Harry Township Limited vs. Pr.CIT (Central), Delhi-3, ITA No.1369/Del/2022
In a significant ruling, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed income tax exemption on compensation received by an assessee for land acquisition by the National Highways Authority of India (NHAI). The Tribunal held that the exemption under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) is applicable, even in the case of commercial land, after the amendment to Section 105(3).
Key Issue
Whether compensation received by the assessee from NHAI for compulsory acquisition of land is exempt from income tax under Section 96 of the RFCTLARR Act, 2013, even in the absence of a specific notification under Section 105(3) of the said Act?
Background
- The assessee held land in Village Sekhwan, Tehsil-Zira, which was acquired by NHAI under the National Highways Act, 1956.
- A profit of ₹31,31,903 was declared by the assessee after deducting cost of acquisition and claimed as exempt under the RFCTLARR Act, 2013.
- The Assessing Officer (AO) disallowed the claim, treating the compensation as taxable in the absence of supporting documentation.
- In appeal, the CIT(A) agreed that the compensation was covered under the RFCTLARR Act but denied exemption citing lack of notification under Section 105(3).
- The assessee took the matter to the ITAT, arguing that post-amendment, such notification was no longer necessary.
ITAT’s Observations & Ruling
Section 96: Exemption from Tax
Section 96 of the RFCTLARR Act clearly states:
No income tax… shall be levied on any award or agreement made under this Act, except under section 46…
This forms the basis of exemption from income tax for land acquisition compensation.
Amendment to Section 105(3) — Game Changer
- Originally, Section 105(3) required a Central Government notification to extend RFCTLARR benefits to acquisitions under laws listed in the Fourth Schedule (which includes the NHAI Act).
- However, Ordinance No. 9 of 2014, effective from 01.01.2015, substituted this requirement.
- Post-amendment, RFCTLARR provisions automatically apply to all laws in the Fourth Schedule, including NHAI acquisitions.
Hence, no separate notification is now required to avail tax exemption under Section 96 for land acquired under the NHAI Act.
Agricultural vs. Commercial Land
- The Revenue contended that exemption is only available to agricultural land and individuals or HUFs under Section 10(37).
- However, the ITAT noted:
- CBDT Circular No. 36/2016 clarifies that Section 96 covers both agricultural and non-agricultural land, and
- The RFCTLARR Act, being a special law, overrides the Income Tax Act.
- The exemption under Section 96 is broader than Section 10(37).
Supporting Precedents
- The ITAT cited the Lucknow Bench ruling in ITO v. V.S. Promotors Ltd. (2023), which held similar compensation to be tax-exempt.
- The Kerala High Court in Madaparambil Varkey Varghese v. ACIT reinforced the view that no income tax applies under Section 96 unless Section 46 applies (private deals with non-specified persons).
Final Verdict
The ITAT held that:
- The compensation received by the assessee from NHAI during FY 2015–16, post-amendment of Section 105(3), is fully exempt under Section 96 of the RFCTLARR Act.
- The exemption applies regardless of:
- Whether the land is agricultural or commercial;
- Whether the assessee is an individual, HUF, or company;
- The absence of a notification under old Section 105(3).
- Relief of ₹31,31,903 was granted to the assessee.
Key Takeaways
- Section 96 offers robust exemption from income tax on land acquisition awards under the RFCTLARR Act.
- Post-2015, no notification is needed for acquisitions under laws like the NHAI Act.
- The exemption applies even for non-agricultural land and corporate assessees, not just individuals and HUFs.
Legal References
- Section 96, RFCTLARR Act, 2013
- Section 105(3) (as amended by Ordinance No. 9 of 2014)
- CBDT Circular No. 36/2016, dated 25.10.2016
- ITO v. V.S. Promotors Ltd. [ITAT Lucknow, 2023]
- Madaparambil Varkey Varghese v. ACIT [Kerala HC]
Conclusion
This ruling underscores that tax authorities must consider special enactments like the RFCTLARR Act, particularly post-amendment, and cannot rely solely on the Income Tax Act to deny exemption. For those whose land has been compulsorily acquired by NHAI, this judgment reinforces the right to full tax exemption under the RFCTLARR Act, 2013.