No TDS Can Be Deducted From Compulsory Land Acquisition

No TDS Can Be Deducted From Compulsory Land Acquisition Compensation and Withheld Amount Must Be Released

Issue

Whether compensation awarded for compulsory acquisition of land is subject to Tax Deducted at Source (TDS) under Section 194LA of the Income-tax Act, 1961, and whether the respondent authorities must release the amount withheld from the petitioner.

Facts

The petitioner is a land loser whose land was acquired under compulsory acquisition proceedings.
The respondent authorities withheld an amount of approximately Rs. 10.17 lakhs from the compensation payable to the petitioner under the head of income tax/TDS.
The petitioner filed a writ petition seeking a writ of mandamus directing the respondents to release the entire withheld compensation amount.

Decision

Compensation awarded on account of compulsory acquisition of land is not subject to deduction of tax at source under the applicable provisions of the Income-tax Act.
The respondent authorities were not entitled to deduct or withhold any sum toward TDS from the compensation amount payable to the petitioner.
The respondents were directed to release the withheld amount of Rs. 10.17 lakhs to the petitioner, provided it was deducted as income tax/TDS.
Decided in favor of the assessee/petitioner.

Key Takeaways

Exemption from TDS: Compulsory acquisition compensation payable to land losers is exempt from TDS under Section 194LA of the Income-tax Act, 1961 (corresponding to Section 393 of the Income-tax Act, 2025).
Duty to Release Withheld Funds: Authorities acquiring land cannot make unauthorized deductions under the guise of income tax and must release the full compensation awarded.
Writ Jurisdiction: A writ of mandamus can be invoked against state authorities to enforce the prompt release of compensation amounts illegally withheld as TDS.

HIGH COURT OF KARNATAKA

Kamalakar

Karnataka Neeravari Nigam Ltd.

S.R. Krishna Kumar, J.

WRIT PETITION NO. 203476 OF 2026 (LA-RES)

AUGUST 27, 2026

Harshavardhan R. Malipatil, Adv. for the Petitioner. Sanjeev Kumar C. Patil, Adv. and Mallikarjun Sahukar, AGA for the Respondent.

ORDER

1. In this petition, the petitioner has sought for the following reliefs:

“a) Issue a mandamus directing the respondents to release the amount withheld, in respect of compensation payable to petitioner for the land acquired, as reflected in correspondence vide Annexure-B as detailed hereunder:

Sl. No.	Date	Bearing No.	Amount withheld
1.	24-07-2026	?????/???/??.??.??/??/3.2/834/???/14-15/3525	10,17,076

(b) Issue any other order, direction or writ as this court deemed fit in the facts and circumstances of the cases as stated above with costs in the interest of justice and equity.”

2. The issue in controversy is directly and squarely covered by the order of this Court dated 10.08.2026 passed in W.P.No.203085/2026 Siddanna v. Karnataka Neeravari Nigam Ltd, which reads as under:

“ORAL ORDER

In this petition, the petitioners have sought for the following reliefs:

“a)

Issue a mandamus directing the respondents to release the amount withheld, in respect of compensation payable to petitioner for the land acquired, as reflected

in correspondence vide Annexure B as detailed hereunder.sl.no.1 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/500 ?????/15-16/9942 amount withheld 6,76,412 sl.no.2 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/431 ?????/13-14/9973 amount withheld 9,73,349 sl.no.3 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/431 ?????/13-14/9973 amount withheld 7,29,063 sl.no.4 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/218 ?????/16-17/9447 amount withheld 5,98,602 sl.no.5 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/887 ?????/14-15/8352 amount withheld 3,14,331 sl.no.6 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/430 ?????/13-14/9939 amount withheld 10,83,308 sl.no.7 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/222 ?????/16-17/9945 amount withheld 1,84,420 sl.no.8 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/222 ?????/16-17 amount withheld 3,53,368 sl.no.9 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/222 ?????/16-17 amount withheld 1,62,301 sl.no.10 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/222 ?????/16-17 amount withheld 4,18,517 sl.no.11 date-30.01.2026 bearing no. ??.????/???/??.???.???/???/??-2/222 ?????/16-17 amount withheld 57,094;

(b)

Issue any other order, direction or writ as this court deemed fit in the facts and circumstances of the case as stated above with costs in the interest of justice and equity.”

2. A perusal of the material on record will indicate that the petitioners became entitled to enhanced compensation in the appeals filed by them which were allowed and disposed of by awarding following amounts towards compensation as hereunder:

Sl. No.	MSA No.	Name	Amount Awarded	Amount Paid	Amount withheld
1	200061/2017	Siddanna	1,05,30,743	98,54,131	6,76,412
2	200051/2015	1. Taherabee 2. Shakeer	1,45,64,751	1,35,91,402	9,73,349
3	200050/2015	Abdul Khadar	1,07,14,112	99,85,049	7,29,063
4	200190/2017	Maharudrappa	27,98,735	89,28,883	5,98,602
5	200019/2018	Shailaja	49,27,367	46,13,036	3,14,331
6	200049/2015	1. Sunanda 2. Radhabai 3. Shivaputra 4. Jagadevi 5. Jayaputra 6. Manohar 7. Goutam	1,70,13,834	1,59,30,526	10,83,308
7	200214/2017	Subhaschandra	32,56,565	30,56,565	1,87,420
8	200229/2017	Revanasiddappa	54,32,449	50,79,081	3,53,368
9	200181/2017	Maheboob Sab	28,02,882	26,40,581	1,62,301
10	200182/2017	Maheboob Sab	52,56,157	48,37,640	4,18,517
11	200187/2017	Maheboob Sab	9,86,718	9,29,624	57,094

3. It is the grievance of the petitioner that vide Annexure-B series dated 30.01.2026, the respondents have withheld various sums of amount payable to the petitioners out of the compensation awarded by this Court in the aforesaid appeals and as such petitioners are before this Court by way of the present petition.

