Land acquisition compensation exemption under Section 96 bars tax deduction at source on exempt award compensation.

Compensation received under an award made under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 was treated as fully exempt from income-tax under Section 96, because the provision was plain and unambiguous and the payment did not fall within the limited exception in Section 46. On that basis, Section 194LA of the Income-tax Act, 1961 could not be used to deduct tax at source from compensation that was not taxable. The Court also relied on the binding departmental circular and earlier precedent taking the same view, and the assessment order was unsustainable.

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Issues: Whether compensation received under an award made under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is exempt from income-tax under Section 96, and whether tax could nevertheless be deducted at source under Section 194LA of the Income-tax Act, 1961.

Analysis: Section 96 was read as granting a complete exemption from income-tax on compensation paid under an award made under the 2013 Act, except in the limited situation covered by Section 46. The Court held that the language of Section 96 was plain and unambiguous and did not permit a restricted construction based on perceived legislative intention. Since the compensation was paid pursuant to compulsory acquisition and not under the exception carved out by Section 46, the statutory exemption applied. On that footing, Section 194LA of the Income-tax Act, 1961 could not be invoked to deduct tax at source from compensation that was not liable to tax. The Court also relied on the binding departmental circular and the earlier precedent taking the same view.

Conclusion: The compensation was exempt under Section 96, deduction of tax at source was impermissible, and the assessment order was unsustainable.

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