Gujarat High Court
Karadia Maniben Parbatbhai vs State Of Gujarat on 16 September, 2025
NEUTRAL CITATION
C/SCA/11665/2024 ORDER DATED: 16/09/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 11665 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 11680 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 11702 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 11910 of 2024
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KARADIA MANIBEN PARBATBHAI & ORS.
Versus
STATE OF GUJARAT & ORS.
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Appearance:
MR NITIN M AMIN(126) for the Petitioner(s) No. 1,2,3,4,5,6,7
MR SANJAY M AMIN(130) for the Petitioner(s) No. 1,2,3,4,5,6,7
MR JAY BAROT AGP for the Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 2,3,4
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CORAM:HONOURABLE MR. JUSTICE ANIRUDDHA P. MAYEE
Date : 16/09/2025
COMMON ORAL ORDER
1. RULE. Rule returnable forthwith. Mr. Jay Barot, learned AGP waives service of rule for the respondent Nos.1 to 3.
2. With the consent of the learned counsels for the parties, the matters are taken up for final hearing and disposal.
3. By the present writ petitions, the petitioners herein challenge the action of the respondents deducting the income tax at the rate of 20% on the principal amount and 20% on the amount of interest awarded under Section 28 of the Land Acquisition Act, 1894 ["Act" for short]. The lands of the petitioners herein came to be acquired vide notification under Section 4 of the Act published on 21.01.1982 for the Meghal Bharti Control Scheme. Accordingly, the award came to be declared on 11.03.1985. Aggrieved by the amount of 1 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025 NEUTRAL CITATION C/SCA/11665/2024 ORDER DATED: 16/09/2025 undefined compensation awarded, petitioners filed reference cases Nos.930/1999, 931/1999, 932/1999 and 942/1999 respectively. The Reference Court by its judgment and award dated 25.08.2020 partly allowed the reference cases of the petitioners herein and enhanced the compensation. While depositing the enhanced compensation so awarded by the Reference Court, the respondents herein have deducted income tax on the principal amount as well as on the amount of the interest at the rate of 20%.
4. Mr. S.M.Amin, learned advocate for the petitioners submits that the action of the respondents in deducting the TDS at the rate of 20% on the principal amount as well as on the amount of interest under Section 28 of the Act is contrary to law laid down by this Court. He relies on the judgment of the Division Bench of this Court reported in 2017(2) GLH 554 - Movaliya Bhikhubhai Balabhai v. Income Tax Officer-TDS-1 Surat & Anr.. He has submitted that the Division Bench of this Court after taking into consideration various judgments passed by the Hon'ble Supreme Court as well as other High Courts has held that the land acquisition authorities cannot deduct any amount towards the TDS out of the compensation payable to the claimants, including the interest under Section 28 of the Act since the interest so awarded under Section 28 of the Act partakes the character of compensation and does not fall within the expression "interest" as contemplated under Section 145A of the Income Tax Act. He, therefore, submits that the impugned action of the respondents in the present cases deducting the tax at source at the rate of 20% on the principal amount as well as on the interest amount under Section 28 of the Act is bad in law.
5. Mr. Jay Barot, learned Assistant Government Pleader for the 2 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025 NEUTRAL CITATION C/SCA/11665/2024 ORDER DATED: 16/09/2025 undefined respondent authorities has submitted that as per the G.R. dated 28.01.2022, the authorities have been directed that the claimants have to approach the Income Tax Authorities for obtaining a certificate under Section 197 of the Income Tax Act for exemption from paying the income tax. He submits that as per the said G.R., the claimants had to produce the certificate from the competent Income Tax Officer within 60 days and upon production of such certificate, the acquisition authorities would accordingly act in respect of deducting TDS. He, therefore, submits that in view of the said G.R. dated 28.01.2022, the respondent authorities were justified in deducting the TDS on the amount of compensation so awarded to the petitioners - claimants by the Reference Court.