4. Learned counsel for the respondents is not in a position to place any material to indicate the reason for withholding the said amounts payable in favour of the petitioners pursuant to the orders passed by this Court in the aforesaid appeals. He would however submit that the said amounts might have been withheld by the respondents towards income tax/TDS payable on the aforesaid amounts and as such there is no merit in the petition and the same is liable to be dismissed.

5. By way of reply, learned counsel for the petitioners submits that in the light of the judgments of this Court in the case of Karnataka Neeravari Nigam v. The State and Ors. (W.P.No. 226178/2020 dated 02.04.2026) and in the case of The Defense Estate Officer and Sunanda and Ors. (W.P.No.102884/2025 dated 20.08.2025), the respondents are not entitled to deduct any amount towards income tax/TDS on the compensation amount payable to the petitioners and as such necessary directions may be issued to the respondents to pay the amount withheld by them.

6. I have given an anxious consideration to the rival consideration of both the parties.

7. In Karnataka Neeravai Nigam’s case supra (W.P.No.226178/2020) this Court has held as under:

1. “The petitioner, Karnataka Niravari Nigam Limited who is the beneficiary of the acquisition, is before this Court seeking for the following reliefs:

Issue a writ of certiorari quashing the judgment and award dated 01.06.2019 passed by the Hon’ble Principal. District Judge, Kalaburagi passed in LACA No.746 of 2017 produced at Annexure-A.

II)

To allow this writ petition with costs and grant such other relief / reliefs as this Hon’ble Court may deem fit in the facts and circumstances of the case as stated above with costs in the interest of justice and equity.

2. Having regard to the admitted position that the acquisition proceedings have remained pending for an inordinately long period of time, and further taking into consideration that the land losers have not received the compensation amounts within a reasonable or statutorily contemplated timeframe, this Court found it necessary to consider appropriate measures to ensure expeditious and effective resolution of the disputes. It is also of relevance that the land losers have been constrained to initiate proceedings for enforcement of the decrees passed against the beneficiary of the acquisition, which itself indicates the protracted nature of the litigation and the absence of finality.

3. This Court being conscious of the fact that continued pendency of such proceedings would result in manifest prejudice to all stakeholders. On the one hand, the land losers would be deprived of the immediate and beneficial enjoyment of the compensation amounts awarded to them, thereby defeating the very purpose of acquisition jurisprudence which mandates timely recompense for compulsory deprivation of property. On the other hand, the beneficiary of the acquisition, as well as the State Government, would be exposed to an everincreasing financial burden on account of the accrual of statutory interest, additional interest, and other consequential liabilities during the pendency of the proceedings.

4. In addition, multiplicity of proceedings, including execution proceedings and ancillary litigations, would further complicate the matter and consume valuable judicial time. In such circumstances, this Court was of the considered opinion that an adversarial adjudicatory process may not necessarily subserve the ends of justice in the most efficient manner.

5. Accordingly, in exercise of its powers to adopt alternative dispute resolution mechanisms, and having regard to the principles underlying Section 89 of the Code of Civil Procedure, 1908, this Court suggested to the learned counsel appearing for all parties as to whether they would be agreeable to a reference of the disputes to mediation, with a view to facilitating a comprehensive, mutually acceptable, and time-bound settlement, thereby bringing a quietus to the long-pending disputes between the parties.

6. Pursuant to the aforesaid suggestion, the learned Advocate General, upon obtaining necessary instructions from the State Government as well as the concerned departments and instrumentalities, fairly submitted that the State would be agreeable to exploring a resolution of the disputes through the process of mediation. The said submission reflects a pragmatic and constructive approach on the part of the State in addressing long-pending acquisition-related disputes.

7. Similarly, the learned counsels appearing for the land losers, led by Sri Harshavardhan R. Malipatil, also expressed their willingness to participate in the mediation process, recognising that such a mechanism may enable an expeditious realisation of compensation and avoid further delay inherent in continued litigation.

8. In view of the consensus that emerged between the parties, and bearing in mind the nature of the disputes as well as the potential for an equitable and negotiated settlement, this Court deemed it appropriate to refer the matter to mediation. Accordingly, the disputes were referred to mediation under the aegis of Hon’ble Sri A. V. Chandrashekhar, former Judge of this Court, who was requested to act as the Mediator.

9. Learned counsel appearing for all the parties submit that, pursuant to the reference made by this Court, several rounds of mediation proceedings were conducted under the guidance of the learned Mediator. It is submitted that multiple interactive sessions were held, both collectively and separately, involving the representatives of the State Government, the beneficiary of the acquisition, and the land losers. Parallel deliberations were also undertaken at the level of the concerned governmental authorities to examine the feasibility of settlement and to obtain necessary approvals.

