Capital gains on compulsory acquisition turn on actual possession, with transfer taking place when possession is handed over.

In compulsory acquisition of immovable property, the decisive date for capital gains under section 45 of the Income-tax Act, 1961 was the date on which actual possession was taken, not the date of the acquisition notification. Where possession was taken under section 17(1) of the Land Acquisition Act, 1894 before the award, the transfer was treated as occurring on that possession date. On the facts stated, possession was handed over on 4 January 1975, so the capital gains accrued in assessment year 1975-76.

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Issues: Whether, in the case of compulsory acquisition of immovable property, the date of transfer for capital gains purposes was the date of the acquisition notification or the date on which actual possession was taken, and consequently whether the capital gains were assessable in the relevant assessment year 1975-76.

Analysis: For purposes of section 45 of the Income-tax Act, 1961, the material event was the taking over of actual possession. The property was acquired under section 17(1) of the Land Acquisition Act, 1894, which permitted possession to be taken before the award. The evidence showed that actual possession was handed over on 4 January 1975, and that date was treated as the decisive date for determining when the transfer took place and in which previous year the capital gains accrued.

Conclusion: The transfer took place on 4 January 1975 when possession was taken, so the capital gains were assessable in assessment year 1975-76. The questions were answered in favour of the assessee.

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