Understanding of the RFCTLARR Act, 2013

The process of land acquisition in India is governed by various laws such as the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act), National Highways Authority of India Act, 1956, Railways Act, 1989, Electricity Act, 2003, etc. which empower the Government to compulsorily acquire land for public purposes. Each of these enactments establish specific procedures and guidelines for land acquisition, contributing to a complex legal landscape governing the critical aspect of infrastructure development and public welfare.

NOTE

The Land Acquisition Act, 1894 was repealed with the introduction of “The Right to Fair Compensation And Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013” (in short "RFCTLARR Act, 2013 which came in to force from 01.01.2014. It extends to the whole of India.

The RFCTLARR Act is the principal legislation for land acquisition and it provides detailed methodology for determination of compensation. ...

Statements of Objects and reasons behind enactment of RFCTLARR Act, 2013

3,2.1. The statement of objects and reasons appended to the RFCTLARR Act of 2013 ran as under: -

"Statement of Objects and Reasons. --The Land Acquisition Act, 1894 is the general law relating to acquisition of land for public purposes and also for companies and for determining the amount of compensation to be made on account of such acquisition. The provisions of the said Act have been found to be inadequate in addressing certain issues related to the exercise of the statutory powers of the State for involuntary acquisition of private land and property. The Act does not address the issues of rehabilitation and resettlement to the affected persons and their families. [Para.18 from the order of the Chattisgarh High Court in the case of Alok Agrawal (supra)]

3.2.2. The preamble to The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013[RFCTLARR] stated as under-

“An Act to ensure, in consultation with institutions of local self-government and Gram Sabhas established under the Constitution, a humane, participative, informed and transparent process for land acquisition for industrialisation, development of essential infrastructural facilities and urbanisation with the least disturbance to the owners of the land and other affected families and provide just and fair compensation to the affected families whose land has been acquired or proposed to be acquired or are affected by such acquisition and make adequate provisions for such affected persons for their rehabilitation and resettlement and for ensuring that the cumulative outcome of compulsory acquisition should be that affected persons become partners in development leading to an improvement in their post-acquisition social and economic status and for matters connected therewith or incidental thereto.”

A few important sections of RFCTLARR Act, 2013

Text of Section 46 of RFCTLARR Act. 2013

46. Provisions relating to rehabilitation and resettlement to apply in case of certain persons other than specified persons.

(1) Where any person other than a specified person is purchasing land through private negotiations for an area equal to or more than such limits, as may be notified by the appropriate Government, considering the relevant State specific factors and circumstances, for which the payment of Rehabilitation and Resettlement Costs under this Act is required, he shall file an application with the District Collector notifying him of –

(a) intent to purchase;

(b) purpose for which such purchase is being made;

(c) particulars of lands to be purchased.

(2) It shall be the duty of the Collector to refer the matter to the Commissioner for the satisfaction of all relevant provisions under this Act related to rehabilitation and resettlement.

(3) Based upon the Rehabilitation and Resettlement Scheme approved by the Commissioner as per the provisions of this Act, the Collector shall pass individual awards covering Rehabilitation and Resettlement entitlements as per the provisions of this Act.

(4) No land use change shall be permitted if rehabilitation and resettlement is not complied with in full.

(5) Any purchase of land by a person other than specified persons without complying with the provisions of Rehabilitation and Resettlement Scheme shall be void ab initio:

PROVIDED that the appropriate Government may provide for rehabilitation and resettlement provisions on sale or purchase of land in its State and shall also fix the limits or ceiling for the said purpose.

(6) If any land has been purchased through private negotiations by a person on or after the 5th day of September, 2011, which is more than such limits referred to in sub-section (1) and, if the same land is acquired within three years from the date of commencement of this Act, then, forty per cent. of the compensation paid for such land acquired shall be shared with the original land owners.

Explanation. - For the purpose of this section, the expression –

(a) “original land owner” refers to the owner of the land as on the 5th day of September, 2011;

(b) “specified persons” includes any person other than –

(i)   appropriate Government;

(ii)  Government company;

(iii) association of persons or trust or society as registered under the Societies Registration Act, 1860 (21 of 1860), wholly or partially aided by the appropriate Government or controlled by the appropriate Government.

Text of Section 96 of RFCTLARR Act. 2013

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.

Text of Section 105 of RFCTLARR Act. 2013

103. Provisions to be in addition to existing laws. - The provisions of this Act shall be in addition to and not in derogation of, any other law for the time being in force.

Text of Section 105 of RFCTLARR Act. 2013

105. Provisions of this Act not to apply in certain cases or to apply with certain modifications.

(1) Subject to sub-section (3), the provisions of this Act shall not apply to the enactments relating to land acquisition specified in the Fourth Schedule.

(2) Subject to sub-section (2) of section 106, the Central Government may, by notification, omit or add to any of the enactments specified in the Fourth Schedule.

(3) The Central Government shall, by notification, within one year from the date of commencement of this Act, direct that any of the provisions of this Act relating to the determination of compensation in accordance with the First Schedule and rehabilitation and resettlement specified in the Second and Third Schedules, being beneficial to the affected families, shall apply to the cases of land acquisition under the enactments specified in the Fourth Schedule or shall apply with such exceptions or modifications that do not reduce the compensation or dilute the provisions of this Act relating to compensation or rehabilitation and resettlement as may be specified in the notification, as the case may be.

(4) A copy of every notification proposed to be issued under sub-section (3), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses of Parliament.

