Capital gains on acquisition compensation arise only when the transfer or extinction of rights occurs in the relevant year.

Compensation received after acquisition of a plot was not chargeable as capital gains for the assessment year 1971-72 because any transfer of the capital asset, or extinction of the assessee's right or interest, had already occurred before the relevant previous year. Once the land was acquired, the assessee had only a right to receive compensation, and the amount was quantified later under consent terms. The taxable event, if any, lay in the earlier acquisition period, not in the year in which compensation was subsequently determined and received. The issue was therefore decided in favour of the assessee.

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Issues: Whether the compensation received on acquisition of the plot was liable to tax as capital gains in the hands of the assessee for the assessment year 1971-72.

Analysis: The assessee's claimed right or interest in the plot, assuming it existed, came to an end when the land was acquired long before the relevant previous year. On acquisition, the assessee acquired only the right to receive compensation, and the amount payable was determined later on the basis of the consent terms. Any transfer of a capital asset, if at all, had therefore occurred prior to the relevant previous year and not during the year ended 30 June 1970.

Conclusion: The compensation amount was not liable to tax as capital gains for the assessment year 1971-72 and the issue was decided in favour of the assessee.

Ratio Decidendi: Where any transfer of a capital asset, or extinction of the relevant right or interest, occurs before the relevant previous year, compensation subsequently quantified or received does not attract capital gains tax in that year.

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