Karnataka High Court: Interest Under Section 28 of Land Acquisition Act Forms Part of Compensation — TDS Not Deductible

Overview of the Case

The Karnataka High Court recently disposed of a batch of connected writ petitions filed by landowners whose agricultural lands had been compulsorily acquired for a public infrastructure project. The central issue before the Court was whether the acquiring authority was legally entitled to deduct tax at source (TDS) from the interest component of enhanced land acquisition compensation payable to the petitioners. The Court ruled in favour of the landowners, holding that such interest forms an integral part of the compensation itself and is therefore not subject to TDS deduction.

Case Name: Ramakrishnappa Vs Special Land Acquisition Officer (Karnataka High Court)

Background and Facts of the Case

Land Acquisition and Initial Award

The petitioners were owners of lands situated in Basavana Ganguru Village, Holalluru Hobli, Shivamogga Taluk and District. These lands were brought under acquisition proceedings for the Upper Tunga Canal Project pursuant to a preliminary notification dated 11 September 1997, issued under Section 4(1) of the Land Acquisition Act, 1894, followed by a final notification in due course.

An award was passed on 23 July 2001, determining compensation at:

  • ₹60,000 per acre for one category of land
  • ₹1,00,000 per acre for rain-fed lands

Reference Proceedings and Enhancement

Aggrieved by the compensation determined under the original award, the landowners sought references under Section 18 of the Land Acquisition Act, 1894. The Reference Court enhanced the compensation to ₹2,00,000 per acre for irrigated lands.

High Court Proceedings and Final Determination

Not satisfied with the Reference Court's determination either, the petitioners pursued the matter before the Karnataka High Court through:

  • MFA No. 2739/2015
  • MFA No. 1189/2021
  • MFA No. 2295/2015

The petitioners claimed compensation at the rate of ₹105 per square foot. A Division Bench of the Karnataka High Court, through judgments and awards dated 29 November 2024 and 12 August 2025, determined compensation payable at ₹105 per square foot.

The TDS Dispute

Respondents' Proposed Deduction

Following the High Court's determination of enhanced compensation, the petitioners submitted representations to the respondents requesting disbursement of the amounts in accordance with the judgments. However, upon reviewing the calculation sheet prepared by the respondents, the petitioners discovered that 10% of the compensation amount was being proposed as a deduction towards TDS under Section 194LA of the Income-tax Act, 1961.

Petitioners' Contentions

The petitioners raised the following arguments against the proposed TDS deduction: