The Chhattisgarh High Court has held that no income tax payable on compensation paid by National Highway Authority of India (NHAI) against land acquisition.
The bench of Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal has observed that Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) providing for exemption from income tax, stamp duty and fees would also be applicable to the land acquired under the Act of 1956 and to the compensation paid by the NHAI and consequently, the assessee would not be liable to pay income tax on the amount of compensation paid to him against the acquisition of his land under the Act of 1956.
The assessee/appellant herein had received compensation of Rs. 73,58,113 on account of compulsory acquisition of his land from National Highways Authority of India (NHAI) under the National Highways Act, 1956. Thereafter, the assessee has filed his return of income for the assessment year 2017-18 on 7-11-2017 declaring his income as Rs. 87,94,860 and shown the income of Rs. 73,58,113 to be taxable income under the head of Short Term Capital Gains of Rs. 53,08,113 pertaining to compensation received towards compulsory acquisition of his agricultural land under the Act of 1956 and paid tax to the tune of Rs. 24,30,521 which was processed by the Central Processing Centre, Bengaluru and intimation order was issued exercising powers under Section 143(1)(a) of the Income Tax Act wherein total income was assessed at ₹ 87,94,860/- determining the aggregate tax liability at ₹ 23,93,421/- and consequentially granted a refund of ₹ 37,100/-.
The appellant contended that realising that the agricultural land having been acquired under the Act of 1956, the compensation so paid was liable to be exempted from payment of income tax in light of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act), the appellant moved a rectification application before the Income Tax Officer on 12-10-2021 and sought refund of ₹ 17,07,340.
The request was reiterated on 4-9-2023. The rectification application was rejected by the Assessing Officer on 24-1-2024 holding that the issue relating to taxability of compensation cannot be rectified as the same does not constitute mistake apparent on the face of record; and the land has been acquired by the NHAI under the Act of 1956 and the Act of 1956 being falling under the list of enactments specified in the Fourth Schedule, the same would be precluded from the RFCTLARR Act as per the provisions of Section 105(1) of the RFCTLARR Act and therefore the compensation received by the assessee from the NHAI would not be exempted from taxation under the provisions of Section 96 of the RFCTLARR Act.
The assessee preferred an appeal before the CIT(A) challenging the order and the CIT(A) dismissed the appeal of the assessee relying upon the decision of the ITAT, Raipur in the matter of Heritage Buildcon Pvt. Ltd. v. Principal Commissioner of Income Tax and on further appeal preferred by the assessee before the ITAT. The ITAT relying upon its earlier decision in Heritage Buildcon Pvt. Ltd. dismissed the appeal upholding the view of the CIT(A) ascribing the reasoning that the issue involved, viz., whether the land acquisitions under the Act of 1956 being enactments specified in the Fourth Schedule to the RFCTLARR Act are precluded from the operation of the RFCTLARR Act by virtue of the provisions contained in Section 105(1) of the RFCTLARR Act and accordingly, the exemption prescribed under the provisions of Section 96 of the RFCTLARR Act would not apply, is squarely covered against the assessee in light of its earlier decision in Heritage Buildcon Pvt. Ltd.
The assessee contended that the ITAT is absolutely unjustified in dismissing the appeal relying upon its own decision in Heritage Buildcon Pvt. Ltd. (supra) holding that the provision contained in Section 105(1) of the RFCTLARR Act makes all the provisions of the Act inapplicable to the land acquisitions made under the enactments specified in the Fourth Schedule of the said Act, as the ITAT has clearly disregarded the notification dated 28-8-2015 issued by the Ministry of Rural Development, Government of India invoking the powers bestowed under the provisions contained in Section 113(1) of the RFCTLARR Act, wherein it has been specified that the provisions of the RFCTLARR Act shall apply in relation to compensation to all cases of land acquisition under the enactments specified in the Fourth Schedule to the RFCTLARR Act including the Act of 1956.
The assessee contended that the ITAT has grossly failed to appreciate the legislative intendment of the Government in introducing the notification in exercising the powers under the provisions of Section 113(1) of the RFCTLARR Act and also ignored the backdrop in which such order was notified, as the notification/order dated 28-8-2015 was issued to remove the difficulty so as to circumvent the discrimination created between the land owners whose lands are acquired under the Fourth Schedule vis-a-vis the others and accordingly, to confer equal rights on such land owners.
The Income Tax Department submitted that Section 105(1) of the RFCTLARR Act clearly provides that the provisions of the Act shall not apply to enactments specified in the Fourth Schedule to the RFCTLARR Act and the Act of 1956 is included in the Fourth Schedule.
The court noted that once compensation is determined under the provisions of the RFCTLARR Act, as a necessary corollary, the benefits flowing from the provisions of the said Act, including exemptions from income tax, stamp duty and fees contemplated under Section 96 of the RFCTLARR Act, would also have to be made applicable. If the benefit flowing from Section 96 is not given to the land-losers whose lands have been acquired under the Act of 1956, it would mean that the land-losers under the enactments specified in the Fourth Schedule are subjected to discrimination and this would be against the intent of the Union of India in issuing the 2015 Order and it would be contrary to the principles of law laid down by the Supreme Court in Tarsem Singh’s case, Tarsem Singh’s case and P. Nagaraju alias Cheluvaiah’s case. More particularly, Section 103 of the RFCTLARR Act makes it clear that the provisions of the RFCTLARR Act are in addition to and not in derogation of any other law.
The court held that the compensation received against acquisition of land from the NHAI is not exigible to tax under Section 96 of the RFCTLARR Act.
Case Details
Case Title: Sanjay Kumar Baid versus ITO
Case No.: TAXC No. 176 of 2025
Date: 15-9- 2025
Counsel For Petitioner: Apurv Goyal and Nikhilesh Begani
Counsel For Respondent: Ajay Kumrani, Advocate
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