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

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

The High Court of Chhattisgarh at Bilaspur has ruled that compensation received for land acquired by the National Highways Authority of India (NHAI) is exempt from income tax. A division bench comprising Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal allowed the appeal, holding that the immunity provided under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) extends to acquisitions under the National Highways Act, 1956.

Case Background

The appellant, Sanjay Kumar Baid, had his agricultural land acquired by the NHAI. Following the acquisition, he received a compensation of ₹73,58,113. While the appellant initially paid tax on this amount, he later filed a rectification application seeking a refund, asserting that such compensation is tax-exempt under the RFCTLARR Act. The Assessing Officer and the Income Tax Appellate Tribunal (ITAT) rejected this claim, arguing that the National Highways Act, 1956 is listed in the Fourth Schedule of the RFCTLARR Act, thereby excluding it from the general tax exemptions provided by the Act.

Arguments from the Parties

The appellant argued that the 2015 "Removal of Difficulties" Order issued by the Ministry of Rural Development extended the beneficial provisions of the RFCTLARR Act to acquisitions under the Fourth Schedule, ensuring parity for all landowners. Conversely, the Revenue contended that Section 105(1) of the RFCTLARR Act specifically excludes these enactments from the general exemptions, a position supported by a 2019 Office Memorandum issued by the Central Board of Direct Taxes.

Judicial Analysis and Precedents

The High Court drew heavily on the Supreme Court’s observations in Union of India v. Tarsem Singh and National Highways Authority of India v. P. Nagaraju alias Cheluvaiah . The Court noted that discriminating between landowners based on the specific act under which their land was acquired violates the principles of equality under Article 14 of the Constitution.

Justice Agrawal observed that if the determination of compensation for lands acquired under the National Highways Act now follows the beneficial provisions of the RFCTLARR Act, it is a necessary legal corollary that the associated exemptions, such as those under Section 96 , must also apply to prevent discriminatory treatment of landowners.

Key Observations

• "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."
• "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."
• "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 Final Verdict

Setting aside the orders of the ITAT and the Commissioner of Income Tax (Appeals), the High Court declared that the compensation received against the acquisition of land by the NHAI is not exigible to tax. The Assessing Officer has been directed to process the appellant's claim for a refund in light of this ruling. This decision provides significant relief to landowners across the country whose properties have been acquired for national highway projects, ensuring that they are not unfairly burdened by income tax on their compensation awards.