10. It is further submitted that, as a result of sustained negotiations and constructive engagement between the parties, they have been able to arrive at an amicable and mutually acceptable settlement, resolving the disputes which formed the subject matter of the present proceedings. The terms of such settlement have been reduced into writing and duly recorded by the learned Mediator in the form of a Mediation Agreement.

11. The learned counsel submit that the said Mediation Agreement has been signed by the parties and their respective representatives, and has been placed on record before this Court. It is also submitted that the settlement comprehensively addresses all outstanding issues between the parties, including the payment of compensation, interest components, timelines for disbursement, and the manner of closure of pending proceedings.

12. In view of the above, the parties jointly requested this Court to take the Mediation Agreement on record and to pass appropriate orders in terms thereof, so as to give finality to the disputes between the parties.

13. The Mediation Agreement, as placed on record, reads as under:

‘MEDIATION AGREEMENT

Thorough discussions were held in the presence of the Learned Mediator, Justice A.V Chandrashekar (Retired), the Managing Director of Karnataka Neeravari Nigam (Hereinafter “KNNL”), the Learned Advocate General, Karnataka, Additional Advocate General, Kalaburagi, the Learned Advocates appearing for the parties, and the authorized representatives of KNNL.

The parties have agreed as follows:

The present writ petition is one of several land acquisition matters pertaining to various irrigation projects which are being undertaken and managed by KNNL. By order Dtd:07-07-2025, the Hon’ble High Court referred the matters for mediation and connected cases. The present compromise has been duly approved by the State Government of Karnataka on 25-02-2026 relating to the land acquisition for the Bennethora project, considering the various factors like the decision of the Hon’ble Supreme Court and also settlement in earlier mediation MSA No.200061 of 2017 and other connected matter and deliberations between the parties. The parties have voluntarily agreed to settle the above matter on the following terms:

(a)

The market value of the land acquired is calculation and arrived at Rs.1,64,223/- (in words Rupees: One Lakh Sixty Four Thousand Two Hundred and Twenty Three only) per acre for dry land.

(b)

The Respondent/s (Claimant/s) is/are entitled for all statutory benefits under Land Acquisition Act, except for the period of delay in filing the Appeal before the First Appellate Court.

(c)

No interest is payable to the Respondent/s (Claimant/s) for the period of delay in filing the Appeal before the First Appellate Court.

(d)

The Respondent/s (Claimant/s) agree that they will give up statutory interest for a period of two and half years.

(e)

It is agreed to between the parties that the calculation of interest is made up to 14.03.2026.

(f)

It is agreed to between the parties that, in case the agreed amount is not paid within four months from the signing of this agreement, KNNL will not be entitled for exemption of payment of interest for a period of two and half years as outlined in clause (d).

(g)

The Respondent/s (Claimant/s) has/have understood and agreed that the payment of amounts quantified in the present agreement would be made through the P.D account of KNNL of Chief Accounts Officer, KNNL, Dharwad. (Heard of Account “8443-00106”) as outlined in G.O. No. AE13 TAR 2023 dated 27.09.2024;

(h)

The Respondent/s (Claimant/s) agree that the present agreement would be a full and final settlement of their claims and they would not be entitled to any differential interest except in accordance with the terms of this agreement;

(i)

Respondent/s (Claimant/s) has/have agreed to give an undertaking in writing about the genuineness of their claim and undertake to furnish copy of the Passbook and Aadhar Card immediately upon signing of the agreement;

(j)

The Respondent/s (Claimant/s) agree that the present agreement would be a full and final settlement of their claims and they and/or their legal heirs undertake to not agitate any further claims in this regard, in the future;

(k)

The Respondent/s (Claimant/s) agree to withdraw all pending Execution Petition(s) in terms of this agreement;

(l)

KNNL would not be bound to pay any further compensation or claim to a third party, should any dispute arise between the Respondent/s (Claimant/s) and such person, in respect of ownership and claim of the acquired land;

(m)

KNNL has agreed to pay the costs to the Respondent/s (Claimant/s) which is equivalent to the Court fee paid by the Respondent/s. Consequently, KNNL is entitled for return of Court fee from Hon’ble Court, as per law;

(n)

KNNL has undertaken that the payment of agreed amount will be deposited directly to the account of the Respondent/s (Claimant/s) through the P.D. account of KNNL of the Chief Accounts Officer KNNL, Dharwad. (Head of Account “8443-00-106” as outlined in G.O No. AE 13 TAR 2023 Dtd:27-09-2024;

(o)

The present settlement shall not be considered either as a precedent or a policy decision or a proposal binding in KNNL for cases, other than the present matter referred to Mediation.

The parties to this agreement have entered into this compromise voluntarily, on their own volition, without any coercion of misrepresentation and the contents of this agreement have been explained to and understood by the Respondent/s (Claimant/s) in vernacular as well.”

14. The Mediation Agreement has been duly executed by the competent representatives of the parties. On behalf of the beneficiary, it is signed by the Executive Engineer, Karnataka Neeravari Nigam Limited (KNNL). On behalf of the State authorities, it bears the signatures of the Special Land Acquisition Officer and the Deputy Commissioner, both of whom have been duly identified by the learned High Court Government Pleader, who has also appended her signature in token of such identification and authentication.

15. Insofar as the Claimant/land loser is concerned, respondent No.3 has affixed his signature. The said party has been duly identified by his learned counsel, who has also signed the Mediation Agreement in confirmation thereof.

