HC ruling protects landowners from tax deductions on highway acquisition compensation

Bengaluru, Nov 21 (PTI) In a significant relief for landowners affected by compulsory acquisitions, the Karnataka High Court has allowed a writ petition filed by Supriya S Shetty, challenging the deduction of income tax on compensation paid for National Highway expansion.

The case was heard by Justice S R Krishnakumar, with Advocate K V Dhananjay appearing for the petitioner against the Union of India and the Central Board of Direct Taxes (CBDT).

The petitioner and her husband, a well-known land-developing family from Mangaluru, had consolidated around 17.5 acres in Tenkulipady village over nearly two decades for a wellness resort project.

Their plans were interrupted in 2020 when the National Highways Authority of India acquired 33.50 cents of their land for the widening of NH-169.

Although compensation was awarded under the National Highways Act and the RFCTLARR Act, the authorities deducted over Rs 16 lakh as TDS despite Section 96 of the RFCTLARR Act exempting such compensation from income tax.

This dispute reflects a larger problem faced by thousands of landowners across Karnataka, where officials routinely deduct ten per cent TDS and the Income Tax Department later treats parts of the compensation as taxable income. Many families end up losing a substantial portion of their compensation, making it difficult to repurchase land or rebuild their livelihoods after acquisition.

Advocate Dhananjay contended that the NHAI and the tax authorities acted contrary to Parliament’s clear mandate that acquisition compensation must remain tax-free. Imposing income tax, he argued, unfairly burdens citizens whose property is taken for public projects and defeats the welfare intent of the RFCTLARR Act.

Justice Krishnakumar had previously ruled on similar issues. In 2022, he held that compensation determined under the RFCTLARR framework cannot be subjected to TDS or income tax in KIADB acquisitions—a judgment the Supreme Court declined to stay, making it binding across Karnataka. Relying on this precedent, the court in the present case held in favour of the petitioner.

With the writ petition now allowed, the ruling is expected to have far-reaching consequences for land acquisitions undertaken by agencies such as the NHAI, KIADB, Railways and pipeline authorities. PTI COR GMS GMS KH