Landmark Judgment Upholds Exemption Under Right to Fair Compensation Act, Ensuring Full Payment to Landowners
In a significant judgment, the Bombay High Court's Aurangabad Bench has ruled that compensation awarded for land acquisition under the National Highways Act is exempt from Tax Deducted at Source (TDS), affirming the statutory exemption provided by the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. This ruling is seen as a major relief for landowners who had been subjected to deductions despite clear legal provisions exempting such compensation from income tax.
The judgment was delivered by Justice Arun R. Pedneker, who heard multiple writ petitions challenging the orders of the District Court that had directed the deduction of 10% TDS from compensation amounts awarded under arbitration. The case primarily revolved around the compensation awarded to Tukaram Kana Pawara (Deceased) and other petitioners for land acquired for the widening of a National Highway.
The petitioners argued that the deduction of TDS was impermissible under Section 96 of the 2013 Act, which unequivocally exempts such compensation from income tax. The court agreed with this stance, emphasizing that the executing court had exceeded its jurisdiction by directing TDS deduction, as it is neither an authority nor a responsible person under the Income-tax Act, 1961 for tax deduction at source.
Justice Pedneker highlighted that the compensation awarded under arbitral awards should be treated as 'Judgment Debt' and must be paid in full without deductions. Citing precedents from the Supreme Court and other High Courts, the judgment reinforced that deductions from decretal amounts are impermissible in the absence of statutory authority or specific direction in the decree.
The judgment also referenced the Central Board of Direct Taxes (CBDT) Circular No. 36/2016, which clarifies that compensation received under awards made under the 2013 Act is exempt from income tax. Furthermore, the court pointed out the proviso introduced in Section 194LA of the Income-tax Act, 1961, effective from April 1, 2017, which explicitly states that no TDS deduction shall be made where the compensation is exempted under the provisions of the 2013 Act.
This decision is expected to set a precedent for similar cases across the country, ensuring that landowners receive their due compensation without unnecessary deductions. The court directed the Competent Authority for Land Acquisition (CALA) to redeposit the amount deducted towards TDS back to the executing court, which in turn must disburse the entire decretal amount, along with accrued interest, to the petitioners.
The ruling underscores the importance of adhering to statutory provisions and upholding the rights of landowners affected by compulsory acquisition. By quashing the orders directing TDS deduction, the Bombay High Court has reaffirmed the protective measures embedded in the 2013 Act, ensuring fair compensation and rehabilitation for affected families.
Bottom line:-
Deduction of TDS from compensation awarded under arbitral awards for land acquisition is impermissible under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, as the amount is exempt from income tax.
Statutory provision(s): Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, Section 3G(5) of the National Highways Act, 1956, Section 194LA of the Income-tax Act, 1961.
