Compensation Paid By NHAI For Land Acquisition Is Exempt From Income Tax U/S 96 RFCTLARR Act: Chhattisgarh High Court

The Chhattisgarh High Court held that the compensation paid by the National Highways Authority of India (NHAI) for land acquisition is exempt from the income tax under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act).

The Court held thus in an Appeal questioning the legality, validity, and correctness of the Order passed by the Income Tax Appellate Tribunal (ITAT), Raipur Bench by which it affirmed the Order of the Commissioner of Income Tax (Appeals) i.e., CIT(A).

A Division Bench of Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal observed, “… we are of the considered opinion that Section 96 of the 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 Bench added that the compensation received against acquisition of land from the NHAI is not exigible to tax under Section 96 of the RFCTLARR Act.

Advocate Nikhilesh Begani represented the Appellant while Senior Standing Counsel (SSC) Amit Chaudhari and Advocate Ajay Kumrani represented the Respondent.

Case Background

The Appellant-assessee had received a compensation of Rs. 73,58,113/- on account of compulsory acquisition of his land from NHAI under the National Highways Act, 1956. Thereafter, he had filed his return of income for the assessment year 2017-18, 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 the compensation received towards compulsory acquisition of his agricultural land under the Income Tax Act, 1956 (ITA) 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 ITA wherein total income was assessed at Rs. 87,94,860/- determining the aggregate tax liability at Rs. 23,93,421/- and consequentially granted a refund of Rs. 37,100/-.

Realising that the agricultural land having been acquired under the ITA, the compensation so paid was liable to be exempted from payment of income tax in light of Section 96 of RFCTLARR Act, the Appellant moved a rectification application before the Income Tax Officer and sought refund. However, the same was rejected by the Assessing Officer, holding that 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 Appellant challenged this before the CIT(A) which dismissed his Appeal. He then approached the ITAT, which affirmed the impugned Order. Being aggrieved, he was before the High Court.

Reasoning

The High Court in the above context of the case, noted, “A careful perusal of the order issued by the Ministry of Rural Development on 28-8-2015 would show that the Central Government has intended to ensure that the land owners who lost the lands not only under the RFCTLARR Act, but also under the enactments specified in the Fourth Schedule should have a uniform determination of compensation and the beneficial compensation under the RFCTLARR Act and thus made them applicable to all the enactments.”

The Court further said that the provisions of the RFCTLARR Act with regard to the determination of compensation in accordance with the First Schedule, rehabilitation and resettlement in accordance with the Second Schedule and infrastructure amenities in accordance with the Third Schedule are made applicable to the enactments specified in the Fourth Schedule and for the purposes of determining compensation, the RFCTLARR Act is applicable.

“As such, in P. Nagaraju alias Cheluvaiah’s case (supra), their Lordships relying upon Tarsem Singh’s (1) case (supra) have clearly held that the RFCTLARR Act would apply on all aspects relating to determination of compensation and further held that all aspects contained in Sections 26 to 28 of the RFCTLARR Act for determination of compensation will be applicable notwithstanding Sections 3-J and 3-G(7)(a) of the Act of 1956”, it also noted.

The Court held 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 (1) case (supra), Tarsem Singh’s (2) case (supra) and P. Nagaraju alias Cheluvaiah’s case (supra)”, it observed.

The Court, therefore, directed the Assessing Officer to pass consequential Order in light of the substantial question of law answered herein-above.

Accordingly, the High Court allowed the Appeal.

Cause Title- Sanjay Kumar Baid v. Income Tax Officer (Neutral Citation: 2025:CGHC:47243-DB)

Appearance:

Appellant: Advocates Nikhilesh Begani and Apurv Goyal.

Respondent: SSC Amit Chaudhari and Advocate Ajay Kumrani.

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