The Bombay High Court has held that no deduction of TDS is permissible from compensation awarded under an arbitral award passed under Section 3G(5) of the National Highways Act, 1956, where the award is governed by the beneficial exemption under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
The Court explained that Section 96 grants a statutory exemption from income tax on any award or agreement made under the 2013 Act, and this exemption applies to compensation for acquisition under the National Highways Act by virtue of the Section 105(3) notification; therefore, the compensation cannot be subjected to TDS. Further, Section 194LA does not mandate TDS on compensation for compulsory acquisition of agricultural land, and in any event its later proviso affirms that no deduction shall be made where the award or agreement is exempt under Section 96 of the 2013 Act.
Accordingly, the Court ruled that once the amount is crystallized through an arbitral award and deposited in execution, it assumes the character of a decretal amount / judgment debt, which must be paid in full and cannot be reduced by deduction of TDS by the judgment debtor or through an executing court’s direction. The impugned orders were quashed to the extent they directed deduction of 10% TDS. The Court also directed CALA to redeposit the amount already deducted towards TDS before the executing court within four weeks, and directed the executing court to disburse the entire decretal amount along with accrued interest to the petitioners without any deduction.
A Single Judge Bench of Justice Arun R. Pedneker observed that the arbitral award under Section 3G(5) was passed on April 22, 2014, i.e., after the coming into force of the Acquisition Act, 2013, and the deposited amounts were lying in the executing court in 2025. It held that the beneficial provision in Section 96 of the 2013 Act applied to compensation awarded in acquisitions under the National Highways Act in view of the notification under Section 105(3) of the 2013 Act.
The Bench reproduced Section 96, which states that no income-tax or stamp duty shall be levied on any award or agreement made under the Act, except under Section 46. The Bench noted that the 2013 Act is a welfare legislation intended not only to provide just and fair compensation but also rehabilitation and resettlement, and that Section 96 is meant to secure these objectives. It accepted the reasoning that compelling land losers first to suffer deduction and then seek refund would defeat the object of the legislation.
The Bench had held that no TDS can be deducted where compensation is determined and paid under the 2013 Act, whether pursuant to acquisition proceedings or by agreement, and that the judgment had considered CBDT Circular No. 36/2016 clarifying that amounts received under an award made under the 2013 Act are not liable to income tax. It observed that Section 194LA itself excludes agricultural land from its ambit and, in the present cases, the acquisition was of agricultural lands with non-agricultural potential. It further noted the second proviso to Section 194LA, which states that no deduction shall be made where payment is made in respect of any award or agreement exempted from income tax under Section 96 of the 2013 Act.
The Bench expressly held that the exemption from tax liability is statutory and existed from the inception of the 2013 Act. It added an independent reason that once the compensation is crystallized in an arbitral award and deposited before the executing court in satisfaction of that award, it assumes the character of a decretal debt or “judgment debt”. The Bench therefore refused any deduction towards income tax from a decretal amount. Applying that principle, the Bench concluded that once the compensation is crystallized in the form of an arbitral award, it partakes the character of a judgment debt and must be paid in entirety without deduction towards TDS.
Briefly, the petitioners challenged orders passed by the District Court in execution proceedings (Arbitration Regular Darkhast), where the executing court, while permitting withdrawal of the deposited amount, directed deduction of 10% TDS and credit of that deducted amount to the account of the Competent Authority for Land Acquisition (CALA). In the lead matter, the petitioners’ land bearing Gut No. 953 at village Hadakhed, Taluka Shirpur, was acquired for widening of a National Highway under the National Highways Act, 1956. The Competent Authority passed an award under Section 3G(1), and on the petitioners invoking Section 3G(5), the Arbitrator by award dated 22/04/2014 enhanced compensation to Rs. 1,719 per square meter and also granted compensation towards easementary rights.
Thereafter, the petitioners had initiated execution proceedings by filing Arbitration Regular Darkhast before the Principal District Judge, Dhule. The acquiring body deposited Rs. 3.65 lakhs before the executing court on 06/08/2025, and when the petitioners sought withdrawal, the executing court allowed withdrawal but directed deduction of 10% TDS. The petitioners contended that TDS could not be deducted because Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 provides that no income tax shall be levied on any award or agreement made under that Act, and further that the executing court was neither the authority nor the person responsible for deduction of tax at source under the Income-tax Act.
The executing court had reasoned that since the award was dated 26/11/2014 and CBDT Circular No. 36/2016 operated from 25/10/2016 without retrospective effect, 10% TDS was required to be deducted. It also directed deduction from the remaining compensation amount.
Appearances:
Advocate for the Petitioner: Chandrakant P. Patil
Advocate for Respondent No.1: S. J. Rahate
Advocate for Respondent/ NHAI: D. P. Madkar h/f D. S. Manorkar
Advocate for Respondent No.2: R. B. Bagul