6. Heard learned counsels for the parties, considered the submissions and perused the documents on record.
7. The Division Bench of this Court in Special Civil Application No.17944 of 2015 dated 31.03.2016 - Movaliya Bhikhubhai Balabhai v. Income Tax Officer-TDS-1 Surat & Anr. has held as under:-
"7. At this juncture, reference may be made to the decision of the Supreme Court in the case of Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) (supra) wherein, the court has examined the provisions of the Land Acquisition Act, 1894 as well as the provisions of section 45 of the I.T. Act and the intention behind insertion of sub-section (5) of section
45. The court noted that sub-section (5) of section 45 was inserted to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. The court considered the provisions of sections 23(1), 23(1-A) and section 23(2) of the Act as well as section 28 and section 34 of the Act of 1894 and observed that section 23(1-A) was introduced in the 1894 Act to mitigate the hardship caused to the owner of the land who is deprived of its enjoyment by taking possession from him and using it for public purpose, because of the considerable delay and offering payment thereof. To obviate such hardship, section 23(1-A) was introduced and the legislature envisaged that the owner is entitled to 12% per annum additional amount on the market value for a period commencing on or from the date of publication of the notification under section 4(1) of the 1894 Act up to the date of the award of the Collector or the date of taking possession of the land, 3 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025 NEUTRAL CITATION C/SCA/11665/2024 ORDER DATED: 16/09/2025 undefined whichever is earlier. The court held that the additional amount payable under section 23(1-A) of the 1894 Act is neither interest nor solatium. It is an additional compensation designed to compensate the owner of the land for the rise in price during the pendency of the land acquisition proceedings. It is a measure to offset the effect of inflation and the continuous rise in the value of properties. Therefore, the amount payable under section 23(1-A) of the Act is an additional compensation in respect to the acquisition and has to be reckoned as part of the market value of the land. The court further held that the award of interest under section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the court awards excess amount. In such cases, interest on that excess alone is payable. Section 28 empowers the court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the court includes the additional compensation awarded under section 23(1-A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the court. It was further held that section 28 is applicable only in respect of the excess amount which is determined by the court after a reference under section 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compensation. The court observed that interest is different from compensation. However, interest paid on the excess amount under section 28 of the 1894 Act depends upon a claim made by a person whose land is acquired whereas interest under section 34 is for the delay in making payment. This vital difference needs to be kept in mind in deciding the matter. Interest under section 28 is part of the amount of compensation whereas interest under section 34 is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section 34. The court, thereafter, specifically considered the question as to whether additional amount under section 23(1-A), solatium under section 23(2), interest paid on excess compensation under section 28 and interest under section 34 of the 1894 Act, could be treated as part of compensation under section 45(5) of the 1961 Act and the court held thus:-
"47. The issue to be decided before us--what is the meaning of the words "enhanced compensation/ consideration" in Section 45(5)(b) of the 1961 Act? Will it cover "interest"? These questions also bring in the concept of the year of taxability.
48. It is to answer the above questions that we have analysed the provisions of Sections 23, 23(1-A), 23(2), 28 and 34 of the 1894 Act.
49. As discussed hereinabove, Section 23(1-A) provides for additional amount. It takes care of the increase in the value at the rate of 12% per annum. Similarly, under Section 23(2) of the 1894 Act there is a provision for solatium which also represents part of the enhanced compensation. Similarly, Section 28 empowers the court in its discretion to award interest on the excess amount of compensation over and above what is awarded by the Collector. It includes additional amount under Section 23(1-A) and solatium under Section 23(2) of the said Act. Section 28 of the 1894 Act applies only in respect of the excess amount determined by the 4 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025 NEUTRAL CITATION C/SCA/11665/2024 ORDER DATED: 16/09/2025 undefined court after reference under Section 18 of the 1894 Act. It depends upon the claim, unlike interest under Section 34 which depends on undue delay in making the award.
