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Noting that the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 recognizes land acquisition through an agreement, the Bombay High Court on Thursday held that the income received by a person on account of the property acquired by private negotiations and sale deed is exempted from tax.

In this regard, Court relied on a Circular dated 25th October 2016 issued by the Central Board of Direct Taxes wherein it clarified that “the compensation received in respect of award or agreement which has been exempted from levy of income tax vide Section 96 of the Act, 2013 shall also not be taxable under the provisions of the IT Act.”.

A bench of Justice SV Gangapurwala and Justice MG Sewlikar noted that CBDT also recognized acquisition by award or agreement. 

In the case before the Court, one Seema Jagdish Patil had assailed the action on part of National Hi-Speed Rail Corporation Ltd. in deducting income tax at source from the compensation paid to her by it for the acquisition of his land situated at Bhiwandi, Thane.

Said land was acquired under an agreement and income tax at source was deducted from the compensation.

When Patil requested for reversal of the tax deducted at source on the ground that no tax was deductible, the Corporation replied saying that exemption from income tax was not applicable in case of the land acquired from her, and in any case, the income tax deducted at source from the petitioner was duly deposited with the Income Tax Department.

Court noted that a 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 Mumbai-Ahmedabad Hi-Speed Rail Project.

"The computation of compensation has to be under the provisions of the Act, 2013.....If the parties would not agree with the negotiations and direct purchase, then the compulsory acquisition under the provisions of the Act, 2013 has to be resorted to. The Act, 2013 also recognizes the acquisition through an agreement....", further observed the division bench.

Relying on the Supreme Court's verdict in the case of Balkrishnan Versus Union of India the High Court noted that merely because the compensation amount is agreed upon, it would not change the character of acquisition from that of compulsory acquisition to the voluntary sale, which was not exempted from taxation.

With this view, the division bench directed the Corporation to file correction statement as provided under the provisio to Sub-Section (3) of Section 200 of the IT Act, 1961 within a period of one month from the date of the order to the effect that the TDS deducted by it was not liable to be deducted.

Case Title: Seema Jagdish Patil vs. The National Hi-Speed Rail Corporation Ltd. and Ors