Text of Section 113 of RFCTLARR Act. 2013

113. Power to remove difficulties.

(1) If any difficulty arises in giving effect to the provisions of this Part, the Central Government may, by order, make such provisions or give such directions not inconsistent with the provisions of this Act as may appear to it to be necessary or expedient for the removal of the difficulty:

PROVIDED that no such power shall be exercised after the expiry of a period of two years from the commencement of this Act.

(2) Every order made under this section shall be laid, as soon as may be after it is made, before each House of Parliament.

 

The Fourth Schedule

“THE FOURTH SCHEDULE

(See section 105)

LIST OF ENACTMENTS REGULATING LAND ACQUISITION AND REHABILITATION AND RESETTLEMENT

1.  The Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958).

2.  The Atomic Energy Act, 1962 (33 of 1962).

3.  The Damodar Valley Corporation Act, 1948 (14 of 1948).

4.  The Indian Tramways Act, 1886 (11 of 1886)

5.  The Land Acquisition (Mines) Act, 1885 (18 of 1885).

6.  The Metro Railways (Construction of Works) Act, 1978 (33 of 1978).

7.  The National Highways Act, 1956 (48 of 1956).

8.  The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 (50 of

      1962).

9.   The Requisitioning and Acquisition of Immovable Property Act, 1952 (30 of 1952).

10. The Resettlement of Displaced Persons (Land Acquisition) Act, 1948 (60 of 1948).

11. The Coal Bearing Areas Acquisition and Development Act, 1957 (20 of 1957).

12. The Electricity Act, 2003 (36 of 2003).

13. The Railways Act, 1989 (24 of 1989).

 

Section 96 mandates that no income-tax shall be levied on any award made under the Act except under Section 46. Section 46 deals with the purchase of land by a person other than a specified person through private negotiations. The benefit of Section 96 is not available when a land is purchased through private negotiations by a person other than a specified person under Section 46(1).

Therefore, in cases other than those covered by Section 46 of the 2013 Land Acquisition Act, the levy of income-tax is barred by Section 96 and as a consequence, the deduction or collection under Section 194LA of the Income Tax Act, 1961, is impermissible.

Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (for short ‘RFCTLARR Act) was introduced in September 2013 and commenced from 01.01.2014. Section 96 of RFCTLARR Act mandates that no income-tax shall be levied on any award or agreement made under the Act except under Section 46. Section 46 of RFCTLARR Act deals with the purchase of land by a person other than a specified person through private negotiations.

For the purpose of this section; “specified persons” includes any person other than-

(i)               appropriate Government;

(ii)             Government company;

(iii)           association of persons or trust 01. society as registered under the Societies Registration Act 1860, wholly or partially aided by the appropriate Government or controlled by the appropriate Government.

Implications of TDS provision under section 194LA on compensation received under the “RFCTLARR Act, 2013” - No TDS under section 194LA.

Finance Act, 2017 - Circular No. 2/2018, Dated 15.02.2018

65. Non-deduction of tax in case of exempt compensation under RFCTLAAR Act, 2013.

65.1 The provisions of section 194LA of the Income-tax Act specify inter alia that any person paying compensation shall deduct tax at source at the rate of ten per cent on the compensation or enhanced compensation or consideration on account of compulsory acquisition of any immovable property (other than agricultural land) under any law for the time being in force subject to certain conditions specified therein.

65.2 The Central Government has enacted a new law, namely the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, ('RFCTLARR Act') on 26th September, 2013 which came into force on 1st January, 2014. Section 96 of the RFCTLARR Act provides inter alia that income-tax shall not be levied on award or agreement made subject to limitations mentioned in section 46 of the said Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFTCLARR Act), is exempt from the levy of income-tax.

65.3 The Board has issued Circular number 36/2016 dated 25th October, 2016 clarifying that compensation received in respect of any award or agreement which has been exempted from the levy of income-tax vide section 96 of the RFCTLARR Act shall not be taxable under the provisions of the Income-tax Act, even if there is no specific provision of exemption for such compensation under the Income-tax Act. However, the circular addressed only the matter pertaining to taxability of compensation received on compulsory acquisition of land and not tax deduction at source under section 194LA of the Income-tax Act.

65.4 In order to harmonise the provisions of the Income-tax Act with the RCFTLARR Act, section 194LA of the Income-tax Act has been amended to provide 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 (except those made under section 46) of RFCTLARR Act.

65.5 Applicability: This amendment takes effect from 1st June, 2017.

CBDT Circular No. 36/2016, Dated 25.10.2016

Subject: Section 4, Read With Section 10(37), of the Income-Tax Act, 1961 and Section 96 of The Right To Fair Compensation And Transparency In Land Acquisition, Rehabilitation And Resettlement Act, 2013 (RFCTLARR Act) - Income - Chargeable As - Taxability of Compensation Received by Land Owners for Land Acquired under RFCTLARR Act - Regarding

Under the existing provisions of the Income-tax Act 1961) an agriculture land which is not situated in specified urban area is not regarded as capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. Finance [No. 2] Act, 2004 inserted section 10(37) in the Act from 01.04.2005 to provide specific exemption, to the capital gain arising to an individual or a HUF from compulsory acquisition of an agricultural land situated in, specified urban limit, subject to fulfillment of certain conditions. Therefore, compensations received from compulsory acquisitions of an agricultural land is not taxable under the act (subject to fulfillment of certain conditions for specified urban land.

