No TDS on Compensation for Compulsory Land Acquisition | HC

Case Details: Executive Engineer vs. State - [2026] 186 taxmann.com 74 (Karnataka)

Judiciary and Counsel Details

• Suraj Govindaraj, J.
• Sanjeev Kumar C. Patil, Adv. for the Petitioner.
• Shashikiran Shetty, AG, Malhar Rao, AAG, Smt. Maya T.R., HCGP & Harshavardhan R. Malipatil, Adv. for the Respondent.

Facts of the Case

The Karnataka High Court in the case of Executive Engineer, Karnataka Neeravari Nigam Limited v. State 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.

The parties to the writ petition were the beneficiaries of the land acquisition, and the acquisition proceedings had been pending for an inordinately long period. The parties were constrained to initiate proceedings to enforce the decrees passed against the beneficiary of the acquisition, indicating the protracted nature of the litigation and the absence of finality.

Further, the land losers have not received the compensation amounts within a reasonable or statutorily contemplated timeframe. The beneficiary of the acquisition, as well as the State Government, would be exposed to an ever-increasing financial burden on account of the accrual of statutory interest, additional interest, and other consequential liabilities during the pendency of the proceedings.

High Court Held

Accordingly, the High Court suggested that the parties refer their 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. Pursuant to the suggestion, the parties signed a Mediation Agreement, which was placed on record before the High Court.

The High Court held 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.

List of Cases Reviewed

• W.P.No.102884/2025 order dated 20.08.2025 (para 23) followed