Compulsory acquisition and capital gains: transfer occurred on Gazette publication, and section 54B relief was unavailable.

Compulsory acquisition under the Requisitioning and Acquisition of Immovable Property Act, 1952 was completed only when the acquisition notification was published in the Official Gazette; because publication occurred on 12 March 1970, the transfer was not completed before 1 March 1970. Agricultural land within municipal limits, or within the specified distance, fell within the amended definition of capital asset for assessment year 1970-71, so the lands remained taxable despite their agricultural character. Section 54B relief was unavailable because the lands were not used by the assessees or their parents for agricultural purposes during the statutory two-year period before transfer. Capital gains were therefore held taxable.

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Issues: (i) Whether the acquisition of the lands under the Requisitioning and Acquisition of Immovable Property Act, 1952, was completed before 1 March 1970; (ii) whether the lands were agricultural lands and, if so, whether they were excluded from the definition of capital asset for the relevant assessment year, and whether the exemption for transfers before 1 March 1970 applied; (iii) whether the assessees were entitled to the benefit of section 54B of the Income-tax Act, 1961.

Issue (i): Whether the acquisition of the lands under the Requisitioning and Acquisition of Immovable Property Act, 1952, was completed before 1 March 1970.

Analysis: Under section 7(2) of the Requisitioning and Acquisition of Immovable Property Act, 1952, acquired land vests in the State only on publication of the acquisition notification in the Official Gazette. The notification in the present case was published on 12 March 1970, and earlier dates of notification or notices did not complete the transfer.

Conclusion: The acquisition was not completed before 1 March 1970 and the issue was answered against the assessees.

Issue (ii): Whether the lands were agricultural lands and, if so, whether they were excluded from the definition of capital asset for the relevant assessment year, and whether the exemption for transfers before 1 March 1970 applied.

Analysis: By the Finance Act, 1970, agricultural land situated within municipal limits or within 8 kilometres thereof became a capital asset for assessment year 1970-71 under section 2(14)(iii) of the Income-tax Act, 1961. Section 47(viii) exempted only transfers of agricultural land effected before 1 March 1970. Since the lands were situated within the Hyderabad municipal limits or within the specified distance and were transferred on 12 March 1970, they fell within the taxable category even if they retained agricultural character.

Conclusion: The lands were not exempt from capital gains tax for the relevant assessment year and the issue was answered against the assessees.

Issue (iii): Whether the assessees were entitled to the benefit of section 54B of the Income-tax Act, 1961.

Analysis: Section 54B requires that the land transferred must have been used by the assessee or a parent for agricultural purposes during the two years immediately preceding the transfer. The lands were under requisition and were not being used by the assessees or their parents for agricultural purposes during that period.

Conclusion: The assessees were not entitled to the benefit of section 54B and the issue was answered against them.

Final Conclusion: All the referred questions were decided in favour of the Revenue, and the capital gains arising from the acquisition were held taxable.

Ratio Decidendi: For compulsory acquisition under the 1952 Act, the transfer occurs on publication of the acquisition notification in the Official Gazette; land within the specified municipal area is a capital asset under the amended definition, and section 54B relief is available only where the land was actually used for agricultural purposes during the statutory two-year period before transfer.

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