Compensation for land acquired under the National Highways Act is exempt from TDS as a 'Judgment Debt'.

The petitioners’ agricultural lands were acquired for widening National Highways under the National Highways Act, 1956

Following an enhancement of compensation by the Arbitrator under Section 3G(5) of the Act on 22/04/2014, the petitioners initiated execution proceedings (Arbitration Regular Darkhast No. 109/2021)

The acquiring body deposited the compensation amount in 2025. While permitting the withdrawal of this amount, the Executing Court (District Court, Dhule) directed a 10% deduction towards Tax Deducted at Source (TDS) based on a narrow interpretation of CBDT Circular No. 36/2016

1. Whether TDS is deductible from compensation awarded under Section 3G(5) of the National Highways Act, 1956, in light of Section 96 of the RFCTLARR Act, 2013

2. Whether an award amount deposited in an Executing Court assumes the character of a "judgment debt," thereby precluding the judgment debtor from deducting income tax at source

The court primarily relied on Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013, which exempts awards/agreements (except u/s 46) from income tax

It referred to Section 194LA of the Income-tax Act, 1961, noting the second proviso (eff. 01/04/2017) which prohibits TDS for payments exempted under Section 96 of the 2013 Act

The court also applied the "judgment debt" principle from All India Reporter Ltd. vs. Ramchandra D. Datar (AIR 1961 SC 943), which establishes that once a claim merges into a decree, the debtor cannot deduct tax unless specifically directed by the decree

Precedents from Seema Jagdish Patil vs. NHSRCL and C. Nanda Kumar vs. Union of India were used to affirm that welfare legislation overrides tax deduction procedures

The Court reasoned that although the acquisition occurred under the National Highways Act, the beneficial provisions of the 2013 Act (including Section 96) apply to such acquisitions via Section 105(3)

The Court observed that since the arbitral award was passed after the 2013 Act came into force, the statutory exemption from income tax is absolute

It clarified that the Executing Court misinterpreted Seema Jagdish Patil; the exemption is statutory from the inception of the 2013 Act and does not depend on the "retrospective effect" of CBDT circulars

Furthermore, the Court highlighted that the compensation had crystallized into an arbitral award, which is executable as a decree. Following the Datar principle, the amount lost its original character and became a "judgment debt," meaning the judgment debtor has no authority to deduct TDS at the time of payment into court in the absence of a specific direction in the decree

The Writ Petitions were allowed, and the impugned orders directing deduction of 10% TDS were quashed and set aside

The Court directed the Competent Authority for Land Acquisition (CALA) to redeposit any amounts already deducted towards TDS within four weeks

The Executing Court was directed to disburse the entire decretal amount, including accrued interest, to the claimants without any deduction