Land acquisition compensation exempt from TDS where Section 96 protection applies and the award must be paid in full.

Compensation awarded under Section 3G(5) of the National Highways Act, 1956 was treated as falling within the protective scope of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, which bars income tax on awards made under that Act. On that basis, deduction of tax at source was held impermissible, and Section 194LA of the Income-tax Act, 1961 could not justify withholding where the payment is statutorily exempt. The compensation, once crystallized into an executable award and deposited in execution, was also regarded as a decretal debt, so it had to be disbursed in full without deduction.

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Issues: Whether tax deducted at source is deductible from compensation awarded under Section 3G(5) of the National Highways Act, 1956, in view of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

Analysis: The compensation awarded under the arbitral award was held to fall within the protective ambit of Section 96 of the 2013 Act, which bars levy of income tax on awards made under that Act. The Court treated the land acquisition compensation as covered by the welfare object of the 2013 Act and noted that Section 194LA of the Income-tax Act, 1961 does not permit deduction where the payment is exempt under Section 96. The Court further held that once the compensation is crystallized into an executable award and deposited in execution, it assumes the character of a decretal debt, from which no deduction can be made in the absence of a lawful basis.

Conclusion: No tax deducted at source is permissible from the compensation awarded under Section 3G(5) of the National Highways Act, 1956, and the amount must be disbursed in full without deduction.

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