16. Learned counsel appearing for the petitioner, as well as learned counsel appearing for the respondents/claimants, jointly submit that the terms and conditions recorded in the Mediation Agreement fully and finally resolve all disputes inter se the parties. All parties undertake to abide by and perform their respective obligations strictly in accordance with the terms of the said Mediation Agreement, without demur or delay.

17. Accordingly, the following directions are issued governing the mode and manner of disbursement:

In cases involving a single claimant, the agreed amount shall be disbursed to the individual bank account of such claimant;

In cases involving multiple claimants, the claimants shall open a joint bank account in the names of all such claimants;

The requisite bank account particulars, including all details necessary for electronic transfer through RTGS/NEFT, shall be furnished to the Special Land Acquisition Officer within a period of 21 (Twenty one) days from the date of receipt of certified copy of this order.

18. In the event the claimants (in cases of multiple claimants) are unable to open a joint bank account within the aforesaid period:

They shall, within a further period of 7 (seven) days thereafter, furnish a duly sworn affidavit along with an indemnity undertaking;

The affidavit shall clearly specify:

the agreed apportionment of the settlement amount; and

ii.

the individual bank account details of each claimant;

The affidavit shall further stipulate that any disbursement made in accordance with such particulars shall constitute full and final discharge of all liabilities of the respondents towards the claimants and any person claiming through or under them.

19. Upon receipt of:

the bank account particulars under paragraph 17; or

the affidavit and undertaking under paragraph 18;

the beneficiary, namely Karnataka Neeravari Nigam Limited, shall process and disburse the agreed amounts within a period of 120 (one hundred and twenty) days from the date of such receipt, by way of electronic transfer to the designated account(s).

20. Upon such payment being made within the stipulated period, Karnataka Neeravari Nigam Limited shall stand fully and finally discharged of all obligations under the Mediation Agreement.

21. In the event of failure to effect payment within the aforesaid period of 120 days:

The claimants shall be at liberty to initiate execution proceedings on the basis of this order read with the Mediation Agreement;

Such right of execution shall be without prejudice to the claimants’ entitlement to statutory and/or agreed interest, which shall continue to accrue until the date of actual realisation.

22. Taking note of the submission of the learned counsel for the respondents/beneficiary that delay on the part of the claimants in furnishing requisite particulars should not result in avoidable financial exposure. It is directed that:

In the event the claimants fail to furnish:

bank account particulars within 21 days (paragraph 17), or

ii.

affidavit and undertaking within the extended 7 days (paragraph 18),or

In the event payment is not effected within 120 days from the date of furnishing such particulars or affidavit, the beneficiary shall be at liberty to deposit the agreed amount within a further period of 15 (fifteen) days:

before the Executing Court, where execution proceedings are pending; or

ii.

before the Reference Court, where no execution proceedings are pending;

Upon such deposit being made, the beneficiary shall be deemed to have validly complied with its obligations under the Mediation Agreement, and liability for further interest shall cease from the date of such deposit.

23. An apprehension has been expressed by the learned counsel for the claimants regarding possible deduction of tax at source (TDS) and issuance of Form 16A in respect of the compensation amounts. This issue is no longer res integra. This Court, in its earlier order dated 20.08.2025 in W.P.No.102884/2025 has categorically held that compensation awarded on account of compulsory acquisition of land is not subject to deduction of tax at source under the applicable provisions of the Income Tax Act. Accordingly, it is directed that all payments made pursuant to the Mediation Agreement, whether to joint accounts or individual accounts, shall be effected without any deduction of tax at source.

24. The Mediation Agreement recorded herein shall form part of this order and shall be treated as a lawful settlement between the parties within the meaning of Section 89 of the Code of Civil Procedure, 1908 read with Order XXIII Rule 3 CPC. The said settlement shall operate in substitution of any award, judgment, or decree passed by the Reference Court and/or the Appellate Court. The concerned Courts are directed to draw up a decree in terms of the Mediation Agreement, as affirmed by this order, within a period of 60 (sixty) days from the date of receipt of a certified copy of this order.

25. This Court places on record its deep appreciation for the commendable efforts of Hon’ble Sri Justice A. V. Chandrashekhar, former Judge of this Court, who as Mediator, has facilitated an effective and result-oriented resolution of a long-pending dispute. The Court also acknowledges the constructive role played by the learned Advocate General, Sri Shashikiran Shetty; the learned Additional Advocate General, Sri Malhar Rao; the learned High Court Government Pleader, Smt. Maya T. Rajanna; the learned Additional Government Advocate, Sri Sheshadri Jaishankar; and the learned counsel appearing for KNNL, namely, Ms. L.Mohini Bhatt, Sri. Sanjeev Kumar C. Patil, Sri. M.Sudarshan, and Sri. Sharanbasava Pastapur.

26. The Court further records its appreciation for the proactive engagement of the officers of KNNL, including the Managing Director, Sri Rajshekhar Aminabhavi; the Company Secretary, Sri Girish M. S.; the Head of the Legal Team, Sri Balraj S. Patil; and other officers, namely Sri Vijay Karosh and Sri S. H. Hiremath, who have contributed to the resolution in a pragmatic and solution-oriented manner.

