Chhattisgarh High Court Rules NHAI Land Compensation Exempt from Income Tax Under RFCTLARR Act

Chhattisgarh High Court Rules NHAI Land Compensation Exempt from Income Tax Under RFCTLARR Act

In a significant ruling for landowners across India, the High Court of Chhattisgarh at Bilaspur has declared that compensation received for land acquired by the National Highways Authority of India ( NHAI ) is exempt from income tax. The division bench, comprising Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal, held that the provisions of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) extend to acquisitions made under the National Highways Act, 1956.

Case Background

The appellant, Sanjay Kumar Baid, had his agricultural land compulsorily acquired by the NHAI . Following the receipt of ₹73,58,113 as compensation, the appellant initially paid income tax, treating the amount as short-term capital gains. However, realizing the potential for tax exemption under Section 96 of the RFCTLARR Act, the taxpayer filed for a refund. The Income Tax Department rejected these claims, arguing that land acquisitions under the National Highways Act were specifically excluded from the scope of the RFCTLARR Act via Section 105, rendering the exemption inapplicable.

The Rival Contentions

Counsel for the appellant argued that a 2015 notification by the Ministry of Rural Development was intended to remove discrimination between landowners. By invoking the powers under Section 113(1) of the RFCTLARR Act , the government ensured that beneficial provisions, including compensation determination, would apply to all acquisitions, regardless of the specific enactment.

Conversely, the Revenue department contended that the National Highways Act is a special enactment. They argued that because the Act of 1956 is listed in the Fourth Schedule of the RFCTLARR Act , the general exemption under Section 96 did not extend to these cases, and that accepting the appellant’s plea would render the legislative exclusion in Section 105 redundant.

Legal Analysis and Judicial Reasoning

The High Court scrutinized the legislative intent, emphasizing that the objective of the 2015 order was to ensure uniform compensation benefits. Citing the Supreme Court's decisions in Union of India v. Tarsem Singh and National Highways Authority of India v. P. Nagaraju alias Cheluvaiah , the Court observed that discriminatory treatment of landowners based on the statute under which their land was acquired violates Article 14 of the Constitution . The Court noted that if compensation is determined using the beneficial framework of the RFCTLARR Act, the associated tax exemptions must necessarily follow as a corollary.

Key Observations

• "It is, therefore, clear that 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."
• "In view of the above-stated legal position, it is 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... would also have to be made applicable."
• " 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."

Decision and Implications

The High Court set aside the order of the Income Tax Appellate Tribunal , ruling that the compensation received by the appellant is not exigible to tax. The Assessing Officer has been directed to process the rectification and grant the refund. This judgment provides much-needed clarity, ensuring that landowners whose properties are acquired for national infrastructure projects are not unfairly penalized through taxation, aligning with the constitutional mandate of fair and equitable compensation.