Compensation Amount For Land Acquired For Bullet Train Project Exempted From Tax: Bombay High Court

The Bombay High Court has held that no Income Tax can be levied on the compensation amount for property acquired for the bullet train project.

The Division Bench of Justice M. G. Sewlikar and Justice S.V. Gangapurwala while hearing a writ petition held "...the income received by the petitioner on account of the property acquired by respondent No.1 by private negotiations and sale deed is exempted from tax. The respondent No.1 has already deducted the TDS which it ought not to have deducted."

In this case, the land of the petitioner-Seema Jagdish Patil was acquired by the respondent-The National Hi-Speed Rail Corporation Ltd. (NHSRCL). NHSRCL deducted income tax at source from the compensation paid to the petitioner. Later on, a supplementary deed was entered into between the petitioner and the NHSRCL under which some additional amount was paid to the petitioner and income tax was deducted at source from the said part of the compensation also.

The petitioner requested NHSRCL to reverse the tax deducted at source (TDS) on the ground that no tax can be deducted. However, NHSRCL stated that exemption from income tax was not applicable in the case of the land acquired from the petitioner and that such amount was duly deposited with the Income Tax Department.

Petitioners' Advocate Devendra Jain contended that Section 96 read with Section 46 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013 exempts payment of income tax on an amount of compensation paid under the award and/or agreement.

He also argued that NHSRCL should not have deducted the tax at source because the deduction of tax at source applies only if the amount is taxable in the hands of the recipient. He placed reliance upon the CBDT Circular dated October 25, 2016, to contend that the Central Board had clarified that the compensation received in respect of award or agreement is exempted from levying of income tax vide Section 96 of the Act, 2013 and shall not be taxable under the provisions of the Income Tax Act, 1961.

He argued that NHSRCL was not supposed to deduct the tax at source and that they should furnish a correction statement for rectification of the mistake.

The petitioner also prayed that NHSRCL is directed to furnish the correction statement of the tax deducted at source and the amount which was deducted be paid to the petitioner.

On the contrary Advocate Akshaya Puthran, appearing for the respondent- NHSRCL, submitted that the amount received by the petitioner pursuant to an agreement was taxable. He further submitted that the sale deed was entered between the petitioner and NHSRCL by negotiation through the direct purchase method, and the tax was deducted as per the Income Tax Rules.

He argued that the petitioner has to file a return for claiming a refund of the TDS deducted and not the deductor.

The Court observed that the public notice was issued for the acquisition of land through direct purchase and private negotiations by the office of the Sub Divisional Officer, Bhiwandi Division, Bhiwandi for implementing the project viz. Mumbai-Ahmedabad Hi-Speed Rail Project.

The Court noted that as per the said public notice, while purchasing the land directly for the project, the compensation was fixed by giving a 25% enhanced amount of the total compensation being calculated for the land concerned as per the provisions of Sections 26 to 33 and Schedule-I of the Act, 2013. The Court also noted that the land was acquired for a public project.

The Court further observed that Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 unequivocally provides that income tax or duty shall not be levied on any award or agreement made under the Act except under Section 46. The Court held that Section 46 would not be attracted in the present case as Section 46 applies to specified persons and that NHSRCL was not specified within the meaning of Section 46.

The Court noted that "…as the exemption under Section 96 would squarely apply, no income tax can be levied in the present matter for the amount of compensation, inter alia respondent No.1 could not have deducted amount of TDS from the amount of compensation paid to the petitioner."

On the question of the manner in which the TDS as deducted by NHSRCL can be refunded to the petitioner, the Court held "In the present matter, we are not aware whether the petitioner is liable to file return as required under Section 139 of the IT Act. There are various instances under Section 139 wherein a person is required to file return. All those circumstances and instances enumerated therein are not before the Court. In absence thereof, it is not possible for this Court to arrive at a conclusion as to whether the petitioner is required to file return or not before the Income Tax Department".

The Court ordered NHSRCL to file a correction statement within a period of one month to the effect that the TDS deducted by it was not liable to be deducted.

The Court held that the Income Tax Department would process the statement including the correction statement and steps would be taken to refund the amount in accordance with the provisions of the Income Tax Act and Rules.

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