50. It is true that "interest" is not compensation. It is equally true that Section 45(5) of the 1961 Act refers to compensation. But as discussed hereinabove, we have to go by the provisions of the 1894 Act which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under Section 28 unlike interest under Section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under Section 34 of the 1894 Act. So also additional amount under Section 23(1-A) and solatium under Section 23(2) of the 1961 Act forms part of enhanced compensation under Section 45(5)(b) of the 1961 Act."
Thus, the court has held that interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. Such decision was, therefore, rendered in favour of the revenue.
8. The above referred decision in the case of Ghanshyam (HUF) came to be followed by the Supreme Court in the case of Commissioner of Income Tax, Rajkot v. Govindbhai Mamaiya, (2014) 16 SCC 449, wherein the court after referring to the above decision in the case of C.I.T. v. Ghanshyam (HUF) (supra) held that it is clear that whereas interest under section 34 of the Act of 1894 is not treated as a part of income subject to tax, the interest earned under section 28, which is on enhanced compensation, is treated as an accretion to the value and, therefore, part of the enhanced compensation or consideration making it exigible to tax under section 45(5) of the Income Tax Act.
9. Thus, the Supreme Court in the case of Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) (supra) has held that the interest under section 28 of the Act of 1894 unlike interest under section 34 is an accretion to the value and hence, it is a part of the enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. Therefore, interest under section 28 of the Act of 1894 would form part of the enhanced compensation and would be exigible to capital gains under section 45(5) of the I.T. Act. In other words, in case of a transaction which is otherwise exigible to capital gains tax under section 45 of the I.T. Act, the interest received under section 28 of the Act of 1894 being an accretion to the value, would form part of the compensation and would be exigible to tax under section 45(5) of the I.T. Act, whereas the interest received under section 34 of the Act of 1894 would be "interest" within the meaning of such expression as envisaged under section 145A of the I.T. Act and would be deemed to be the income of the year under consideration, chargeable to tax as income from other sources under section 56 of the I.T. Act.
10. In the facts of the present case, it is an admitted position that the interest on which the tax is sought to be deducted at source under section 194A of the Act is interest under section 28 of the Act of 1894 and not under section 34 thereof. As noted hereinabove, the petitioner's application for a certificate under section 197 of the I.T. Act for no 5 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025 NEUTRAL CITATION C/SCA/11665/2024 ORDER DATED: 16/09/2025 undefined deduction of tax at source has been rejected on the ground that the interest amount received under section 28 of the Act of 1894 is taxable as per the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of the I.T. Act. Section 145A of the I.T. bears the heading "Method of accounting in certain cases". Section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. Clause (viii) of sub-section (2) of section 56 of the I.T. Act provides for income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A which is chargeable as income from other sources. The first respondent Income Tax Officer seeks to tax the interest received by the petitioner under section 28 of the Act of 1894 as income from other sources under section 56(2)
(viii) read with section 145A(b) of the I.T. Act. In the opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression "interest" as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the ompensation and, therefore, forms part of the compensation. At this stage it may be apt to quote the following part of the decision of the Supreme Court in Ghanshyam (HUF) (supra):
"54. Section 45(5) read as a whole [including clause (c)] not only deals with reworking as urged on behalf of the assessee but also with the change in the full value of the consideration (computation) and since the enhanced compensation/consideration (including interest under Section 28 of the 1894 Act) becomes payable/paid under the 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under Section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of taxability. Consequently, even in cases where pending appeal, the court/tribunal/authority before which appeal is pending, permits the claimant to withdraw against security or otherwise the enhanced compensation (which is in dispute), the same is liable to be taxed under Section 45(5) of the 1961 Act. This is the scheme of Section 45(5) and Section 155(16) of the 1961 Act. We may clarify that even before the insertion of Section 45(5)(c) and Section 155(16) w.e.f. 1-4-2004, the receipt of enhanced compensation under Section 45(5)(b) was taxable in the year of receipt which is only reinforced by insertion of clause (c) because the right to receive payment under the 1894 Act is not in doubt.
