Land acquisition compensation under the 2013 regime is tax-exempt and immune from source deduction for post-2014 notifications.

For land acquired under the Karnataka Industrial Areas Development Act, 1966, where the acquisition notification was issued after 01.01.2014, compensation had to be determined under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 rather than the Land Acquisition Act, 1894. The availability of a reference remedy for enhancement did not bar writ scrutiny because the challenge concerned the statutory regime applied to fix compensation. Compensation payable under the 2013 Act for such post-2014 acquisitions was held exempt from income tax and tax deduction at source, rendering the tax demand unsustainable. The impugned awards and related endorsements were quashed and fresh awards directed.

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Issues: (i) Whether the writ petitions were maintainable despite the availability of a reference remedy for enhancement of compensation; (ii) whether compensation for lands acquired under the Karnataka Industrial Areas Development Act, 1966, pursuant to notifications issued after 01.01.2014, was payable under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 or under the Land Acquisition Act, 1894; (iii) whether the compensation was exempt from income tax and tax deduction at source.

Issue (i): Whether the writ petitions were maintainable despite the availability of a reference remedy for enhancement of compensation.

Analysis: The right to seek enhancement of compensation before the reference court was held to be distinct from the challenge that the compensation itself had been determined under the wrong statutory regime. The two remedies were treated as independent and mutually exclusive, and the availability of a reference did not bar examination of the legality of the compensation framework applied by the authorities.

Conclusion: The writ petitions were maintainable.

Issue (ii): Whether compensation for lands acquired under the Karnataka Industrial Areas Development Act, 1966, pursuant to notifications issued after 01.01.2014, was payable under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 or under the Land Acquisition Act, 1894.

Analysis: The acquisition notifications were issued after 01.01.2014, when the 2013 Act came into force. The existing administrative resolution of the acquiring authority, earlier judicial orders in connected matters, and the adopted compensation practice for similar acquisitions were treated as confirming that compensation for such post-2014 acquisitions had to be determined under the 2013 Act. On that basis, the older 1894 Act was held inapplicable to the compensation determination for these lands.

Conclusion: Compensation was payable under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, and not under the Land Acquisition Act, 1894.

Issue (iii): Whether the compensation was exempt from income tax and tax deduction at source.

Analysis: Section 96 of the 2013 Act, the CBDT clarification, and the amended deduction provision were read together to hold that where compensation is payable under the 2013 Act for post-2014 acquisitions, the amount is not liable to income tax and no deduction at source can be made. Since the compensation in question was held payable under the 2013 Act, the tax deduction and tax demand raised by the authorities were held unsustainable.

Conclusion: The compensation was exempt from income tax and tax deduction at source.

Final Conclusion: The impugned awards, endorsements, and memorandums were quashed, the petitioners were held entitled to compensation under the 2013 Act, and the authorities were directed to issue fresh awards and grant the tax exemptions flowing from that regime.

Ratio Decidendi: Where land acquisition under the Karnataka Industrial Areas Development Act, 1966 is initiated by notification after 01.01.2014, compensation must be determined under the 2013 land acquisition regime and the resulting compensation is exempt from income tax and tax deduction at source.

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