2. The RFCTLARR Act which came into effect from 1 January, 2014, in 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 (except those made under section 46 of RFCTLARR Act], is exempted from the levy of Income-tax.

3. As no distinction has been made between compensation received from compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under RFCTLARR Act. the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land. The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of income-tax Act, 196l even if there is no specific provision of exemption for such compensation in the income-tax Act, 1961.

4 The above may be brought to the notice of all concerned."

Assessee received compensation on compulsory acquisition of her land, since lands in question had been acquired by State Government under NHAI Act, 1956 i.e. an enactment specified in Fourth Schedule, assessee could not be conferred with any right of exemption of income-tax on acquisition of her lands

Section 45 of the Income-tax Act, 1961 read with section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 - Capital gains - Chargeable as (Land acquisition) - The assessee had received compensation on acquisition of her land by the State Government under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLAAR Act). Aforesaid lands were acquired by the NHAI for construction of a national highway. The Assessing Officer held that the compensation received by the assessee was chargeable to tax as short-term capital gain. Thus, after allowing deduction of the cost of acquisition/stamp duty charges, he worked out the short term capital gain on transfer of the same and determined the income of the assessee accordingly. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On appeal to the Tribunal:

Held : Controversy involved in the present appeal lies in a narrow compass i.e. as to whether or not, both the lower authorities are right in law and facts of the case in observing that the amount received by the assessee on compulsory acquisition of her land under NHAI Act, 1956 is taxable under the Income Tax Act, 1961?

A similar issue had come up before the Tribunal for adjudication in the case of Heritage Buildcon (P) Ltd. v. PCIT (2023) 155 taxmann.com 68 (ITAT Raipur), wherein after relying upon a host of judicial pronouncements a/w. CBDT Circular No. 36/2016, dated 25.10.2016, it was held that the compensation received on acquisition of the lands of the assessee company under NHAI Act, 1956 i.e. an enactment falling under the “Fourth Schedule” of the RFCTLARR Act, 2013, as per section 96 r.w.s. 105(1) of RFCTLARR Act, 2013 r.w. OM dated 06.06.2019 of the CBDT, the compensation received by the assessee company was not exempt under RFCTLARR Act, 2013.

As the lands in question had been acquired by the State Government under the NHAI Act, 1956 i.e. an enactment specified in the “Fourth Schedule”, therefore, on a conjoint reading of section 96 r.w. section 105(1) of the RFCTLARR Act, 2013, as had been deliberated by us at length hereinabove in the case of M/s. Heritage Buildcon Pvt. Ltd. & Ors v. PCIT (supra), the assessee could not be conferred with any right of exemption of income-tax on acquisition of her lands. Accordingly, finding no infirmity in the view taken by the Commissioner (Appeals), we uphold his order. Thus, the ground of appeal raised by the assesse is dismissed in terms of our aforesaid observations. [In favour of revenue] (Related Assessment year : 2017-18) – [Sharda Devi Kedia v. ITO (2025) 175 taxmann.com 893 (ITAT Raipur)]

Compensation received on land acquisition not exigible to tax under section 96 of RFCTLARR Act

In the return of income filed by the assessee on 07.11. 2017 for the assessment year 2017-18, the assessee has declared total income of ₹ 87,94,860/- including inter alia Short Term Capital Gains of ₹ 53,08,113/- pertaining to compensation received towards compulsory acquisition of his agricultural land and paid taxes to the tune of ₹ 24,30,521/-. The income tax return of the assessee was processed on 03.01.2021 by the Central Processing Centre, Bengaluru and intimation order was issued exercising powers under Section 143(1)(a) of the Income Tax Act wherein total income was assessed at ₹ 87,94,860/- determining the aggregate tax liability at ₹ 23,93,421/- and consequently refund of ₹ 37,100/- was granted to the assessee. Later on, noticing the correct legal position, the assessee filed an application for rectification on 12.10. 2021 seeking refund of ₹ 17,07,340/- and on 04.09.2023, the assessee again filed rectification application through e-mail before the Assessing Officer reiterating his request to effectuate the rectification and to grand the refund of taxes. The Assessing Officer rejected the rectification application holding that compensation received from the NHAI under the Act of 1956 would not be exempted from taxation under the provisions of Section 96 of the RFCTLARR Act which has been affirmed by the CIT(A) as well as by the ITAT.

Chhattisgarh High Court allows Assessee’s appeal observing that provisions of Section 96 of RFCTLARR that provides for exemption from income tax, stamp duty and fees would be applicable to instances where land is acquired under the National Highways Act, 1956 (Act of 1956); Therefore, High Court renders that the Assessee would not be liable to pay any income tax on the compensation received against the acquisition of his land under the Act of 1956; Having noted the Supreme Court decision in Union of India and another v. Tarsem Singh and others (2019) 9 SCC 304, High Court emphasizes that the Supreme Court rejected the MA filed by the UOI stating that the benefit of the said decision would apply prospectively; Also, High Court highlights Supreme Court decision in National Highways Authority of India v. P. Nagaraju alias Cheluvaiah and another (2022) 15 SCC 1, that relying on Tarsem Singh’s decision, categorically held that the RFCTLARR Act would apply on all aspects relating to determination of compensation and further held that all aspects contained in Sections 26 to 28 of the RFCTLARR Act for determination of compensation will be applicable notwithstanding Sections 3-J and 3-G(7)(a) of the Act of 1956; High Court asserts that “once the compensation is determined under the provisions of RFCTLARR Act, as a necessary corollary, the benefits flowing from the provisions of the said Act, including exemptions from income tax, stamp duty, and fees contemplated under section 96 of RFCTLARR Act, would also have to be made applicable”; High Court articulates that if the benefit flowing from Section 96 is not given to the land-losers whose lands have been acquired under the Act of 1956, it would mean that the land-losers under the enactments specified in the Fourth Schedule are subjected to discrimination and this would be against the intent of the Union of India in issuing the 2015 Order and it would be contrary to the principles of law laid down by the Supreme Court in Tarsem Singh, P. Nagaraju alias Cheluvaiah, and other judicial precedents; High Court states that provisions of Section 103 of RFCTLARR clearly states that the provisions of RFCTLARR are an addition to and not in derogation of any other law. [In favour of assessee] (Related Assessment year : 2017-18) - [Sanjay Kumar Baid v. ITO [TS-1228-HC-2025(CHAT)] - Date of Judgement : 15.09.2025 (Chhattisgarh)]