27. The Court also places on record its appreciation for the learned counsel appearing for the claimants, led by Sri Harshavardhan R. Malipatil, along with Sri Shivshankar H. Manur, Sri Nagashetty G. Patil, Sri B. B. Ashtagi, Sri Vishal B. Ashtagi, Sri A. M. Biradar, Sri K. S. Sakri, Sri Manvendra Reddy, Sri Vaijanath Biradar, and Sri S. S. Sajjanshetty, for their constructive assistance and cooperation in facilitating the settlement.

28. Having regard to the fact that a substantial number of land acquisition matters, estimated to be in excess of 10,000 cases, are presently pending before this Bench, this Court expresses its earnest hope that a similar mechanism of mediated settlement may be explored and adopted in appropriate cases. Such an approach would not only reduce the burden of protracted litigation but would also ensure timely and equitable relief to land losers, while safeguarding the financial and administrative interests of the State and beneficiary authorities. The stakeholders who have contributed to the present settlement are expected to play a proactive role in extending this model to other pending matters.”

8. In The Defense Estate Officer’s case supra (W.P.No.102884/2025) this Court has held as under:

“1. Learned AGA accepts notice for respondent No.9. Notice to respondents No.1 to 8 is dispensed with in view of the proposed order to be passed.

2. The petitioner-The Defense Estate Officer, Karnataka and Goa Circle is before this Court seeking for the following reliefs:

Issue a writ, order or Direction in the nature of certiorari by quashing the order dated 02.09.2022 passed in Execution Case No.35/2020 by the Hon’ble Court of Additional Senior Civil Judge and JMFC, Karwar vide Annexure-E, in the interest of justice and equity.

Pass such other order or orders that are deemed fit under the facts and circumstances of the case.

3. Proceedings having been initiated by the land loser under Section 28 of Land Acquisition Act, 1894 (for short hereinafter referred to as “LA Act, 1894”) for enhancement of compensation, the same came to be allowed and the compensation which had been awarded had been enhanced. Execution Proceedings having been filed, the petitioner made payment of the due amount on 26.12.2017 after deducting a sum of Rs.2,65,077/- as tax deduction at source and the balance of Rs.10,93,852/- was paid.

4. The Execution Court vide order dated 02.09.2022 held that question of deduction of TDS would not arise since the land is agricultural in nature and the calculation being made under Section 28 and not under Section 34 of the LA Act, 1894, hence, there is no requirement for making deduction of taxes at source. The office was directed to calculate the amount which was required to be made payment by respondents therein, i.e., petitioner-herein.

5. The petitioner claiming that an amount had been deducted as TDS contended that the amount having already been deducted, the entire amount cannot be paid and, in that background, an attachment order of the Additional Senior Civil Judge & JMFC, Karwar dated 02.09.2022 was passed which is under challenge.

6. Though the petitioner is the Defense Estate Officer representing the defense establishment, this Court is constrained to make certain observations against the petitioner in view of the manner in which the matter has proceeded.

7. The land of the respondents in Sy.No.17/3, 85/1, 17/1, 26/1B and 26/1K totally measuring 1 Acres 11 Guntas of Kodar Village of Karwar Taluk came to be acquired for establishment of the Naval Base Seabird Project, the preliminary notification is dated 19.09.1986, the final notification came to be issued on 09.03.1987, the compensation which had been awarded under an award dated 29.12.1988 was accepted by the respondents under protest and a reference sought for, as such a reference was made and came to be registered in LAC No.250 of 1994, by then 2 years had lapsed from the date of preliminary notification.

8. LAC No.250 of 1994 came to be disposed after a gap of 12 years on 28.08.2006, enhancing the compensation. It is to execute the said final order that Execution Proceedings in Ex. Case No.35 of 2020 had been filed by landowner.

9. The total amount which was payable as on the date of filing of Execution petition was stated to be Rs.5,34,930/- and the interest payable on the said amount until 17.09.2017 was calculated to be Rs.16,52,931/- with furthermore interest from 18.9.2007 to 18.9.2019 was calculated to be Rs.9,62,820/-. The petitioner made payment of a sum of Rs.14,43,768/-leaving a balance payable at Rs.11,71,983/- with further interest from 19.9.2019 to 31.12.2021 amounted to Rs.1,83,434/-. The total interest payable coming up to Rs.13,55,417/-, total amount of Rs.18,90,347/- was to be paid along with interest being the balance amount as on the date of filing of the execution petition.

10. Though the Execution Petition is filed in the year 2020 the payments were not made and the matter continued to languish.

11. Finally, an issue was raised that TDS amount is required to be deducted on the interest amount of the compensation which required the Execution Court to consider the matter and pass a detailed order on 02.09.2022 which is under challenge in these Proceedings. The Execution Court by the said order come to a categorical conclusion that the land which has been acquired being agricultural in nature, the compensation which has been enhanced and interest directed to be paid was in terms of Section 28 of the LA Act, 1894 and therefore there is no requirement of deduction of tax at source and called upon the petitioner to make payment of the entire amount, the said order is under challenge before this Court.

12. Sri.Mrutynjaya. S.Hallikeri., learned counsel appearing for the petitioner submits that;

12.1. The deduction of tax at source is exempted insofar as the compensation amount is concerned, that being the capital receipt at the hands of the land loser. Insofar as interest is concerned, the same being a revenue receipt in the hands of the land loser would be income from other sources requiring deduction of tax at source in terms of Section 194-LA of the Income Tax Act, 1961.

12.2. He relies upon Clause (viii) of Sub-section (2) of Section 56 to contend that income by way of interest received on compensation or on enhanced compensation, under Sub-section (1) of Section 145-B would amount to income from other sources.

