts as a conduit for getting the payments made. When the Land Acquisition Collector deposits the money in Court in order to satisfy the decree, he must have made a credit entry to the account of the payee and that moment being earlier in point of time than the actual payment made by the Court, the tax at source had to be deducted by him." 9. The issue has also been considered by the Delhi High Court in the case of Shankar v. Union of India . In the said case, the Dy. CIT had directed the Land Acquisition Officer in a circular to deduct tax at source at the time of making payment of interest to the petitioner on account of enhanced compensation. On a writ petition for an order restraining the Collector from deducting the tax at source in terms of the said circular, the petitioner contended that since the amount of interest payable on account of delay in payment of enhanced compensation was not liable to be taxed, the Land Acquisition Collector could not be asked to deduct the tax at source. Their Lordships of the Delhi High Court held dismissing the petition that no relief could be granted to the petitioners in view of the decision of the Supreme Court in Bikram Singh v. Land Acquisition Collector (supra) wherein it was held that the interest received on delayed payment of compensation under the Land Acquisition Act, 1894, was a revenue receipt exigible to tax. Their Lordship, held that the persons entitled to compensation would be entitled to spread over the income to the period for which the payment came to be made.
10. In the light of the decisions of the Hon'ble jurisdictional High Court of Punjab and Haryana, referred to above, and decision of the Delhi High Court referred to above, it is abundantly clear that provisions of Section 194A are attracted in the case of payment of interest on enhanced compensation for the acquisition of land.
11. The next question that arises for consideration is as to whether the order passed by the AO under Sections. 201 and 201(1A) is justified on the facts and in the circumstances of the case. Section 201 of the IT Act empowers the AO to treat the person responsible for deduction of tax to be in default in respect of non-deduction or short-deduction of tax. In this case, interest has been paid on the enhanced compensation to various persons. Section 194A made it obligatory upon the person responsible for payment of interest to deduct tax at the time of credit or at the time of payment of such sum to the payees. Section 194A provides that no deduction of tax would be made in case the payee files an affidavit or a statement to the effect that his income would not exceed the maximum non-taxable limit. In this case, no affidavit or statement was filed with the appellants as there was no attempt on the part of the Municipal Committee to deduct tax at source on a bona fide belief that they are not required to deduct tax as claimed. Bona fide belief of the assessee was not doubted by the Revenue. It is, therefore, necessary for us to consider the responsibility of the Municipal Committee in respect of non-deduction of tax in the light of above facts and circumstances of the case. It is well-settled principle of law that Section 201 of the IT Act, 1961, is one of the modes for recovery of tax due. In this case, interest on enhanced compensation has been paid to various persons and as per decision of the Hon'ble Supreme Court in the case of Bikram Singh v. Land Acquisition Collector (supra) and other referred decisions, the recipients of such interest are entitled to spread over the same in various years to which it pertains to. Had the Municipal Committee as well as the payees of interest been conscious of their obligations and rights, perhaps the affidavits or statements would have been filed by the concerned persons and the Municipal Committee would be absolved from the responsibility of deduction of tax. In the light of the peculiar facts in particular, the appellant's bona fide belief that no tax was to be deducted at source, we consider it just and reasonable to restore the issue to the file of the AO for the purposes of allowing the Municipal Committee an opportunity to obtain affidavits or statements from the recipients to the effect that the income was not liable to tax insofar as it did not exceed the maximum non-taxable limit. In case such statements/affidavits are filed, then no tax shall be demanded from the appellant in respect of such payments.
12. We have also observed that there are certain cases where the income would apparently exceed the maximum non-taxable limit. The learned Counsel for the assessee, as already pointed out, has placed on record some of the assessment orders and details of payment of taxes by the recipients to support the contention that the tax due on the interest payments on enhanced compensation had already been paid by them and, therefore, order under Section 201 is not justified in respect of such recipients. This view is supported by the following decisions :CIT v. Manager, Madhya Pradesh State Co-operative Development Bank Ltd. (ii) CIT v. Divisional Manager, New India Assurance Co. Ltd. (supra) (iii) CIT v. Shri Synthetics Ltd. (v) CIT v. Hindustan Steel Ltd. (1984) Taxation 73(3) 153 (MP) (vi) CIT v. MP Agro Morarji Fertilizers Ltd. (supra) (vii) CIT v. Life Insurance Corporation (ix) Kannan Devan Hill Produce Co. Ltd. v. CIT (1986) 161 ITR 489 (Ker) In the case of CIT v. Mahindra and Mahindra Ltd. (2000) 242 ITR (St) 187, the Hon'ble Supreme Court dismissed the application on behalf of the Revenue under Section 257 of the IT Act, 1961, against the decision of Bombay High Court wherein it was held that when regular assessment of an employee was made and tax was paid by him, it was not correct to hold that the employer was still in default in respect of short-deduction of tax.
13. In the light of the above decisions cited on behalf of the assessee, we find merit in the contentions advanced. As already pointed out, the purpose of Section 201 is to recover the tax payable on the income. If the tax has already been paid by the recipient of income, the Revenue would not be justified in again demanding the tax from the person who was responsible to deduct tax at source. The responsibility of the person who has failed to deduct tax, however, would be for payment of interest from the date the tax was deductible to the date of payment by the payee or by the person responsible to deduct tax. Since all the details about the payments made by the recipients and the details about the quantum of income of some of the recipients were not available to the AO, we consider it appropriate to set aside the orders of the CIT(A) as also those of the AO and restore the issue to the file of the AO for fresh decision in accordance with law also keeping in view the findings and directions contained in this order. We direct accordingly.
14. For statistical purposes, the appeals of the assessee are partly allowed.