M/SPREM SUKHBOTHRA (HUF) AND ORS. v. OFFICE OF THE COMPETENT AUTHORITY (LAND ACQUISITION) UNDER THE NATIONAL HIGHWAYS ACT, 1956

1. In both these petitions the common question that arises is whether compensation payable for acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act,2013(hereafter the'2013 Act')is amenable to income tax, and if so whether at the time of payment of compensation there is a requirementfor deduction ofTax at Source(TDS)?

2. Section 96 ofthe 2013 Actreads as under:- "Exemption from income-tax,stamp duty and fees.- No incometax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy ofthe same."

3. Prior to the insertion of the second proviso to Section 194 LA of the Income Tax Act,1961(IT Act)itread as under: "194 LA.Any person responsible for paying to a resident any sum, being in the nature ofcompensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time ofpayment ofsuch sum in cash or by issue ofa cheque or draft or by any other mode,whichever is earlier, deduct an amount equalto ten per centofsuch sum asincome-tax thereon: WP(C)13960/2018& WP(C)753/2019 Page2of[6] r Provided that no deduction shall be made under this section where the amount ofsuch payment or, as the case may be,the aggregate amount of such payments to a resident during the financial year does notexceed two lakh and fiftythousand rupees:"

4. A doubt arose whether in view of Section 96 of the 2013 Act, compensation payable for acquisition of land other than agricultural land was amenable to income tax? The Central Board of Direct Tax('CBDT') soughtto clarify the position by issuing on 25^^ October2016,paras2and 3' ofwhich read as under: "2. The RFCTLARR Act which came into effect from January, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy ofincome-tax.

3. As no distinction has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter ofproviding exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition ofland, especially those relating to acquisition ofnon-agricultural land.The matter has been examined by the Board and it is hereby clarified that compensation received in respect ofaward or agreement which has been exempted from levy of income-tax vide section 96 ofthe RFCTLARR Act shall also not be taxable under the provisions ofIncome-tax Act, 1961 even ifthere is no specific provision of exemption for such compensation in the Income-tax Act,1961."

5. In terms of the above Circular, whether compensation was received in WP(C)13960/2018 <6 WP(C)753/2019 Page3of[6] I? respect ofthe acquisition ofagricultural or non-agricultural land,no income tax would belevied on the compensation amount.

6. The position has now been made even more explicit by the introduction, with effect from 1®^ April 2017, ofthe second proviso to Section 194 LA which reads as under: "Provided further that no deduction shall be made under this" section where such payment is made in respect of any award or agreement which has been exempted from levy ofincome-tax under section 96 ofthe Right to Fair Compensation and Transparency in Land Acquisition,Rehabilitation and Resettlement Act,2013."

7. In view of the clear legal position as far as the present two cases are concerned,the compensation having been determined to be paid to each of the Petitioners under the 2013 Actis notliable for deduction ofIncome Tax,, much less TDS.

8. Factually, as regards Writ Petition (C) No. 753/2019 {Satinder Singh Grewal v. Office ofthe Competent Authority (Land Acquisition)), Mr. Zoheb Hossain, learned senior standing counsel appearing for the Income Tax Department,confirms thatthe TDS amount deducted by the Competent Authority Land Acquisition('CALA')from the compensation paid to the Petitioner has been deposited with the Income Tax Department. Accordingly, a direction is issued to the Income Tax Department to refund the said sum deposited with TDS to the Petitioner not later than 3L'May, 2019 failing which simple interest@6% p.a. will be paid on the said sum for the period ofdelay., WP(C)13960/2018& WP(C)753/2019 Page[4].of[6]

9. As regards Writ Petition(C)No. 13960/2018 {M/s.Prem Sukh Bothra (HUF)V. Officeofthe CompetentAuthority(LandAcquisition)underthe NationalHighwaysAct,1956)the stand ofthe NHAIisthatithas deposited with the CALA the entire amount compensation amount without deducting TDS.It is stated on behalfofthe NHAIthat TDS,ifany,has been deducted by CALA atits end.Mr.Hossain informsthe Courtthat as far astheIncome Tax Departmentis concerned,no TDS amounthas been deposited withthem as far as the amount payable to the Petitioners in WP(C)No. 13960/2018 is concerned. Therefore, with neither the NHAI nor the Income Tax Department being responsible for the mistake made by the CALA, no liability can be fastened on either ofthem.

10. In that view ofthe matter,a direction is issued to CALA to refund to the Petitioners in WP(C) No. 13960/2018 the TDS amount deducted on or before 31®*^ May,2019together with simple interest at6% p.a.from the date ofdeduction ofthe TDS amount till the date ofpayment, which should not be later than 31®* May, 2019. If the refund is delayed beyond that period simple interest at9% p.a. will be paid by the CALA on the said sum for the period ofdelay.

11. The Court clarifies that it is not expressing an opinion on whether the land acquired is agricultural land or not since thatis notrelevantto the issue at hand.

12. The petitions and pending applications are disposed of in the above WP(C)23960/2018& WP(C)753/2019 Page5of[6] c terms. o

13. Orderdastibe given to the parties underthe signatures ofCourtMaster. MAY 16,2019 mw S.MURALIDHAR,J. I.S.MEHTA,J.