Compensation received on compulsory land acquisition by NHAI, tax exempt under section 10(37)

Delhi ITAT observes that the Assessee is entitled to tax exemption under Section 10(37) on the compensation received on compulsory acquisition of land by NHAI under Section 96 of RFCTLARR Act, 2013; Consequent to examination of provisions drawn in Section 96 and 105 of RFCTLARR Act, ITAT outlines that after the amendment in Section 105(3), the precondition of issue of notification was withdrawn w.e.f. 01.01.2015; Highlights that although the CIT(A) was in agreement with the claim of the Assessee that the compensation received was tax exempt under Section 10(37) in accordance with Section 96 of RFCTLARR Act, but disallowed the claim on the ground that no notification was issued by the Government in terms of Section 105(3) of of RFCTLARR Act; Notes that Section 96 of RFCTLARR Act, 2013 provides exemption from income tax and stamp duty on compensation received on compulsory acquisition made under the RFCTLARR Act, 2013 for public purposes; ITAT emphasizes that Section 105(1) of RFCTLARR Act states that provisions under the Act are not applicable to enactments pertaining to land acquisition as specified under Schedule Fourth (which includes NHAI also); ITAT states that as per amended Section 105(3), the provisions of RFCTLARR Act pertaining to determination of compensation in accordance to First Schedule are applicable to all cases of land acquisition under the enactments specified in Fourth Schedule of the said Act; Articulates that as NHAI is already included in the Fourth Schedule of RFCTLARR Act, therefore the exemption provided under Section 96 is available in all cases where land is compulsory acquired by the NHAI for public purposes; Highlights CBDT Circular No. 36 of 2016 dated 25.10.2016 clarifying that compensation awarded on acquisition of agricultural and non-agricultural land under RFCTLARR Act was subject to tax exemption; Renders that compensation received by the Assessee on compulsory acquisition of its land, both agricultural and non-agricultural, by NHAI was eligible for tax exemption in accordance to provisions outlined under RFCTLARR Act, which is a special Act and prevails over the Tax Statute; Places reliance on the coordinate bench in V.S. Promoters Ltd.; Observes that there is no requirement of issue of any notification for claiming tax exemption on the compensation received under RFCTLARR Act, 2013 as the land owned by the Assessee was compulsory acquired under Section 3A of NHAI Act and the entire compensation so awarded was received by the Assessee during Financial year 2015-16 which was pursuant to amendment made in Section 105(3); Therefore, holds that the Assessee is entitled to tax exemption under Section 10(37) on the compensation received on compulsory acquisition of land by NHAI in accordance to the provisions outlined in Section 96 of RFCTLARR Act. [In favour of assessee] (Related Assessment year : 2016-17) – [Harry Township Ltd. v. ACIT [TS-127-ITAT-2025(DEL)] – Date of Judgement : 19.02.2025 (ITAT Delhi)]

Land acquisition compensation under State Acts taxable; Rejects ‘Section 96 RFCTLARR Act’ exemption plea as compensation has been received by the Assessee under a State Act and not under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act)

During the year 2005, Assessee purchased 100 cents of Land situated in Tirupur for Rs. 30 Lac out of which 76.41 cent of such Land was compulsorily acquired by the District Revenue Officer (DRO) under Tamil Nadu Highways Act, 2001 in consideration of Rs. 255.88 Lac during the relevant Assessment year i.e., 2014-15; Assessee claimed that stamp duty value of Rs. 119.9 Lac should be considered as cost of acquisition as against actual cost of Rs. 30 Lac; Assessee also claimed that cost of improvement amounting to Rs. 22.84 Lac should be allowed as deduction; Revenue rejected Assessee contentions and arrived at proportionate indexed cost of Rs. 65.21 Lac as against Rs. 187.12 Lacs as computed by the Assessee. National Faceless Appeal Centre dismissed Assessee’s appeal.  The present appeal is filed before the ITAT assailing the said order

Before ITAT, Assessee raised additional grounds and contended that it wrongly offered to tax Rs. 45.91 Lac as capital gain arising out of compulsory acquisition of land under Tamil Nadu Highways Act, 2001 since it is exempt under Section 96 of the RFCTLARR Act, 2013.

