Section 54E exemption on compulsory acquisition compensation was upheld where investment was made after actual receipt of compensation.

Section 54E exemption was available where compensation for compulsory acquisition was received in a later previous year and invested within the prescribed period after receipt. Section 45(5) was treated as clarificatory and applied retrospectively for determining when capital gains arose, because in compulsory acquisition cases the assessee could not make the specified investment until compensation was actually received. As section 54E was in force when the compensation was received, the exemption could not be denied.

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Issues: Whether the benefit of section 54E of the Income-tax Act, 1961 was available where compensation for compulsory acquisition was received in a later year, and whether section 45(5) of the Income-tax Act, 1961 operated retrospectively as a clarificatory provision for determining when capital gains arose.

Analysis: The compensation for compulsory acquisition was first received in the later previous year, and the availability of the capital gains exemption had to be tested with reference to the date on which the capital gains arose. Section 45(5) was treated as clarificatory in nature, because in cases of compulsory acquisition the assessee could not invest the amount in specified assets until compensation was actually received. On that basis, the provision was applied retrospectively for determining the year of chargeability. Since section 54E was already on the statute book when the compensation was received and the amount had been invested within the prescribed period, the exemption could not be denied.

Conclusion: The exemption under section 54E was correctly allowed, and the revenue appeal failed.

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