Chalamala Narasa Reddy Vs Special Deputy Collector Lao Somasila Project (Andhra Pradesh High Court)
Summary: The Andhra Pradesh High Court considered Civil Revision Petitions arising from orders passed in Execution Applications filed by decree holders in Land Acquisition Original Petitions. The petitioners had sought transfer of the awarded amounts through the CFMS online system to their accounts. The Special Deputy Collector-cum-Land Acquisition Officer, Somasila Project, Unit-IV, Rajampet, opposed the applications on the ground that the amounts related to compensation awarded for structures and that income tax was therefore required to be deducted. Reliance was placed on Section 194LA of the Income-tax Act and the decision of the Supreme Court in Union of India v. Hari Singh (2018) 15 SCC 201. The respondent also contended that structures standing on agricultural lands remained taxable.
The Executing Court, by order dated 29.12.2025, partly allowed the applications, while granting liberty to the petitioners to claim exemption before the competent authority under Section 197 of the Income-tax Act. In doing so, it followed Nalini v. Deputy Collector (2006 (4) KARLJ 87) and the Supreme Court decision in Union of India v. Hari Singh (2018) 15 SCC 201. The petitioners challenged the order before the High Court.
The petitioners relied upon CBDT Circular No. 36 of 2016 dated 25.10.2016. The Circular concerns taxability of compensation received by land owners where land is acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act). The Court examined Section 96 of the RFCTLARR Act, which provides that no income tax or stamp duty shall be levied on an award or agreement made under the Act, except under Section 46. The Court also considered Section 194LA of the Income-tax Act, which provides for deduction of tax at source from specified compensation or consideration relating to compulsory acquisition of immovable property other than agricultural land. The second proviso to Section 194LA provides that no deduction is to be made where payment is made in respect of an award or agreement exempted from levy of income tax under Section 96 of the RFCTLARR Act.
The High Court noted that the RFCTLARR Act came into effect from 1 January 2014. It observed that Section 96 provides that income tax shall not be levied on any award or agreement made under the RFCTLARR Act, except those covered by Section 46, while the proviso to Section 194LA also incorporates the corresponding exemption from deduction. On that basis, the Court held that compensation received for compulsory acquisition of land under the RFCTLARR Act, except awards or agreements made under Section 46, is exempt from levy of income tax.
The Court therefore found that the orders dated 29.12.2025 passed by the Executing Court required reconsideration in light of its observations. Importantly, the High Court did not finally direct payment of the disputed amounts free from tax deduction. Instead, it set aside the impugned orders and remanded the matter to the Executing Court to consider the issue afresh in accordance with law and the observations made in the judgment. The Executing Court was further directed to expedite the hearing.
The Civil Revision Petitions were accordingly disposed of with no order as to costs, and pending Interlocutory Applications, if any, were directed to stand closed. The decision thus addresses the applicability of the RFCTLARR Act’s income-tax exemption and the corresponding Section 194LA TDS provision, while leaving the matter to be reconsidered by the Executing Court rather than granting final substantive relief on the disputed payments.
For related background, CBDT Circular No. 36/2016 has clarified that compensation covered by an award or agreement exempted under Section 96 of the RFCTLARR Act is not taxable even where the Income-tax Act does not contain a specific exemption. CBDT Circular No. 36/2016 – Tax on land owners compensation under RFCTLARR Act 2013 and TaxGuru’s discussion on non-deduction of tax in cases involving exempt RFCTLARR compensation provide relevant context on the statutory relationship between Section 96 and Section 194LA.
Cases Discussed
- Union of India v. Hari Singh, (2018) 15 SCC 201 — The respondent relied on the Supreme Court decision in opposing the petitioners’ applications, and the Executing Court had followed the decision while dealing with the compensation and tax issue. The High Court considered the statutory provisions of Section 96 of the RFCTLARR Act and Section 194LA in disposing of the revision petitions.
- Nalini v. Deputy Collector, 2006 (4) KARLJ 87 — The Executing Court relied on this Kerala High Court decision while passing its order dated 29.12.2025 and granting the petitioners liberty to claim exemption before the competent income-tax authority under Section 197.
FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT
As the issue involved in all these cases is identical, they are disposed of by way of this common order.
2. The petitioners, who are decree holders in Land Acquisition Original Petitions, filed Execution Applications in Execution Petitions under Rules 231 to 235 of the Civil Rules of Practice, to transfer amount through CFMS online system to the petitioners’ accounts. The said applications were opposed by the Special Deputy Collector-cum-Land Acquisition Officer, Somasila Project, Unit-IV, Rajampet, stating that applications were filed for issuing cheques in respect of compensation awarded for structures. Therefore, income tax has to be deducted as per the provisions of the Income Tax Act. Section 194LA of the Income Tax Act, provides that on the compensation awarded for acquiring agricultural land, income tax, at the source, shall not be deducted and the same is confirmed by the Hon’ble Apex Court in Union of India v. Hari Singh 1 and the structures standing on agricultural lands remain taxable. Therefore, prayed to dismiss the applications.
3. The Executing Court vide order dated 29.12.2025, by following the judgments of the Kerala High Court in Nalini v. Deputy Collector2 and Hon’ble Apex Court in Union of India v. Hari Singh (supra-1), allowed the applications partly, granting liberty to the petitioners to claim exemption before competent authority under Section 197 of the Income Tax Act before the Income Tax authority. Aggrieved by the same, present Civil Revision Petitions are filed.
4. Learned counsel for the petitioners has relied on Circular No.36 of 2016 dated 25.10.2016. According to the Circular, no tax can be levied on any land acquired under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013), (for short hereinafter refer as ‘RFCTLARR Act’), where such payment is made in respect of an award or agreement exempted from the levy of income tax.
5. In this context, it is relevant to extract Section 96 of the RFCTLARR Act, which reads as under:-
“96. Exemption from income-tax, stamp duty and fees.-No income tax or stamp duty shall be levied on any award or agreement made under this Act, except under Section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.”
6. Section 194 LA of Income Tax reads as under:
Section 194 LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon:
Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed two lakh and fifty thousand rupees:
Provided further that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013). Explanation. — For the purposes of this Section, —
i. “agricultural land” means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub- clause (iii) of clause (14) of Section 2;
ii. “immovable property” means any land (other than agricultural land) or any building or part of a building. (emphasis added)
7. The RFCTLARR Act came into effect from 1st January, 2014. Section 96, inter-alia, provides that income-tax shall not be levied on any Award or agreement made (except those made under Section 46) under the RFCTLARR Act and the Proviso to Section 194LA also says the same thing, which is extracted above. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under Section 46 of RFCTLARR Act), is exempted levy of the income tax.
8. Therefore, impugned orders dated 29.12.2025 passed in Execution Applications in Execution Petitions in Land Acquisition Original Petitions, on the file of learned Principal Civil Judge (Senior Division), Rajampet, are hereby set aside and remanded back to the Executing Court to consider the issue afresh, pursuant to the observations made by this Court, in accordance with law, and the learned Executing Court is further directed to expedite the hearing.
9. With the above directions, these Civil Revision Petitions are disposed of. There shall be no order as to costs.
As a sequel thereto, Interlocutory Applications pending, if any, shall stand closed.
Notes:
1 (2018) 15 SCC 201
2 2006 (4) KARLJ 87