Chennai ITAT denies exemption on the compensation awarded upon compulsory acquisition of land under The Tamil Nadu Highways Act, 2001; Notes that the compensation has been received by the Assessee under a State Act and not under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act); During the impugned Assessment year 2014-15, portion of the land owned by Shri Mathaiyan Saravanakumar (the Assessee) was acquired by Land Acquisition officer & District Revenue officer on compulsory acquisition; The Assessee contended that (i) the compensation received is exempt by virtue of RFCTLARR Act (ii) stamp duty value of the land acquired should be considered as cost of acquisition while computing capital gains (iii) cost of improvement incurred should be allowed as deduction; ITAT observes that the benefit of RFCTLARR Act is not extended to the State Acts by any notification, directly or impliedly; Relies on Agra ITAT ruling in Jagdish Arora v. ITO (2022) 93 ITR(T) 233 : (2021) 127 Taxmann.com 728 (ITAT Agra)  wherein it was held that exemption is required to be specifically granted under the statute and it cannot be inferred; Observes that Tamil Nadu State Assembly has enacted Tamil Nadu Land Acquisition Law (Revival of Operation, Amendment and Validation) Act, 2019 (Reviving Act) whereby Tamil Nadu Highways Act, 2001 is revived with retrospective effect; Observes that the Reviving Act stipulates that the compensation needs to be determined by the RFCTLARR Act when the land is acquired under the Tamil Nadu Highways Act, 2001 and also notes that the Reviving Act makes the provisions of RFCTLARR Act to be applicable to the Tamil Nadu Highways Act, 2001 in a limited manner; Also observes that the date of award of compensation as well as date of receipt of compensation fell before 01.01.2014 being the date on which RFCTLARR Act came into effect; ITAT denies the benefit of Section 96 of the RFCTLARR Act which states that no income-tax or stamp duty shall be levied on any award or agreement; Declines the Assessee’s contention that stamp duty value of the land should be adopted as cost of acquisition; On the issue of determination of cost of improvement, ITAT remits back to Revenue to reconsider the Assessee’s claim holding that the work order as well as work bills were placed by the Assessee which demonstrates that payments were made through banking channels against which TDS was deducted; Thus, allows Assessee’s appeal in part; [Partly allowed in favour of assessee] (Related Assessment year : 2014-15) – [Mathaiyan Saravanakumar v. ACIT, Salem [TS-282-ITAT-2024(CHNY)] – Date of Judgement : 25.04.2024  (ITAT Chennai)]

Lands of assessee-company were acquired under NHAI Act, 1956, an enactment falling under 'Fourth Schedule' of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act), as per section 96 read with section 105(1) of RFCTLARR Act, 2013 read with OM dated 06.06.2019 of CBDT, compensation received by assessee-company on acquiring of such lands did not quality for exemption under RFCTLARR Act, 2013

Section 10(37), read with section 263, of the Income-tax Act, 1961 and sections 96 and 105 of the Right To Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) - Capital gains - Income arising from transfer of agricultural land (Land acquisition) - Assessee company, engaged in the real estate business, had e-filed its return of income for relevant assessment year 2017-18 declaring an income of Rs. Nil. The Assessing Officer framed assessment vide his order passed under section 143(3), accepting the assessee’s returned income as such. After the culmination of the assessment proceedings, the Pr. Commissioner, on perusal of the records of the assessee company found that the company had claimed a capital gain of approximately Rs. 3.41 crore on the transfer of lands acquired under the National Highway Authority of India Act, 1956 (NHAI Act). The company had sought exemption for this gain under both section 10(37) of the IT Act, and section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act).

The Pr. Commissioner disagreed with the company's claims. Firstly, he argued that section 10(37) only provides exemption to individual and Hindu Undivided Family (HUF) taxpayers, not private limited companies like the assessee. Secondly, he contended that the company did not meet the conditions for exemption under section 10(37) as it had not used the acquired land for agricultural purposes.

Regarding the claim under section 96 of the RFCTLARR Act, the Pr. Commissioner pointed out that the lands were acquired under the NHAI Act, which was listed in the 'Fourth Schedule' of the RFCTLARR Act. According to section 105 of the RFCTLARR Act, any enactment listed in the Fourth Schedule disentitled the assessee from seeking exemption under section 96. The Pr. Commissioner also referred to an award mentioning that families whose land was acquired under the NHAI Act would not be entitled to Rehabilitation and Resettlement Entitlements, as the acquired land was not their primary source of livelihood. Additionally, the Pr. Commissioner cited an Office Memorandum (OM) from the Central Board of Direct Taxes (CBDT) dated 6-6-2019, which explicitly excluded the application of RFCTLARR Act provisions to enactments mentioned in the Fourth Schedule, with only limited exceptions. Based on these findings, the Pr. Commissioner held a conviction that as the Assessing Officer had failed to appreciate the provisions of the RFCTLARR Act, 2013 and had summarily accepted the assessee's claim of exemption concerning capital gain on the transfer of the lands, therefore, the same had rendered his order as erroneous insofar as it was prejudicial to the interest of the revenue under section 263. Accordingly, the Pr. Commissioner set aside the order passed by the Assessing Officer under section 143(3) and directed him to decide the matter afresh after conducting necessary inquiries and affording adequate opportunity to the assessee. On appeal to the Tribunal:

Held : Section 96 of the RFCTLARR Act, 2013 provides that 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. A plain reading of section 96 on a standalone basis, though, supports the assessee's claim that compensation received on the acquisition of its lands under the RFCTLARR Act, 2013 would not be exigible for any income tax but sub-section (1) of section 105 of the RFCTLARR Act, 2013 which has an overriding effect, therein provides that subject to sub-section (3) of section 105, the provisions of this Act shall not apply to the enactments relating to land acquisition specified in the 'Fourth Schedule.' Ostensibly, the exception carved out in sub-section (3) of section 105 is in the context that the provisions of RFCTLARR Act, 2013, relating to the determination of compensation in accordance with the First Schedule, rehabilitation and resettlement specified in the Second and Third Schedule, to the extent the same are beneficial to the affected families whose lands had been acquired, would apply to the cases of land acquisition under the enactments specified in the 'Fourth Schedule'; or shall apply with such exceptions or modifications that do not reduce the compensation or dilute the provisions of this Act relating to compensation or rehabilitation and resettlement as may be specified in the notification, as the case may be. In sum and substance, the only exception to the applicability of the enactments relating to the land acquisitions under the enactments specified in the 'Fourth Schedule' can be traced in sub-section (3) to section 105 of the RFCTLARR Act, 2013, which too had been made dependent upon the issuance of a notification by the Central Government within one year from the date of commencement of this Act, but the same applies only in the context of the determination of compensation in accordance with First Schedule and rehabilitation and resettlement specified in accordance with Second and Third Schedule.

It is viewed that the exception carved out in sub-section (1) of section 105 of the RFCTLARR Act, 2013 has a limited applicability, i.e., concerning the determination of the compensation and rehabilitation and resettlement under the RFCTLARR Act, 2013. By no stretch of the imagination, the same can be applied to the remaining provisions of the RFCTLARR Act, 2013. The above conviction is fortified by the OM dated 6-6-2019 issued by the CBDT, New Delhi, wherein it has been clarified that section 96 of the RFCTLARR Act, 2013 does not apply to the cases where acquisition has been made by entities mentioned in the ‘Fourth Schedule’ of the RFCTLARR Act, 2013. Based on observations above, it is clear beyond doubt and supported by the OM dated 06.06.2019 of the CBDT, New Delhi, that no provisions of the RFTCLARR Act, 2013, except for provisions relating to determination of the compensation in accordance with the First Schedule, rehabilitation and resettlement in accordance with the Second Schedule and infrastructure amenities in accordance with the 'Third Schedule' would apply to the enactments relating to land acquisition specified in the ‘Fourth Schedule.’ Also, as spelled out in OM dated 06.06.2019 (supra), the benefit of section 96 of the RFCTLARR Act, 2013, exempting income tax on the award, would not be applicable for cases in which land acquisition is undertaken as per the enactments specified in the ‘Fourth Schedule’ to the said Act.

Admittedly, it is an undisputed fact that the lands of the assessee had been acquired under the NHAI Act, 1956. The aforesaid factual position though undisputed and can safely be gathered from a perusal of the Notification dated 13-6-2016 as per which lands of the assessee had been acquired under the NHAI Act, 1956. Considering the aforesaid factual position, i.e., acquiring of the lands of the assessee company under NHAI Act, 1956, an enactment falling under the 'Fourth Schedule' of the RFCTLARR Act, 2013, no infirmity is found in the view taken by the Pr. Commissioner that as per section 96 read with section 105(1) of RFCTLARR Act, 2013 r.w. OM dated 06.06.2019 of the CBDT, the compensation received by the assessee company on acquiring of its lands was not exempt under RFCTLARR Act, 2013. Apropos the exemption from levy of income-tax available under section 10(37), the view of the Pr. Commissioner that as the same was only available to the individual and HUF, the assessee company on the said count itself, was not entitled to it is agreeable. Apart from that, the pre-condition for enabling an eligible assessee for exemption under section 10(37), i.e., usage of land for agricultural purposes during the period of two years immediately preceding the date of transfer of the same by the assessee, i.e., HUF or individual or a parent of his is also not satisfied by the assessee. Be that as it may, it is the claim of the assessee that the assesse company had at no stage during the assessment proceedings raised the claim of exemption under section 10(37). Confining adjudication to the entitlement of the assessee company for claiming exemption from income tax under the RFCTLARR Act, 2013, there is a firm conviction, in terms of observations recorded hereinabove, that the provisions contemplating an exemption from income tax on any award received under RFCTLARR Act, 2013 in light of the overriding effect of section 105(1)(5) read with OM dated 6-6-2019 issued by the CBDT would not be available to the assessee company. Apropos reliance placed by the assessee on order passed by the Ministry of Rural Development, i.e., S.O No. 2368(E) dated 28-5-2015, wherein in the exercise of powers conferred by sub-section (1) of section 113 of the RFCTLARR Act, 2013, the Central Government to extend the benefits to the land owners under the RFCLARR Act, 2013 to similarly placed owners whose lands were acquired under the 13 enactments specified in 'Fourth Schedule,' had passed an order i.e., the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Removal of Difficulties), order 2015 with effect from 01.09.2015. As per the order mentioned above, the provisions of the RFCTLARR Act, 2013 relating to the determination of compensation in accordance with the First Schedule, rehabilitation and resettlement in accordance with the Second Schedule, and infrastructure amenities in accordance with the Third Schedule applied to all the cases of land acquisition specified in 'Fourth Schedule'. It cannot be comprehended as to how the order mentioned above, i.e., S.O 2368 (E) (supra), would support the claim of the assessee company that the award received by it on the acquisition of its lands under the NHAI Act, 1956 was not taxable under the RFCTLARR Act, 2013. As observed hereinabove, the Central Government vide its order above, i.e., S.O 2368 (E) dated 28.08.2015, had come up with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement (Removal of Difficulties), order 2015 for extending the benefits available to the land owners under the RFCTLARR Act, 2013 to such other similarly placed land owners whose lands were acquired under the 13 enactments specified in the 'Fourth Schedule,' but the same is only for a limited purpose, i.e., determination of compensation in accordance with First Schedule, rehabilitation and resettlement in accordance with Second Schedule and infrastructure amenities in accordance with ‘Third Schedule’. It cannot be fathomed how the exemption from income tax provided in section 96 of the RFCTLARR Act, 2013, would be available to the assessee company based on the order above. It is viewed that the assessee has misconstrued the order above, i.e., S.O 2368 (E) dated 28.08.2015, which has a limited scope of extending the benefits available to the land owners under the RFCTLARR Act, 2013 to similarly placed land owners whose lands were acquired under the 13 enactments specified in the 'Fourth Schedule,' i.e., those concerning the determination of compensation in accordance with First Schedule, rehabilitation and resettlement in accordance with Second Schedule and infrastructure amenities in accordance with Third Schedule.

The CBDT Circular No. 36/2016 dated 25.10.2016, only clarifies that no distinction had been made between compensation received for the compulsory acquisition of agricultural land and non-agricultural land in the matter of providing an exemption from income tax under the RFCTLARR Act, 2013. The CBDT had also clarified that section 96 of the RFCTLARR Act, 2013, is more comprehensive in scope than the tax exemption provided under the existing provisions of the Income-tax Act, 1961. It has also clarified that compensation received in respect of an award or agreement which has been exempted from levy of income tax vide section 96 of the RFCLARR Act, 2013 was also not taxable under the provision of the Income-tax Act, 1961, even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.

Once again, the assessee, without appreciating the context and issue which the CBDT had clarified in its Circular No. 36/2016, had wrongly pressed the same into service. As observed hereinabove, the CBDT Circular No. 36/2016 (supra) had clarified that exemption from income tax provided in section 96 of the RFCTLARR Act, 2013 would be equally applicable on the compensation received on compulsory acquisition of agricultural land and non-agricultural land. Also, it was further clarified that if the compensation received in respect of award or agreement which has been exempted from levy of income tax vide section 96 of the RFCTLARR Act, 2013 would also not be taxable under the provision of Income-tax Act, 1961, even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961. Nothing is discernible from the CBDT Circular No. 36/2016 (supra) from where it would be gathered that compensation received by the assessee company on the acquisition of its lands under enactments relating to land acquisition specified in the 'Fourth Schedule' would be eligible for tax exemption under section 96 of the RFCTLARR Act, 2013. All that the CBDT Circular No. 36/2016 (supra) clarifies is that the compensation received on compulsory acquisition of agricultural land and non-agricultural land under the RFCTLARR Act, 2013 would be similarly placed, AND that if the compensation received on compulsory acquisition of land is exempt under section 96 of the RFCTLARR Act, 2013, the same would not be taxable even if there is no specific exemption provision for such compensation in the Income-tax Act, 1961. Once again, it cannot be comprehended as to how the CBDT Circular No. 36/2016 (supra), which is absolutely in a different context/subject matter, would advance the claim of the assessee company that the compensation received on the acquisition of its lands under the NHAI Act, 1956 would be exempt under section 96 of the RFCTLARR Act, 2013. The support drawn by the assessee, by referring to the judicial pronouncements/orders, would not assist the case of the assessee company as the same are distinguishable on facts/issues involved. Apropos the reliance placed by the Pr. Commissioner on the order of the Tribunal Agra, in the case of Jagdish Arora v. ITO (2021) 127 taxmann.com 728 (ITAT Agra), it is viewed that the absence of notification issued by the Central Government in terms of sub-section (3) to section 105 of the RFCTLARR Act, 2013, would though have a bearing on the application of the provisions of the Act relating to the determination of compensation in accordance with First Schedule, rehabilitation and resettlement in accordance with 'Second and Third Schedule', in the case of a person whose lands are acquired under the 13 enactments specified in the 'Fourth Schedule'; but the same cannot be so construed that it confers any right of exemption under section 96 of the RFCTLARR Act, 2013 to an assessee from levy of income tax on the compensation received by him on acquisition of his land under the 13 enactments specified in the ‘Fourth Schedule’.

Thus, in terms of observations above, it is viewed that, as observed by the Pr. Commissioner, and rightly so, as the Assessing Officer had grossly erred in law and facts of the case in construing the provisions of the RFCTLARR Act, 2013 while framing assessment in the case of the assessee company, and had summarily accepted its aforesaid claim for exemption from tax, therefore, the same had rendered the order passed by him under section 143(3) as erroneous in so far it was prejudicial to the interest of the revenue under section 263. Accordingly, in terms of observations above, the well-reasoned order passed by the Principal Commissioner under section 263 is upheld. Thus, the Ground of appeal raised by the assesse company is dismissed in terms of observations described above. In the result, the assessee’s appeal is dismissed in terms of observations above. [In favour of revenue] (Related Assessment year : 2017-18) – [Heritage Buildcon (P) Ltd. V. PCIT (2023) 155 taxmann.com 68 (ITAT Raipur)]

Assessee received compensation for compulsory acquisition of its non-agricultural land, since Land Acquisition Act, 1894 stood repealed with effect from 01.01.2014 and replaced by RFCTLARR Act, 2013, provisions of RFCTLARR Act would apply and in view of provisions of section 96 of said Act, said compensation would not be taxable under provisions of Income-tax Act

