No TDS Payable On National Highways' Land Acquisition Arbitral Awards: Bombay High Court

The Bombay High Court has held that deducting TDS from compensation awarded under arbitral awards in National Highways acquisition cases is impermissible, holding that forcing land losers to seek tax refunds would defeat the purpose of the land acquisition law's tax exemption.

Referring to Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, the Court observed,

"Any interpretation which requires deduction of tax at source and thereafter compels land losers to seek refund from the Income Tax Department would defeat the very purpose of the legislation. Such an approach, which forces farmers and land losers to move from one authority to another, is clearly contrary to the objects and reasons of the 2013 Act."

Justice Arun R. Pedneker passed the ruling while allowing a batch of writ petitions challenging District Court orders that permitted withdrawal of compensation amounts deposited pursuant to arbitral awards, subject to deduction of 10% towards TDS and transfer of the deducted amount to the Competent Authority for Land Acquisition (CALA).

The petitioners' lands had been acquired for widening of a National Highway under the National Highways Act, 1956. Dissatisfied with the compensation fixed by the Competent Authority for Land Acquisition, they invoked arbitration under Section 3G(5) of the Act and secured enhanced compensation. When the acquiring body later deposited the award amounts before the executing court, withdrawal was allowed only after deducting 10% towards TDS and transferring that amount to CALA.

The landowners challenged this direction, arguing that Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, read with the statutory framework extending the 2013 Act's benefits to National Highways acquisitions, barred such deduction. Court-appointed amicus curiae Chandak also relied on CBDT Circular No. 36/2016, which clarifies that compensation received under an award made under the 2013 Act is exempt from income tax.

The Court held that since the arbitral awards were passed after the 2013 Act came into force, its beneficial provisions applied to acquisitions under the National Highways Act as well through the notification issued under Section 105(3).

Referring to the Andhra Pradesh High Court's ruling in C. Nanda Kumar v. Union of India, the Court said the 2013 Act is a welfare legislation intended not only to ensure fair compensation but also rehabilitation and resettlement of affected families.

The Court also relied on the Bombay High Court's Division Bench ruling in Seema Jagdish Patil v. National Hi-Speed Rail Corporation Ltd., which held that no deduction of tax at source can be made where compensation is determined and paid under the 2013 Act.

The Court noted that Section 194LA of the Income Tax Act excludes agricultural land from its ambit and also contains a proviso barring TDS deduction where compensation is exempt from income tax under the 2013 Act. In the present case, the Court noted that the acquisition involved agricultural lands with non-agricultural potential.

Separately, the court held that once compensation is crystallised in the form of an arbitral award and deposited before the executing court, it assumes the character of a decretal debt. Relying on the Supreme Court's ruling in All India Reporter Ltd. v. Ramchandra D. Datar, the Court held that such amounts must be paid in full.

“Once the compensation is crystallized in the form of an arbitral award, it partakes the character of a 'Judgment Debt' and must be paid in its entirety, without any deduction towards TDS.”

Holding that the executing court had erred, the High Court quashed the impugned orders to the extent they directed TDS deduction. It directed CALA to redeposit any amount already deducted towards TDS before the executing court within four weeks.

The executing court was directed to thereafter disburse the entire decretal amount, along with accrued interest, to the claimants without any deduction.

For Petitioners: Advocate Chandrakant P. Patil

For Respondents: Advocate S. J. Rahate; Advocate Rahul Bagul; Advocate D. P. Madkar holding for Advocate D. S. Manorkar (for NHAI); Advocate Suresh Walmikrao Munde; Advocate N. T. Bhagat; Advocate Akshay Kulkarni; Advocate R. D. Sanap

Amicus Curiae: Advocate Chandak