No TDS on National Highway Land Acquisition Compensation: Key Takeaways from Bombay High Court Ruling

The Bombay High Court, in Tukaram Kana Pawara Vs Project Director Project Implementation Unit, has conclusively held that no Tax Deducted at Source (TDS) can be withheld from compensation paid for acquisition of land for National Highways when the award falls within the protective ambit of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (2013 Act).

The judgment is particularly significant for landowners whose agricultural land has been acquired for National Highway projects and where compensation, including enhanced amounts awarded by Arbitrators under Section 3G(5) of the National Highways Act, 1956, is being disbursed through execution proceedings.

This article explains the factual context, legal reasoning, and practical implications of this ruling for assessees, executing courts, and acquiring authorities.

Background of the Dispute

Acquisition and Arbitration

  • The assessee’s agricultural land (for instance, a parcel at village Hadakhed, Taluka Shirpur, bearing Gut No. 953) was acquired for widening of a National Highway under the National Highways Act, 1956.
  • The Competent Authority for Land Acquisition (CALA) made an initial award under Section 3G(1) of the National Highways Act.
  • Dissatisfied with the quantum, the assessee invoked Section 3G(5) and approached an Arbitrator for enhancement.
  • By an arbitral award dated 22/04/2014, the compensation was significantly increased (e.g. from the earlier rate to Rs. 1,719/- per square meter) along with additional compensation for easementary rights.

Execution Proceedings and TDS Controversy

  1. The assessee initiated execution proceedings (Arbitration Regular Darkhast) before the Principal District Judge, Dhule, to enforce the arbitral award.
  2. The acquiring body deposited the decretal amount before the executing court (for example, Rs. 3,65,523/- was deposited on 06/08/2025).
  3. On an application for withdrawal of the deposited amount, the executing court:
    • Allowed withdrawal of the compensation,
    • But ordered deduction of 10% TDS from the amount to be released, and
    • Directed that the TDS so deducted be credited to the account of CALA.

This direction on TDS deduction became the central issue in a batch of writ petitions filed before the Bombay High Court.

The High Court framed the principal question as:

Whether TDS is liable to be deducted from compensation awarded under Section 3G(5) of the National Highways Act, 1956, in light of Section 96 of the 2013 Act and the provisions of the Income-tax Act, 1961.

The resolution of this issue depended on:

  • The scope and effect of Section 96 of the 2013 Act,
  • The interplay between Section 96 and Section 194LA of the Income-tax Act, 1961,
  • The nature of arbitral awards as “judgment debts”, and
  • Judicial precedents and CBDT clarifications on taxability of land acquisition compensation.

Applicability of Section 96 of the 2013 Act

Statutory Exemption Under Section 96

Section 96 of the 2013 Act states:

“Section 96 : No income-tax or stamp duty shall be levied on any award or agreement made under this Act, except under Section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.”

Key aspects:

  • It categorically prohibits levy of income tax on any award or agreement made under the 2013 Act (subject to the limited exception of Section 46).
  • It is a beneficial provision forming part of a welfare legislation designed to protect land losers.

Extension to National Highways Acquisitions

The High Court noted that: