OPINION | Are all land-losers entitled to the same treatment?

The principle of fairness, which Parliament promised in 2013, is undermined when two families losing land for similar projects receive different net amounts.

Two High Courts have taken sharply different views on a question that matters to thousands of landowners: should compensation for compulsory land acquisition be taxed?

Two High Courts, two conclusions

The Karnataka High Court recently said yes, limiting tax exemptions only to acquisitions made directly under the 2013 land acquisition law. But the Chhattisgarh High Court, in a judgment delivered just weeks ago, ruled that compensation paid by the National Highways Authority of India is not taxable. This divergence exposes the gaps in India’s framework for compulsory acquisitions, leaving landowners caught in uncertainty.

Brief history of legal framework for compulsory acquisitions

For over a century, compulsory land acquisition was governed by the colonial-era Land Acquisition Act of 1894. Critics long argued it paid too little and ignored the disruption caused to families and livelihoods.

India’s rapid industrial growth brought new statutes like the National Highways Act of 1956, the Railways Act of 1989 and several State Industrial Areas Development Acts, each with acquisition provisions, creating inconsistencies and unequal treatment of landowners.

Parliament responded with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LARR), which aimed to change the rules of the game: it mandated fair compensation, solatium, and rehabilitation. Crucially, it treated acquisition not as a voluntary sale but as a forced loss, therefore exempting compensation from income tax, stamp duty and fees.

An attempt in 2015 to clarify doubts

But questions arose about whether these protections extended to acquisitions carried out under other statutes which contained land acquisition provisions. To smooth over the inconsistency, the government issued a Removal of Difficulties Order in 2015, extending LARR’s compensation formula to these laws. What it did not expressly clarify was whether the tax exemption travelled with that formula. The result: confusion and litigation.

Are all land-losers a homogenous class?

The Karnataka High Court’s decision in CIT v. Tushira Industries took a strict view, holding that tax exemption under Section 96 of LARR applies only when land is acquired under LARR itself. The court acknowledged the inconsistency in treatment for landowners but placed the burden on the legislature to provide clarity.

In contrast, the Chhattisgarh High Court in Sanjay Kumar Baid v. ITO held that the exemption must extend to other acquisitions as well, reasoning that landowners in the same project cannot be treated differently simply because two statutes are involved. In doing so, it drew strength from previous Supreme Court decisions which stressed that all land-losers form a homogenous class entitled to equal treatment.

The split highlights more than just a tax dispute. For landowners, compulsory acquisition is already fraught with anxiety. Knowing that their compensation could be cut by taxes in one state but not another only adds to the sense of unfairness. For acquiring authorities, uncertainty fuels litigation, slows down projects, and increases costs. The principle of fairness, which Parliament promised in 2013, is undermined when two families losing land for similar projects receive different net amounts.

The way out is legislative clarity

The way forward is clear. Legislative clarity is needed to ensure that all compensation for compulsory acquisition, regardless of which statute governs it, is treated alike. Leaving the matter to piecemeal court rulings only deepens confusion. As infrastructure expansion accelerates across the country, the credibility of the acquisition process depends on certainty and fairness. Parliament must act to close the gap and make good on the promise of LARR.

(Lalan Gupta is Partner and Eeshan Sonak, Associate, at Shardul Amarchand Mangaldas & Co.)

Views are personal and do not represent the stand of this publication.