TDS on land acquisition compensation: Section 96 exemption and Section 194LA proviso bar deduction from arbitral award payments.

Compensation awarded under Section 3G(5) of the National Highways Act, 1956, when traceable to acquisition proceedings under the 2013 land acquisition framework, is treated as exempt from income-tax where Section 96 of the 2013 Act applies. That exemption is reinforced by the proviso to Section 194LA of the Income-tax Act, 1961, which bars deduction where the award or agreement is exempt from tax under Section 96. Once the compensation is crystallised in an arbitral award and deposited in execution, it assumes the character of a judgment debt, leaving no authority to deduct TDS from the decretal amount. The cited circular is also said to support this exemption, and the amount is payable without deduction.

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Issues: Whether tax deducted at source can be deducted from compensation awarded under Section 3G(5) of the National Highways Act, 1956, having regard to the exemption in Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and the scope of Section 194LA of the Income-tax Act, 1961.

Analysis: The compensation awarded under the arbitral award was traceable to acquisition proceedings covered by the 2013 Act framework, and Section 96 provides that no income-tax or stamp duty shall be levied on any award or agreement made under that Act, except as specifically provided. The proviso to Section 194LA of the Income-tax Act, 1961 reinforces that no deduction shall be made where the payment is in respect of an award or agreement exempted from levy of income-tax under Section 96. The compensation, once crystallised in an arbitral award and deposited in execution, assumes the character of a judgment debt, and there is no authority to deduct TDS from such decretal amount. The circular relied upon also supports the exemption.

Conclusion: No deduction of TDS is permissible from the compensation awarded under the arbitral award passed under Section 3G(5) of the National Highways Act, 1956. The direction to deduct 10% TDS is unsustainable, and the entire decretal amount with accrued interest is payable without deduction.

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