2023 (2) TMI 1374 - AT - Income Tax

Exemption u/s 10(37) - exemption of compensation received on account of compulsory acquisition of agricultural land by state Govt. - date of transfer of the impugned land - use of land being not under agriculture cultivation for 2 years to the award of compensation and date of transfer of land - denial of claim simply because the impugned land is situated within municipal limits - HELD THAT - The provisions of section 10(37) are meant specifically for the purpose of removing hardship to a land holder, whose lands are situated in an area specified in section 2(14)(iii)(a) (b). These lands which were originally used for agricultural purpose, if retained by the owner would continue to have been used for agricultural purpose. In our view, the AO was not right in coming to the conclusion that if a land falls within the discretion of capital asset u/s 2(14)(iii)(a), then it would be a transfer of land which is not agricultural and therefore, one should not look at the provisions of section 10(37) at all. The impugned order of the assessment passed by the AO u/s 143(3) of the Income tax Act, 1961 holding that the capital gain tax is chargeable on the compulsory acquisition of the urban land by resorting to the provisions of section 45(5) is unsustainable in view of the provisions of amended sub-section (37) of section 10 of the Income Tax Act, 1961. In the present case where assessee's agricultural land was compulsorily acquired by following entire procedure prescribed under Land Acquisition Act, and at the time of acquisition in 1948, the said land was under agriculture cultivation merely because compensation amount was awarded vide order of State Govt. determining final award (order dated 08.01.2014) and disbursed the said amount vide Government order dated 19.05.2014 which was after 01/01/2014 cannot change the status as not falling beyond municipality limits at the time of acquisition and as such would not change character of acquisition from that of compulsory acquisition to voluntary sale so as to deny exemption under section 10(37) to assessee. Decided in favour of assessee.

Summary

Issues Involved:

1. Determination of the date of transfer of the impugned land.
2. Applicability of exemption under Section 10(37) of the Income Tax Act, 1961.
3. Calculation of capital gains based on the year of compensation receipt under Section 45(5).

Issue-Wise Detailed Analysis:

1. Determination of the Date of Transfer of the Impugned Land:

The primary issue was whether the date of transfer of the land should be considered as the year 1947 or the date of the final award of compensation, i.e., 19.05.2014. The Revenue argued that the date of transfer should be the latter, as the compensation was awarded in 2014. However, the CIT(A) considered the historical context of the land acquisition, which dated back to 1947 when the land was allotted to displaced persons. The CIT(A) concluded that the acquisition should be viewed from the time the land was originally allotted by the state, not when the compensation was paid after prolonged litigation.

2. Applicability of Exemption under Section 10(37) of the Income Tax Act, 1961:

The core of the dispute revolved around whether the compensation received for the land was exempt under Section 10(37). The CIT(A) examined whether the conditions for exemption were met, including the nature and use of the land, the compulsory acquisition, and the timing of the compensation. The CIT(A) found that the land was agricultural, as confirmed by reports from the Tehsildar and other authorities, and that it was used for agricultural purposes prior to its transfer in 1947. The CIT(A) held that the compensation received was exempt under Section 10(37), as the land was compulsorily acquired and the conditions for exemption were satisfied.

3. Calculation of Capital Gains Based on the Year of Compensation Receipt under Section 45(5):

The Assessing Officer (AO) contended that the capital gains should be calculated based on the year the compensation was actually received, i.e., FY 2014-15, under Section 45(5). However, the CIT(A) disagreed, stating that the compensation was not a capital gain but a relief for the compulsory acquisition of agricultural land. The CIT(A) emphasized that the land was not voluntarily sold but was allotted by the state without the appellant's consent. The CIT(A) referenced the Supreme Court's decision in Balakrishnan vs. Union of India, which held that no capital gains tax is payable on the transfer of agricultural land by way of compulsory acquisition.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. It concluded that the compensation received was exempt under Section 10(37) and should not be treated as capital gains. The Tribunal emphasized that the provisions of the Income Tax Act should be interpreted to fulfill the legislative intent, which in this case was to provide relief to landholders whose agricultural land was compulsorily acquired. The appeal was dismissed, and the CIT(A)'s order was sustained.