Chhattisgarh High Court Rules NHAI Land Acquisition Compensation Is Exempt From Income Tax Payments - 2025-09-15

Chhattisgarh High Court Rules NHAI Land Acquisition Compensation Is Exempt From Income Tax Payments

In a landmark decision, the High Court of Chhattisgarh at Bilaspur has ruled that compensation received for land acquired by the National Highways Authority of India (NHAI) under the National Highways Act, 1956, is exempt from income tax. The division bench, comprising Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal, held that the exemption under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) must apply to these acquisitions to ensure constitutional equality.

Dispute Over Taxation

The appellant, Sanjay Kumar Baid, had declared income from compensation received for the acquisition of his agricultural land by the NHAI. Although initially paying the tax, the appellant subsequently filed rectification applications, claiming that the compensation should be tax-exempt under Section 96 of the RFCTLARR Act. The Income Tax Department rejected these applications, arguing that because the National Highways Act, 1956 is listed in the Fourth Schedule of the RFCTLARR Act, the general exemption provisions do not apply to such acquisitions. This stance was previously upheld by the Income Tax Appellate Tribunal (ITAT).

Arguments and Legal Conflict

The Revenue department contended that Section 105(1) of the RFCTLARR Act explicitly excludes Fourth Schedule enactments from the operation of the Act, save for specific provisions regarding compensation determination. They further relied on a 2019 Office Memorandum from the Central Board of Direct Taxes, which clarified that tax exemptions under Section 96 were not intended to cover NHAI acquisitions.

Conversely, the appellant argued that the exclusion of NHAI land-losers from tax benefits creates an arbitrary and discriminatory classification. Counsel emphasized that the Ministry of Rural Development’s 2015 "Removal of Difficulties" order was specifically designed to ensure uniform compensation standards across all land acquisition enactments, including those in the Fourth Schedule.

Judicial Reasoning and Precedents

The High Court drew heavily upon the Supreme Court of India's decision in Union of India v. Tarsem Singh , which held that the exclusion of certain benefits for NHAI-acquired land violates Article 14 of the Constitution. The High Court observed that once compensation is determined under the beneficial parameters of the RFCTLARR Act, it follows as a necessary corollary that the corresponding exemptions provided under the same Act must also apply.

"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," the Court noted.

Key Observations

• "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... would also have to be made applicable."
• "The basic objective behind the issuance of the 2015 order was to ensure that even in cases of land acquisition specified under the Fourth Schedule... were nevertheless, brought within the purview of the RFCTLARR Act."
• "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."

Final Order and Implications

The High Court set aside the impugned orders of the ITAT and the Commissioner of Income Tax (Appeals), directing the Assessing Officer to process the appellant’s refund. This judgment provides much-needed relief to landowners whose property has been acquired for public infrastructure, reinforcing that administrative convenience cannot override the constitutional mandate of fair and equal treatment for all citizens whose land is subject to compulsory acquisition.