Agricultural land exemption under section 10(37): possession date, cultivation proof, and post-1 April 2004 receipt determine eligibility.

Section 10(37) exempts capital gains on compulsory acquisition of agricultural land where the statutory conditions are met. The relevant transfer date for the agricultural-use test is the date possession vests in the Government under the Land Acquisition Act, 1894, and khasra girdawari may evidence cultivation during the two years immediately preceding that date unless displaced by stronger evidence. The compensation condition is satisfied if compensation is received on or after 1 April 2004, regardless of when acquisition occurred. Land admittedly put to non-agricultural use remains outside the exemption, so eligible compensation may require recomputation to exclude that portion.

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Issues: (i) whether the assessees were entitled to exemption under section 10(37) of the Income-tax Act, 1961 in respect of enhanced compensation received on compulsory acquisition of agricultural land; (ii) whether the land was used for agricultural purposes during the two years immediately preceding the date of transfer; and (iii) whether the compensation received after 1 April 2004 satisfied the statutory condition under section 10(37).

Issue (i): whether the assessees were entitled to exemption under section 10(37) of the Income-tax Act, 1961 in respect of enhanced compensation received on compulsory acquisition of agricultural land.

Analysis: Section 10(37) grants exemption to an individual or Hindu undivided family in respect of capital gains arising from transfer of agricultural land if the prescribed statutory conditions are met. The fact that the land is a capital asset within section 2(14)(iii) does not by itself disqualify the claim, because the provision itself contemplates agricultural land falling within that category. The controversy turned on fulfilment of the remaining conditions, particularly agricultural use and the date on which compensation was received.

Conclusion: The exemption claim was available in principle, subject to verification of the statutory conditions and exclusion of compensation relatable to non-agricultural use.

Issue (ii): whether the land was used for agricultural purposes during the two years immediately preceding the date of transfer.

Analysis: For land acquired under the Land Acquisition Act, 1894, the date of transfer was taken as the date on which possession vested in the Government under section 16 of that Act. The evidentiary value of the khasra girdawari was accepted as demonstrating cultivation in the relevant period, and the absence of reference to crops in the acquisition award was treated as insufficient to displace that evidence. On the material on record, agricultural use was proved for the relevant lands, though the land parcels conceded to have been put to non-agricultural use by construction could not qualify.

Conclusion: The agricultural use condition was satisfied for the lands supported by the khasra girdawari, but not for the parcels admittedly used for non-agricultural purposes.

Issue (iii): whether the compensation received after 1 April 2004 satisfied the statutory condition under section 10(37).

Analysis: The relevant statutory requirement is receipt of compensation or consideration on or after 1 April 2004. The provision does not require that the acquisition itself must have taken place after that date. Since the enhanced compensation was actually received after 1 April 2004, the statutory condition stood fulfilled.

Conclusion: The receipt condition under section 10(37) was satisfied.

Final Conclusion: The assessee was entitled to exemption under section 10(37) in respect of the eligible enhanced compensation, but the matter required recomputation to exclude the portion relating to lands admittedly used for non-agricultural purposes, and the connected appeals were disposed of on the same basis.

Ratio Decidendi: For exemption under section 10(37) of the Income-tax Act, 1961, the relevant date for the agricultural-use test is the date of transfer as determined by vesting on possession under the Land Acquisition Act, 1894, and khasra girdawari can establish agricultural use unless convincingly displaced; the compensation condition is met if the money is received on or after 1 April 2004, irrespective of when the acquisition occurred.

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