The Bombay High Court has unequivocally held that compensation awarded for compulsory land acquisition under the National Highways Act, 1956 cannot be subjected to Tax Deducted at Source (TDS), as it is expressly exempted under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. This ruling affirms the legislative intent to protect land losers from financial burdens during the execution of arbitral awards.
Background & Facts
The Dispute
The petitioners, landowners from villages in Dhule district, Maharashtra, had their agricultural lands acquired for the widening of a National Highway under the National Highways Act, 1956. The Competent Authority for Land Acquisition (CALA) initially awarded compensation, which the petitioners challenged under Section 3G(5) of the Act, triggering arbitration. The Arbitrator, by award dated 22.04.2014, enhanced the compensation to Rs. 1,719 per square meter and granted additional compensation for easementary rights.
Key Facts
- The acquired land was agricultural with no non-agricultural (N.A.) potential
- The arbitral award was passed on 22.04.2014, after the commencement of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFA 2013)
- The award was executed before the Principal District Judge, Dhule, via Arbitration Regular Darkhast No. 109 of 2021
- On 06.08.2025, the acquiring authority deposited Rs. 3,65,523/- with the Executing Court
- The petitioners applied for withdrawal of the deposited amount
- The Executing Court, by order dated 2025, permitted withdrawal but directed deduction of 10% TDS, directing it to be credited to CALA
- The petitioners challenged this direction as illegal and contrary to statutory exemption
Procedural History
- 22.04.2014: Arbitral award passed under Section 3G(5) of the National Highways Act, 1956
- 06.08.2025: Acquiring authority deposited Rs. 3,65,523/- with the Executing Court
- 2025 (date unspecified): Executing Court passed impugned order directing 10% TDS deduction
- 2026: Writ Petitions Nos. 914, 2231, 2232, 2240, 2241, 2242, and 2243 of 2026 filed before the Bombay High Court, Aurangabad Bench
- 06.05.2026: Final hearing conducted; petitions taken up for disposal by consent of parties
Relief Sought
The petitioners sought quashing of the Executing Court’s direction to deduct 10% TDS from the decretal amount, and a declaration that no TDS is permissible under Section 96 of RFA 2013. They further sought direction for the Competent Authority for Land Acquisition (CALA) to redeposit any amount already deducted and for the Executing Court to disburse the full decretal amount without any deduction.
The Legal Issue
The central question was whether the Executing Court has the authority to deduct 10% Tax Deducted at Source (TDS) from compensation awarded under Section 3G(5) of the National Highways Act, 1956, where such compensation is expressly exempt from income tax under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
Arguments Presented
For the Petitioner
Mr. Chandrakant P. Patil, appearing for all petitioners, submitted that Section 96 of RFA 2013 explicitly bars levy of income tax on any award made under the Act. He argued that the Executing Court, being a civil court administering execution of an arbitral award, has no statutory authority under the Income-tax Act, 1961 to act as a deductor of tax. He relied on CBDT Circular No. 36/2016, which clarifies that compensation under RFA 2013 is not taxable, and on the proviso to Section 194LA of the Income-tax Act, inserted w.e.f. 01.04.2017, which excludes from TDS any payment exempted under RFA 2013. He further contended that once compensation crystallizes into a decretal amount, it assumes the character of a judgment-debt, and no deduction can be made without express decree direction, as held in All India Reporter Ltd. v. Ramchandra D. Datar.
For the Respondent
The respondents, represented by multiple counsel, argued that the Executing Court was merely following the CBDT Circular and the precedent in Seema Jagdish Patil v. National Hi-Speed Rail Corporation Ltd., which they interpreted as permitting TDS deduction unless specifically exempted. They contended that the arbitral award was passed before the proviso to Section 194LA came into force and that the Circular did not have retrospective effect. They further submitted that the Executing Court was acting within its administrative capacity to ensure compliance with tax laws.
The Court's Analysis
The Court undertook a comprehensive analysis of statutory provisions, judicial precedents, and legislative intent. It emphasized that RFA 2013 is a welfare legislation designed to ensure that land losers receive full and unencumbered compensation. Section 96 of the Act, which states that "no income-tax or stamp duty shall be levied on any award or agreement made under this Act", was held to be absolute and unqualified.
"Section 96 of the 2013 Act expressly provides that no income tax shall be levied on any award or agreement made under the Act. Thus, the statutory exemption operates in full force."
The Court rejected the Executing Court’s reliance on the timing of the award, noting that the exemption under Section 96 applies to all awards made after the Act’s commencement, regardless of when the acquisition proceedings began. It further held that the proviso to Section 194LA of the Income-tax Act, which came into force on 01.04.2017, merely codified an existing statutory exemption and did not create a new one.
The Court also relied on the Andhra Pradesh High Court’s judgment in C. Nanda Kumar v. Union of India, which held that deduction of TDS defeats the very object of RFA 2013 by forcing land losers to seek refunds from the Income Tax Department. The Court observed that such an approach is contrary to the welfare character of the legislation.
Crucially, the Court invoked the Supreme Court’s decision in All India Reporter Ltd. v. Ramchandra D. Datar, holding that once compensation is crystallized into a decretal amount, it loses its original character and becomes a judgment-debt. The Court held:
"The decretal amount must be paid in its entirety and no deduction towards income tax can be made therefrom by the judgment debtor."
The Court further noted that the Executing Court is neither a person responsible for deduction of tax under Section 194LA nor empowered to impose tax obligations. The direction to deduct TDS was therefore held to be ultra vires.
The Verdict
The petitioners succeeded. The Bombay High Court quashed and set aside the Executing Court’s direction to deduct 10% TDS from the decretal amount. The Competent Authority for Land Acquisition (CALA) is directed to redeposit the entire amount already deducted towards TDS before the Executing Court within four weeks from the date of judgment. Upon such redeposit, the Executing Court shall disburse the full decretal amount, along with accrued interest, to the petitioners without any deduction. Costs are awarded to the petitioners.
What This Means For Similar Cases
TDS Cannot Be Deducted from RFA 2013-Exempt Compensation
- Practitioners must oppose any attempt by executing courts or acquiring authorities to deduct TDS from land acquisition awards, regardless of whether the award was passed before or after the 2017 proviso to Section 194LA
- The exemption under Section 96 is absolute and applies to all awards made after the commencement of RFA 2013, even if the acquisition was initiated under the older Land Acquisition Act, 1894
- Any deduction made must be immediately challenged and reversed through writ proceedings
Executing Courts Cannot Act as Tax Collectors
- Civil courts executing arbitral awards or decrees have no inherent power to deduct TDS unless expressly mandated by the decree or statute
- The role of the Executing Court is limited to enforcing the award as rendered; it cannot impose new financial obligations on the recipient
- Any direction to deduct tax must be based on a specific statutory provision authorizing the court to act as a deductor - none exists in this context
Judgment-Debt Doctrine Applies to Arbitral Awards
- Arbitral awards under Section 3G(5) of the National Highways Act, 1956, once executed, attain the status of a decree and are protected under the Ramchandra D. Datar principle
- This shields the entire decretal amount from unilateral deductions by third parties, including government authorities
- Practitioners should cite this judgment to resist TDS demands in all execution proceedings involving compensation under RFA 2013
