Compensation for Land Acquired Under National Highways Act is Tax-Exempt under S.96 of RFCTLARR Act: Chhattisgarh High Court - 2025-09-22

Chhattisgarh High Court Rules Compensation for NHAI Land Acquisition is Tax-Exempt

Bilaspur, Chhattisgarh – In a significant ruling providing relief to landowners, the Chhattisgarh High Court has held that compensation received for land compulsorily acquired under the National Highways Act, 1956, is not taxable. A division bench of Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal declared that the tax exemption provided under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) applies to such acquisitions.

The court allowed the appeal filed by an assessee, Sanjay Kumar Baid, setting aside the orders of the Income Tax Appellate Tribunal (ITAT) which had held the compensation amount to be taxable income.

Background of the Case

The case originated when the appellant, Sanjay Kumar Baid, received ₹73,58,113 as compensation from the National Highways Authority of India (NHAI) for the compulsory acquisition of his land. Initially, Mr. Baid declared this amount as taxable under "Short Term Capital Gains" in his income tax return for the assessment year 2017-18 and paid the requisite tax.

Subsequently, realizing that the compensation might be exempt from tax under the RFCTLARR Act, he filed a rectification application seeking a refund. The Assessing Officer rejected the application, a decision that was later upheld by both the Commissioner of Income Tax (Appeals) and the ITAT. These authorities reasoned that since the National Highways Act, 1956, is listed in the Fourth Schedule of the RFCTLARR Act, the general provisions of the latter, including the tax exemption under Section 96, do not apply.

Arguments Before the High Court

The central legal question before the High Court was whether the tax exemption under Section 96 of the RFCTLARR Act extends to acquisitions made under the National Highways Act, 1956.

Counsel for the Appellant (Assessee): Mr. Nikhilesh Begani, representing the appellant, argued that the lower tax authorities had overlooked a crucial notification issued by the Ministry of Rural Development on August 28, 2015. This notification, he contended, was issued to remove difficulties and ensure that landowners whose lands were acquired under the 13 special enactments listed in the Fourth Schedule (including the NH Act) were not discriminated against. He cited several Supreme Court precedents, including Union of India v. Tarsem Singh , which emphasized uniform and fair compensation for all landowners, regardless of the acquiring law.

Counsel for the Respondent (Income Tax Department): Mr. Ajay Kumrani, representing the Revenue, argued that Section 105 of the RFCTLARR Act explicitly excludes the enactments in the Fourth Schedule from its purview. He submitted that only provisions related to the determination of compensation (First Schedule) and rehabilitation (Second and Third Schedules) were extended to these enactments, not the tax exemption under Section 96. The department also relied on a CBDT memorandum supporting the taxability of such compensation.

High Court's Landmark Judgment

The High Court meticulously analyzed the legislative intent behind the RFCTLARR Act and the 2015 notification. The bench observed that the primary objective of the government was to provide uniform benefits to all affected landowners, preventing any disparity.

The Court held that once the compensation itself is determined based on the beneficial provisions of the RFCTLARR Act, all ancillary benefits flowing from it must also apply. It noted:

"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..."

Relying heavily on the principles laid down by the Supreme Court in Tarsem Singh and NHAI v. P. Nagaraju , the High Court concluded that denying tax exemption would violate the principle of equality and defeat the purpose of the beneficial legislation.

Final Decision and Implications

Answering the substantial question of law in favor of the assessee, the High Court ruled:

"...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..."

The court allowed the appeal and directed the Assessing Officer to pass a consequential order to process the refund due to the assessee. This judgment provides crucial clarity on a contentious issue and is expected to have wide-ranging implications, offering significant relief to numerous landowners whose properties have been acquired for national highway projects across the country.