55. It is important to note that compensation, including enhanced compensation/consideration under the 1894 Act, is based on the full value of property as on the date of notification under Section 4 of that Act. When the court/tribunal directs payment of enhanced compensation under Section 23(1-A), or Section 23(2) or under Section 28 of the 1894 Act it is on the basis that award of the Collector or the court, under reference, has not compensated the owner for the full value of the property as on date of notification."6 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025
NEUTRAL CITATION C/SCA/11665/2024 ORDER DATED: 16/09/2025 undefined Thus, it is clear that the Supreme Court after considering the scheme of section 45(5) of the I.T. Act has categorically held that payment made under section 28 of the Act of 1894 is enhanced compensation, as a necessary corollary, therefore, the contention that payment made under section 28 of the Act of 1894 is interest as envisaged under section 145A of the I.T. Act and has to be treated as income from other sources, deserves to be rejected.
13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression "interest" as contemplated in section 145A of the I.T. Act. The first respondent - Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, inasmuch as, the petitioner is not liable to pay any tax under the head "income from other sources" on the interest paid to it under section 28 of the Act of 1894."
8. Mr. Jay Barot, learned Assistant Government Pleader could not dispute the aforesaid legal submissions which have been affirmed by the Apex Court.
9. In the present case, the respondent Nos.1 to 3 have deducted 20% income tax on the amount of compensation and/or interest under Section 28 of the Act. In view of the decision of Division Bench of this Court in Movaliya Bhikhubhai Balabhai v. Income Tax Officer- TDS-1 Surat & Anr. (supra), the said action of the respondents cannot be sustained and the same is hereby quashed and set aside. It is further required to be noted that while deducting the TDS with the Income Tax Department, the PANs of the petitioners have not been stated and therefore, as such, the amount of tax so deducted may not be credited to the accounts of the petitioners. Therefore, in the opinion of this Court, the petitioners ought not to be relegated to approach the Income Tax Department for refund of the amount which has been wrongly deducted by the respondents towards income tax for which the petitioners - claimants are at no fault at all. If the amount of income tax is wrongly deducted and deposited by the respondent Nos.1 to 3 with the respondent No.4 in that case, 7 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025 NEUTRAL CITATION C/SCA/11665/2024 ORDER DATED: 16/09/2025 undefined it is always open for the respondent Nos.1 to 3 to get the refund of such amount. Accordingly, the present writ petitions are allowed with the following directions:-
9.1 The respondent Nos.1 to 3 shall refund the amount of TDS from the compensation and/or interest under Section 28 of the Act on the enhanced amount of compensation so deducted by them and the same shall be deposited in the Court of learned Principal Senior Civil Judge, Veraval, Gir Somnath, in respect Land Reference Cases in respect of the petitioners herein as per the Annexure-B in the above writ petitions within four weeks from the date of receipt of this order without prejudice to the rights of the respondents herein to get back the said amount from the respondent No.4 Income Tax Department, failing which it shall carry interest at the rate of 9% per annum .
9.2 It shall be open to the respondent Nos.1 to 3 to get refund of the aforesaid amount deducted as TDS from the respondent No.4 by submitting necessary Form under Income Tax Rules. If the respondent Nos.1 to 3 make such an application to the respondent No.4 the same shall be decided as expeditiously as possible and within a period of six weeks from the date of making of such application on its own merits and in accordance with law.
With aforesaid observations and directions, the present Special Civil Applications stand disposed of. Rule is made absolute to the aforesaid extent. No order as to costs.
(ANIRUDDHA P. MAYEE, J.) KAUSHIK D. CHAUHAN 8 Uploaded by KAUSHIK D. CHAUHAN(HC00197) on Tue Sep 16 2025 Downloaded on : Wed Sep 17 02:01:43 IST 2025