Income tax cannot be deducted on compensation amount given for acquiring land: HC.

The National Hi-Speed Rail Corporation Ltd. acquired land in Thane's Bhiwandi for a bullet train project.

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The National Hi-Speed Rail Corporation
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The Bombay High Court has held that income tax cannot be deducted from an amount paid as compensation for property purchased for the Mumbai-Ahmedabad bullet train project by the National Hi-Speed Rail Corporation Ltd (NHSRCL). On a petition filed by one Seema Patil, who sought a refund of the income tax deducted at the source by the NHSRCL after it acquired her land in Bhiwandi in Thane district for the project, a division bench of Justices S V Gangapurwala and M G Sewlikar issued its judgement.

The court in its order noted that the petitioner’s land was acquired for a public project and that acquisition of property through private negotiations and purchases was permitted to expedite the process for implementation of a public project.

“If the parties would not agree with the negotiations and direct purchase, then compulsory acquisition is resorted to,” said the bench.

“No income tax can be levied in the present matter for the amount of compensation. Hence, the NHSRCL could not have deducted the TDS amount from the compensation paid to the petitioner. Income received by the petitioner on account of property acquired by the NHSRCL by private negotiations and sale deed is exempted from tax,” the bench said.

The court directed the NHSRCL to file a correction statement within a month to the effect that the TDS deducted by it while paying the compensation amount to Patil was not liable to be deducted.

The court ordered, “The Income Tax Department shall process the corrected statement and take steps for reimbursement of the sum.”

Patil’s advocate Devendra Jain had argued that the provisions of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act exempt payment of income tax on an amount of compensation paid under an award/agreement.

The NHSRCL, on the other hand, claimed that the amount received by the petitioner was taxable because the acquisition was made by mutual agreement rather than by force. It further claimed that a sale deed was entered between Patil and the NHSRCL through the direct purchase method and tax was deducted as per the Income Tax Rules. According to the NHSRCL, the deducted tax has already been deposited with the Income Tax department and the TDS certificate has also been provided to Patil.

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