12.3. He refers to Clause (viii) of Sub-section (2) of Section 56 to contend that income by way of interest received on compensation or enhanced compensation referred to in Sub-section (1) of Section 145-B would be income from other sources which shall be chargeable to income tax under such head.

12.4. By referring to Section 145-B, he submits that the interest received by any assessee on any compensation or on enhanced compensation as the case may be shall be deemed to be income of the previous year in which it is received and by referring to Section 194-LA, he submits that it is only the compensation which is exempt from deduction of tax at source and not the interest.

12.5. In this regard, he relies upon the decision of the Punjab and Haryana High Court in Mahender Pal Narang v. CBDT 1 more particularly para Nos.2 and 13 thereof, which are reproduced hereunder for easy reference;

2. The issue involved in narrow circumference is “whether after the insertion of sections 56(2)(viii) and 57(iv) of the Act, with effect from April 1, 2010, can the assessee claim that interest received under section 28 of the Land Acquisition Act, 1894 (for short, “the 1894 Act”) will partake the character of compensation and would fall under the head ‘Capita gains’ and not ‘Income from other sources’ ?”

13. In view of the above, it is held that the interest received on compensation or enhanced compensation is to be treated as “income from other sources” and not under the head “capital gains”.

12.6. By relying on the same, he again submits that interest received in compensation or enhanced compensation is to be treated as income from other sources.

12.7. He relies upon the decision of this Court in Guru Rao v. State of Karnataka2 more particularly para 10 and 14 thereof, which are reproduced hereunder for easy reference;

10. The ‘interest’ in the context means, a consideration paid either for use of money or for forbearance in demanding it, after it has fallen due. It is a compensation allowed by law or fixed by parties or permitted by custom or usage for use of money, belonging to another or for the delay in paying the money after it has become payable.

14. As has been noticed above, interest is not an item of compensation nor is it a consideration for acquisition of land. Interest under Section 28 is statutorily paid for the delayed payment of compensation amount. It is a revenue receipt. The amount received as interest on the amount of compensation assessed under the Land Acquisition Act is taxable under the Income Tax Act. The bar contained in Section 194 LA for deducing the tax at source is only in respect of the compensation determined for acquiring the agricultural lands. The said bar is not applicable in so far as interest is concerned. Therefore, I do not find any error in the circular at Annexure ‘B’ dated 4.9.2010. In my

opinion, the second respondent has rightly deducted 10% of the interest amount towards deduction of tax at source. There is no merit in the writ petitions. They are accordingly dismissed. No costs.

12.8 . He relies upon the decision of the full bench of the Hon’ble Apex Court in Sham Lal Narula (Dr.) v. CIT3 more particularly para 8 thereof, which is reproduced hereunder for easy reference;

8. The legislature expressly used the word “interest” with its well known connotation under Section 34 of the Act. It is, therefore, reasonable to give that expression the natural meaning it bears. There is an illuminating exposition of the expression “interest” by the House of Lords in Westminster Bank Ltd. v. Riches [(1947) 28 TC 159, 189] . The question there was whether, where in an action for recovery of any debt or damages the court exercises its discretionary power under a statute and orders that there shall be included in the sum for which the judgment is given interest on the debt or damages, the sum of interest so included is taxable under the Income Tax Acts. If the said amount was “interest of money” within Schedule D and the General Rule 21 of the All Schedules Rules of the Income Tax Act, 1918, income tax was payable thereon. In that context it was contended that money awarded as damages for the detention of money was not interest and had not

the quality of interest. Lord Wright observed:

“The general idea is that he is entitled to compensation for the deprivation. From that point of view it would seem immaterial whether the money was due to him under a contract express or implied, or a statute, or whether the money was due for any other reason in law. In either case the money was due to him and was not paid or, in other words, was withheld from him by the debtor after the time when payment should have been made, in breach of his legal rights, and interest was a compensation, whether the compensation was liquidated under an agreement or statute, as for instance under Section 57 of the Bills of Exchange Act, 1882, or was unliquidated and claimable under the Act as in the present case. The essential quality of the claim for compensation is the same, and the compensation is properly described as interest.”

This passage indicates that interest, whether it is statutory or contractual, represents the profit the creditor might have made if he had the use of the money or the loss he suffered because he had not that use. It is something in addition to the capital amount, though it arises out of it. Under Section 34 of the Act when the legislature designedly used the word “interest” in contradistinction to the amount awarded, we do not see any reason why the expression should not be given the natural meaning it bears.

12.9. By relying on Guru Rao’s case and Sham Lal Narula’s case, he again submits that interest is for the very same purpose.

12.10. Insofar in the decision in CIT v. Ghanshyam (HUF) reported in (2009) 8 SCC 412 which has been relied upon by trial Court, he submits that that decision will no longer be applicable since the said decision was rendered on 16.07.2009, the amendment to Clause (viii) of Subsection (2) of Section 56 having occurred on 01.04.2010, it is the said amended provision which would be required to be looked into and not the judgement of the Hon’ble Apex Court in Ghanshyam’s case.

12.11. That apart he submits, that the decision of the two Judge Bench of the Hon’ble Apex Court in Ghanshyam’s case is per incuriam inasmuch as the full Bench judgment in Sham Lal Narula’s case had not been referred to in that matter and the earlier judgment being of a full bench would have supremacy over the two Judge Bench judgement in Ghanshyam’s case.

