Chhattisgarh High Court Rules Compensation for Land Acquisition Under National Highways Act Exempt from Income Tax

Landmark Judgment Upholds Exemption under Section 96 of RFCTLARR Act, Ensuring Non-Discriminatory Benefits for Landowners.

In a significant judgment dated September 15, 2025, the Chhattisgarh High Court has ruled that compensation received for land acquisition under the National Highways Act, 1956, is exempt from income tax under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013 (RFCTLARR Act). The Division Bench comprising Justices Sanjay K. Agrawal and Sanjay Kumar Jaiswal delivered the verdict in the case of Sanjay Kumar Baid v. Income Tax Officer, reinforcing the legal position that the exemption provisions of the RFCTLARR Act apply to acquisitions under the National Highways Act.

The case involved the appellant, Sanjay Kumar Baid, who had received compensation amounting to Rs. 73,58,113 for the compulsory acquisition of his land by the National Highways Authority of India (NHAI). Initially, this compensation was treated as taxable income under the head of Short Term Capital Gains, leading Baid to pay tax on the amount. Upon realizing the exemption provided by Section 96 of the RFCTLARR Act, Baid filed for rectification, seeking a tax refund. However, his application was rejected by the Assessing Officer, citing provisions of Section 105(1) of the RFCTLARR Act, which precluded the RFCTLARR Act's application to enactments listed in the Fourth Schedule, including the National Highways Act.

The High Court's judgment overturned the decisions of the Income Tax Appellate Tribunal (ITAT) and Commissioner of Income Tax (Appeals), affirming the exemption under Section 96 of the RFCTLARR Act. The judgment cited the Ministry of Rural Development's notification dated August 28, 2015, which clarified that the RFCTLARR Act's provisions regarding compensation determination apply to acquisitions under the Fourth Schedule, ensuring uniform benefits for landowners.

The Court emphasized that denying such benefits would result in discrimination, contravening Article 14 of the Constitution, which guarantees equality before the law. The judgment aligns with precedents set by the Supreme Court, including Tarsem Singh's case, which declared provisions of the National Highways Act unconstitutional regarding solatium and interest, reinforcing the principle that compensation determination should be consistent across different acquisition enactments.

The ruling marks a pivotal moment for landowners, ensuring that compensation received for land acquisitions under the National Highways Act is not subjected to income tax, thereby removing disparities between different classes of landowners. The decision mandates the Assessing Officer to pass consequential orders favoring the appellant, setting a precedent for similar cases across the country.

Bottom Line:

Compensation received for land acquisition under the National Highways Act, 1956 is exempt from income tax under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. 

Statutory provision(s): Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 Section 96, National Highways Act, 1956 Section 3-G(7)(a) and 3-J, Constitution of India Article 14.

Sanjay Kumar Baid v. Income Tax Officer, (Chhattisgarh)(DB) : Law Finder Doc Id # 2778980