No TDS is Deductible From Land Acquisition Compensation Awarded Under the National Highways Act.

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

Following an arbitral award under Section 3G(5) of the Act dated 22/04/2014, compensation was enhanced

During execution proceedings (Arbitration Regular Darkhast No. 109 of 2021), the acquiring body deposited the compensation amount

The Executing Court (District Court, Dhule) permitted the withdrawal of these funds but directed a 10% deduction toward Tax Deducted at Source (TDS), citing CBDT Circular No. 36/2016

The petitioners challenged this specific direction for TDS deduction via writ petitions

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

2. Whether an amount crystallized in an arbitral award and deposited before an Executing Court assumes the character of a "judgment debt," thereby precluding statutory tax deductions by the debtor

Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 ("2013 Act"), which exempts awards or agreements from income tax

Section 105(3) of the 2013 Act, which extends these beneficial provisions to acquisitions under the National Highways Act

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

The principle from All India Reporter Ltd. vs. Ramchandra D. Datar (AIR 1961 SC 943), establishing that a claim merged into a court decree becomes a "judgment debt" and must be paid in full without deduction of income tax at source by the debtor

The court reasoned that since the arbitral award was passed after the 2013 Act came into force, the statutory exemption under Section 96 applies regardless of the acquisition being under the National Highways Act

It clarified that while taxability and TDS are distinct, the welfare nature of the 2013 Act as interpreted in C. Nanda Kumar vs. Union of India and Seema Jagdish Patil vs. NHSRCL ensures that land losers are not burdened with seeking refunds for exempt income

The court found the Executing Court’s reliance on the non-retroactivity of CBDT Circular No. 36/2016 misplaced, as the tax exemption is statutory from the inception of the 2013 Act

the court emphasized that because the compensation was deposited in execution of an award (executable as a decree), it transitioned into a "judgment debt"

Per the Ramchandra D. Datar precedent, a judgment debtor has no authority to deduct TDS from a decretal amount unless the decree specifically directs such a deduction

The court quashed the impugned orders to the extent they directed a 10% TDS deduction; The Competent Authority for Land Acquisition (CALA) was directed to redeposit any deducted TDS amounts before the Executing Court within four weeks, and the Executing Court was ordered to disburse the full decretal amount plus interest to the petitioners without deduction