Karnataka High Court Sets Aside Single Judge's TDS Refund Direction, Slaps ₹5 Lakh Costs for Suppression of Material Facts

Case Overview

ITO Vs Smt. Supriya S. Shetty (Karnataka High Court)

The Karnataka High Court's Division Bench delivered a significant ruling in an intra-court appeal filed by the Income Tax Department, overturning an earlier Single Judge order that had directed refund of TDS deducted from land acquisition compensation. The matter involved a serious finding of suppression of material facts and misrepresentation, ultimately resulting in imposition of costs of ₹5,00,000 on the assessee, payable to the Karnataka State Legal Services Authority.

Background and Facts of the Case

The assessee, Smt. Supriya S. Shetty, had her agricultural land acquired by the Special Land Acquisition Officer for the formation of a National Highway. Pursuant to an Award passed on 29th January 2021, the competent authority deducted TDS amounting to ₹16,00,000 from the compensation paid to her.

Aggrieved by this deduction, the assessee filed Writ Petition No. 30804/2024 before the Karnataka High Court on 06.11.2024, making the following prayers:

  • A declaration that Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act, 2013) applies to compensation received for land acquired under the National Highways Act, 1956
  • Alternatively, a declaration that restricting tax liability only to acquisitions under the National Highways Act, 1956 while denying the Section 96 exemption is unconstitutional and violates Article 14 of the Constitution of India
  • Extension of the tax exemption benefit under Section 96 of the RFCTLARR Act, 2013 to the assessee
  • A direction that no income tax shall be levied on the compensation received
  • Refund of TDS deducted pursuant to the Award dated 29th January 2021

Single Judge's Order

The learned Single Judge, relying upon earlier coordinate bench judgments of the Karnataka High Court on the identical issue, allowed the writ petition and issued the following directions:

"(i) Petition is hereby allowed. (ii) Respondents 2, 3, 4 and 8 are directed to refund the income tax / TDS deducted from the compensation as per the award passed by respondent Nos.5 and 6 back to the petitioner together with applicable interest within a period of three months from the date of receipt of a copy of this order."

The Single Judge's order was passed on 20.11.2025.

Department's Challenge Before the Division Bench

The Income Tax Department filed the intra-court appeal under Section 4 of the Karnataka High Court Act on 05.01.2026, challenging the above order. Sri Aravind V. Chavan, learned Senior Standing Counsel for the Department, placed the following critical facts before the Division Bench:

Key Revelations by the Department

  1. TDS Already Claimed as Refund: The TDS deducted by the National Highways Authority had already been claimed as a refund in the return of income filed by the assessee for Assessment Year 2022–23