Capital gains on compulsory acquisition include solatium as part of the full value of consideration received.

Compulsory acquisition is a transfer of a capital asset for capital gains purposes, and section 45 read with section 48 of the Income-tax Act requires computation on the full value of consideration received or accruing from that transfer. On that footing, solatium paid for the compulsory nature of acquisition forms part of the compensation actually received and is not excluded merely because it is not market value. The solatium was therefore includible in the consideration for capital gains computation, and the issue was answered in favour of the Revenue.

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Issues: Whether the 15 per cent solatium awarded on compulsory acquisition under the Land Acquisition Act forms part of the full value of consideration for computing capital gains under the Income-tax Act.

Analysis: The relevant assessment year was 1974-75. The transfer of a capital asset includes compulsory acquisition within the meaning of section 2(47) of the Income-tax Act, 1961, and section 45 brings the resultant gains to charge. Section 48(1) requires computation on the basis of the full value of the consideration received or accruing as a result of the transfer, and the permitted deductions are only those expressly provided in clauses (a) and (b). Solatium paid for the compulsory nature of acquisition is part of the compensation actually received, and the Act does not exclude it merely because it is not market value.

Conclusion: The solatium is includible in the consideration for capital gains computation. The question was answered in favour of the Revenue.

Ratio Decidendi: For capital gains purposes, the expression "full value of the consideration received or accruing" includes compensation received on compulsory acquisition, including solatium, unless expressly excluded by the statute.

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