12.12. On all the above basis, he submits that the Defense Estate Officers have rightly deducted tax at source and the same cannot be faulted with and the same would have to be taken into consideration.

13. Heard Sri.Mrutyunjaya S.Hallikeri., learned counsel appearing for the petitioner and perused papers.

14. The sequence of events leading up to the Execution Proceedings have been detailed hereinabove.

15. The acquisition having occurred in the 80’s Execution Proceedings are still pending in the year 2024 and the Defense Estate Officer has not made payment of compensation in its entirety, though at various points of time certain amounts have been paid.

16. Section 28 of the LA Act, 1894 is reproduced hereunder for easy reference;

28. Collector may be directed to pay interest on excess compensation

If the sum which, in the opinion of the Court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of [nine per centum] [Substituted by Act 68 of 1984, Section 18, for ” six per centum” (w.e.f. 24.9.1984).] per annum from the date on which he took possession of the land to the date of payment of such excess into Court:

[Provided that the award of the Court may also direct that where such excess or any part thereof is paid into Court after the date of expiry of a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of such excess or part thereof which has not been paid into Court before the date of such expiry.] [Inserted by Act 68

of 1984, Section 18 (w.e.f. 24.9.1984).]

[28-A. Re-determination of the amount of compensation on the basis of the award of the Court [Inserted by Act 68 of 1984, Section 19 (w.e.f. 24.9.1984).]

(1) Where in an award under this Part, the Court allows to the applicant any amount of compensation in excess of the amount awarded by the Collector under section 11, the persons interested in all the other land covered by the same notification under section 4, subsection (1) and who are also aggrieved by the award of the Collector may, notwithstanding that they had not made an application to the Collector under section 18, by written application to the Collector within three months from the date of the award of the Court require that the amount of compensation payable to them may be re-determined on the basis of the amount of compensation awarded by the Court:

Provided that in computing the period of three months within which an application to the Collector shall be made under this sub-section, the day on which the award was pronounced and the time requisite for obtaining a copy of the award shall be excluded.

(2)The Collector shall, on receipt of an application under subsection (1), conduct an inquiry after giving notice to all the persons interested and giving them a reasonable opportunity of being heard, and make an award determining the amount of compensation payable to the applicants.

(3) Any person who has not accepted the award under subsection (2) may, by written application to the Collector, require that the matter be referred by the Collector for the determination of the Court and the provisions of sections 18 to 28 shall, so far as may be, apply to such reference as they apply to a reference under section 18.]

17. A perusal of Section 28 would indicate that the Court may direct that the collector shall pay interest on such excess amount awarded at 9% per annum from the date on which he took possession of the land to the date of payment of the excess into Court. Provided that the Court may also direct that were such excess any part thereof is paid after date of expiry of period of one year from the date on which the possession is taken interest at the rate of 15% per annum shall be payable from the date of expiry of said period of one year on the amount of such excess or part thereof which has not been paid into Court before the date of such expiry.

18. This interest under Section 28 of the LA Act of 1894 is distinct from that under Section 34 of the LA Act of 1894. Section 34 is reproduced hereunder for easy reference;

34. Payment of interest;

When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of [nine per centum] [Substituted by Act 68 of 1984, Section 20, for ” six per centum” (w.e.f. 24.9.1984).] per annum from the time of so taking possession until it shall have been so paid or deposited:

[Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry.] [Inserted by Act 68 of 1984, Section 20 (w.e.f.24.9.1984).]

19. A perusal of Section 34 indicates that it relates to amount of compensation which is not paid or deposited on or before taking possession of the land, the collector shall pay the amount awarded with interest thereon at the rate of 9% per annum from the date of so taking possession until it shall have been so paid or deposited.

20. The distinction between Section 28 and Section 34 is the ex-facie evident. Section 34 would arise in a situation where there is no reference which has been made and on account of non-payment of compensation interest would be liable to be made payment of by the acquiring authority. Whereas Section 28 deals with a situation where enhancement of compensation has been sought for and when the compensation is enhanced the acquiring authority is required to make payment of the enhanced amount with interest at the rate as specified therein.

21. Even insofar as enhancement of compensation under Section 28 is concerned, the acquiring authority could have always paid the compensation amount as originally awarded without the land loser taking any recourse to Execution Proceedings. When an award has been passed on acquisition of land it is the bounden duty on part of the acquiring authority to make payment of the compensation amount at the earliest. It is only if that compensation amount awarded is not paid within time that interest under Section 34 would have to be taken into consideration by the Execution Court when execution proceedings are initiated.

22. Insofar Section 28 is concerned as indicated (supra) the same arises on account of the Court directing enhancement of compensation and in furtherance thereof directing payment of interest for the period during which the enhancement proceedings were pending and therefore in my considered opinion the interest which is awarded under Section 28 partakes the nature of compensation and not interest per se. This being so for the simple reason that it is during the pendency of a proceeding under Section 28 that interest under Section 28 is awarded. Firstly, at the rate of 9% till the date of taking possession and subsequently at the rate of 15% after taking possession.

23. Thus, the calculation which has been made in a proceeding under Section 28 is both as regards the enhanced value of the land and the interest liable to be paid thereon for the delay in making payment of the compensation which becomes part of compensation and is not interest in terms of Section 34 of the LA Act, 1894.

