Land acquisition compensation under the 2013 Act is exempt from TDS under Section 194LA when Section 96 applies.

Compensation awarded under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is not subject to tax deduction at source under Section 194LA of the Income-tax Act where Section 96 applies. The statutory scheme treats awards under the 2013 Act as exempt from income tax, and the second proviso to Section 194LA excludes such payments from withholding. The exception is limited to Section 46 private purchase arrangements, not compensation paid under an acquisition award. On that footing, deduction at source is impermissible and the compensation is payable without TDS.

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Issues: Whether compensation payable for land acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is liable to tax deduction at source under Section 194LA of the Income-tax Act, 1961.

Analysis: Section 194LA applies to compensation or enhanced compensation for compulsory acquisition of immovable property other than agricultural land, but its second proviso excludes payments made in respect of any award or agreement exempted from income tax under Section 96 of the 2013 Act. Section 96 provides that no income tax or stamp duty shall be levied on any award or agreement made under the Act, except under Section 46, which deals with private purchase through negotiations and not acquisition pursuant to an award. The statutory scheme therefore leaves no room for a distinction between agricultural and non-agricultural land once compensation is awarded under the 2013 Act.

Conclusion: Compensation awarded under the 2013 Act is not liable to tax deduction at source, and the withholding order was unsustainable.

Final Conclusion: The writ petition succeeded, the impugned withholding direction was set aside, and the compensation was directed to be released without deduction of tax at source.

Ratio Decidendi: Where compensation is payable under an award made under the 2013 land acquisition regime and is exempt from income tax under Section 96, the second proviso to Section 194LA bars deduction of tax at source on such compensation.

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