Assessee received compensation by way of an award dated 05.08.2016 on account of acquisition of its non-agricultural land by Municipal Corporation under section 11 of Land Acquisition Act, 1894. Assessee claimed that in view of section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) and CBDT Circular no. 36/2016, dated 25.10.2016, said compensation was exempt under Income-tax Act. Assessing Officer held that as award was passed under section 11 of Land Acquisition Act, provision of RFCTLARR Act would not apply and, accordingly, compensation received was to be treated as business income of assessee. Since award dated 05.08.2016 was passed after Land Acquisition Act, 1894 stood repealed with effect from 01.01.2014 and replaced by RFCTLARR Act, provisions of RFCTLARR Act would apply. In view of section 96 of RFCTLARR Act and above said CBDT circular, impugned compensation would not be taxable under provisions of Income-tax Act. [In favour of assessee] (Related Assessment year : 2017-18) – [DCIT v. Ganga Developers (2023) 198 ITD 435 : (2022) 145 taxmann.com 515 (ITAT Mumbai)]

Exemption from taxation of long-term capital gains under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) on compulsory acquisition of land of assessee by Government would not be available to assessee as assessee was not able to show any Notification to prove that exemption provided under RFCTLARR Act, 2013 was applicable to it

Land of assessee was compulsorily acquired by Government. It claimed exemption from long-term capital gains being received as per Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act). Assessing Officer taxed amount received against acquisition of land, under head long-term capital gain as no document in support of exemption claimed by assessee had been filed. Section 96 of RFCTLARR Act provides that income tax shall not be levied on any award or agreement made under RFCTLARR Act. Provisions of section 105(3) read with fourth schedule make it abundantly clear that provisions of RFCTLARR Act shall be applicable to enactments mentioned in fourth schedule, if, Central Government, within one year of passing of Act, issues notification in that regard mentioning therein that RFCTLARR Act shall apply with such exceptions or modifications to enactment namely National Highways Act, 1956. Exemption is required to be specifically granted by statute and it cannot be inferred or drawn. In absence of notification, benefit under section 96 of RFCTLARR Act could not have been extended to assessee. [In favour of revenue] (Related Assessment year : 2015-16) – [Jagdish Arora v. ITO (2022) 93 ITR(T) 233 : (2021) 127 Taxmann.com 728 (ITAT Agra)]

Interest on delayed compensation on compulsorily acquired land, non-taxable; Cites Land-Acquisition Act’s overriding effect

Chennai ITAT holds that interest received by assessee-company (Real Estate Developer) towards delayed payment of compensation for compulsory acquisition of land is exempt from income tax in accordance with Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013; Revenue held that interest received on delayed compensation was taxable under section  56(2)(vii) r.w.s. 145A(b) under the Income Tax Act and made consequent additions; Notes that as per Section 96 of the RFCTLARR Act 2013, any compensation or award for compulsory acquisition of land including interest if any is not liable to tax and overrides all provisions of Income Tax relating to taxation of compensation or any award payable under the Act; Opines that “once compensation is exempt from tax by virtue of Section 96 of the said Act, then any enhanced compensation or interest payable on such enhanced compensation cannot be brought to tax as interest income, which is taxable under section 56(2)(viii)…”; Also relies on CBDT circular 36 of 2016; As regards Revenue’s contention that the Land Acquisition Officer had deducted TDS under section 194LA thus negating assessee’s exemption claim, ITAT clarifies that though tax was not required to be deducted consequent to clarificatory amendment brought in by Finance Act 2017, “the Special Land Acquisition Officer had deducted TDS by way of abundant caution…. But, in our view, it does not make any difference with regard to non-taxability of compensation or award including interest if any payable under the new Land Acquisition Act, 2013.”. [In favour of assessee] (Related Assessment year : 2016-17) – [ACIT v. SV Global Mill Ltd. [TS-58-ITAT-2021(CHNY)] – Date of Judgement : 28.01.2021 (ITAT Chennai)]

Compensation received on acquisition of land under RFCTLARR Act, 2013 is exempt from tax

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as (Compensation) - Under an agreement dated 13.08.2016 entered into between assessee and Corporation of Kochi, non-agricultural land of assessee was acquired - Assessee received compensation for acquisition of his non-agricultural land. He claimed that in view of section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and CBDT Circular No. 36/2016, dated 25.08.2016 aforesaid compensation would not be taxable under provisions of Income-tax Act - Assessing Officer rejected claim of assessee and brought to tax compensation. Assessee filed writ petition against impugned order.

The language of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, do not leave any doubt in the mind that if the land is either acquired or the result of an agreement, it could not fall within the mischief of Income Tax Act, in other words, exemption is liable to be granted. It is in this background of the matter and owing to certain confusions, the Central Board of Direct Tax vide the Circular No. 36/2016 dated 25.08.2016 came out with a clarification. For the sake of brevity, only relevant portion of the circular is re-produced herein:-

“3. As no distinction has been made between the compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under Section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land.

The matter has been examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.”

It was in this background of matter and owing to certain confusions, CBDT issued a Circular No. 36/2016, dated 25.08.2016 clarifying that compensation received in respect of award or agreement which had been exempted from levy of income-tax vide section 96 of 2013 Act would not be taxable under provisions of Income-tax Act. In view of aforesaid compensation received by assessee would not be taxable under provisions of Income-tax Act. [In favour of assessee] - [Viswanathan M. v. Chief Commissioner, Income Tax Department (2020) 116 taxmann.com 894 (Ker.)]