24. The decision which has been referred to by the learned counsel for the petitioner starting with a decision of the Hon’ble Apex Court in Shamlal Narula’s case was one where interest was levied under Section 34 as could be seen from para No.8 which has been extracted hereinabove and the said interest at the end of para No.9, the Hon’ble Apex Court has observed “we therefore, hold that the statutory interest paid under Section 34 of the LA Act is the interest paid for the delayed payment of the compensation amount and therefore is a revenue receipt liable to tax under the Income Tax Act”.

25. Thus, the finding rendered by the full Bench of the Hon’ble Apex Court was only with reference to interest under Section 34 Act of 1984 and not under Section 28 of the Act 1984.

26. This aspect which has been considered by the Hon’ble Punjab and Haryana High Court in Mahender Pal Narang’s case and a co-ordinate Bench of this Court in Guru Rao’s case relied upon by the counsel for the petitioner. Wherein reliance has been placed by both the Courts on Shamlal Narula’s case. Shamlal Narula’s case, dealing with only interest levied in terms of Section 34, will not, in my considered opinion, apply to interest levied in terms of Section 28 of the Act of 1894.

27. Furthermore, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 in Section 96 of the said Act, exempts income tax, stamp duty and fees on any award or agreement made under the Act except under Section 46. Section 46 deals with provisions relating to awarded by a Court, even though it may not be by way of an agreement.

29. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 as the name itself indicates came about to make the compensation fair, bring about transparency in land acquisition, provide for rehabilitation and resettlement this being for the reason that the acquiring authorities under the earlier LA Act of 1894, where not fair or transparent nor did they provide for rehabilitation and resettlement.

30. The aspect of fairness and transparency, if taken into consideration, the manner in which the litigation has proceeded in the present matter would also indicate that the petitioner has neither been fair nor transparent. The acquisition being of the year 1986, the entire compensation has not been paid for nearly 40 years requiring the land loser to be knocking on the doors of the Courts to get just compensation. The award of compensation under Section 28 was on account of lower compensation being awarded at the time when the initial award had been passed requiring the enhancement of the compensation, which came to be further challenged in the earlier Execution Petition filed by the land loser was required to be withdrawn on that account.

31. Thus, the entire delay on part of the petitioner in making payment of the due amounts, only partial payment was made, is the one which has resulted in interest being levied on the petitioner till the payment of compensation. A further aspect which would be required to be addressed here is that though compensation was awarded under Section 28 and Execution Proceedings were filed in the year 2020, payments not having been made until then and even thereafter the award under Section 28 having been passed on 28.08.2006, the interest even from 18.09.2007 would form part of the compensation under Section 28, since in terms of the order in LAC No.250 of 1994 the interest will continue to be applicable until the payment of the amounts. This interest post 18.09.2007 would also not come within the purview of Section 34 but would still continue to be part of Section 28 until the discharge thereof.

32. In view of the above matter, it is clear that the interest payable in terms of an award under Section 28 of the LA Act of 1894 would also form part of the compensation amount and therefore forming part of the capital receipt at the hands of the land loser this interest being paid on account of the delay in the acquiring authority in paying the amount of compensation and not an income from other sources as sought to be contended by learned counsel for the petitioner. If the contention of the Petitioner were to be accepted, treating interest as income, the landloser would be required to make payment of income tax on the compensation amount, thereby reducing the compensation, which is impermissible.

33. In that view of the matter, there being no infirmity in the order passed by the Execution Court, the writ petition stands dismissed by imposing cost of Rs.10,000/- payable to each of the respondents-land losers as part of the remaining acquisition amount for the unnecessary delay which has been caused by the Defense Estate Officer in disbursing the amount to the landlosers by taking one or the other frivolous contention after other. Liberty is reserved to the petition to seek for refund of the amount remitted as TDS. The manner in which the matter has been prolonged for the last nearly 40 years in making payment of the compensation amount has necessitated the payment of interest by the acquiring authority. This interest needless to say would be paid out of the taxpayer’s money which has unnecessarily been required to be paid on account of the delay on part of the acquiring authority. It is these kinds of matters which not only put unnecessary burden on the public exchequer but also escalate the cost of a public project.

35. It would be for the concerned authorities to look into this matter, the Commanding officer of the Karwar Naval Base is directed look into the matter and take necessary action against all the concerned who have delayed in the disbursal of compensation.”

9. As can be seen from the aforesaid judgments, this Court has come to the conclusion that insofar as compensation payable to the land losers/petitioners is concerned, deduction of income tax/payment of income tax is neither permissible nor sustainable in law. Under these circumstances, I am of the considered opinion that the respondents were not entitled to deduct any sum from out of the compensation payable in favour of the petitioners and the present petition deserves to be allowed accordingly.

10. In the result, I pass the following:

ORDER

(i)

The petition is hereby allowed.

(ii)

The respondents are directed to release the amounts withheld by them as sought for by the petitioners in the prayer column to the present petition if the same are deducted by way of income tax/TDS from out of the compensation amount payable to the petitioners within a period of three months from the date of receipt of a copy of this order.”

3. In the light of the aforesaid judgment, I am of the considered opinion that the respondents were not entitled to deduct any sum from out of the compensation payable in favour of the petitioners and the present petition deserves to be allowed accordingly.

4. In the result, I pass the following:

ORDER

(i)

The petition is hereby allowed.

(ii)