Capital gains on land acquisition accrue on the award date, not earlier possession, absent urgency acquisition provisions.

In non-urgency land acquisition, vesting for capital gains purposes occurs on the date of the award, not on earlier possession, where section 17 of the Land Acquisition Act is not involved. The Andhra Pradesh High Court treated the question whether the land was agricultural as one of fact and held that no referable question of law arose. Applying the prior Division Bench ruling on vesting, the court concluded that capital gains accrued only on the award date, which was 25 March 1981, so no capital gain arose in the previous year relevant to assessment year 1978-79. The section 256(2) reference application therefore failed.

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Issues: Whether the land acquired was agricultural land and whether capital gains arose in the previous year relevant to assessment year 1978-79 so as to warrant a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The question whether the land was agricultural was treated as one of fact. On the timing of acquisition and accrual of capital gains, the applicable principle was that where possession is taken outside the urgency procedure under section 17 of the Land Acquisition Act and the land is taken before or during acquisition proceedings, vesting occurs on the date of the award. The earlier decision dealing with urgency acquisition was held inapplicable on the facts. Applying the prior Division Bench ruling on vesting under the Land Acquisition Act, the relevant date for transfer and accrual of capital gains was the date of the award, not the earlier date of taking possession. Since the award was passed on March 25, 1981, no capital gain arose in the previous year relevant to assessment year 1978-79.

Conclusion: No referable question of law arose; the Tribunal was right in holding that capital gains tax was not attracted in assessment year 1978-79.

Final Conclusion: The application under section 256(2) failed and stood dismissed at the stage of admission because the challenged finding involved no question of law warranting reference.

Ratio Decidendi: In acquisition cases not governed by the urgency provisions of the Land Acquisition Act, the date of vesting for capital gains purposes is the date of the award, and capital gains arise only when there is a transfer within the meaning of the Income-tax Act.

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