No Income Tax on ₹73 Lakh Compensation for Compulsory Land Acquisition by NHAI: Chhattisgarh HC [Read Order]

In a recent ruling, the Chhattisgarh High Court held that compensation received for compulsory acquisition of land 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.

Sanjay Kumar Baid, the appellant, received compensation of Rs. 73,58,113 for the compulsory acquisition of his agricultural land by the National Highways Authority of India. He initially declared it as a taxable short-term capital gain and paid tax but later filed a rectification application claiming exemption under Section 96 of the 2013 Act.

The application was rejected by the Assessing Officer on the ground that land acquired under the National Highways Act is listed in the Fourth Schedule of the 2013 Act, and by virtue of Section 105, the exemption under Section 96 would not apply. His appeal before the CIT(A) and further before the ITAT was dismissed.

The appellant’s counsel argued that the rejection was unjustified because the Central Government, by its notification dated 28 August 2015, had extended provisions of the 2013 Act relating to compensation, rehabilitation, and resettlement to acquisitions under the Fourth Schedule, which included the National Highways Act.

They explained that the notification was intended to remove discrimination between landowners and to ensure equal benefits. Reliance was placed on Supreme Court decisions in Tarsem Singh and NHAI v. Nagaraju, which had declared Section 3-J of the National Highways Act unconstitutional to the extent it denied benefits of solatium and interest, and clarified that provisions of the 2013 Act would apply to such acquisitions.

The revenue counsel argued that Section 105 specifically excludes enactments in the Fourth Schedule from the general application of the 2013 Act, and only provisions in the First, Second, and Third Schedules relating to compensation, rehabilitation, and resettlement apply.

They pointed out that the CBDT memorandum dated 6 June 2019 had clarified that the exemption under Section 96 does not extend to such acquisitions, and that compensation received under the National Highways Act is taxable.

The Division Bench of Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal observed that once compensation is determined under the provisions of the 2013 Act, the benefits flowing from it, including exemption under Section 96, must also apply.

The court explained that denying this exemption would amount to discrimination between landowners whose lands are acquired under the National Highways Act and those whose lands are acquired under the 2013 Act, which would go against the legislative intent and constitutional principles.

The court held that the compensation received by the appellant against compulsory acquisition of land under the National Highways Act is not taxable under Section 96 of the 2013 Act. The order of the ITAT affirming taxability was set aside.

The Assessing Officer was directed to pass consequential orders granting relief to the assessee. The appeal was allowed, with parties left to bear their own costs.

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