Capital gains on compulsory acquisition arise when possession passes and vesting occurs, not on the notification date.

In compulsory acquisition cases, capital gains arise when possession is taken and the property vests in the Government, not merely on the date of the acquisition notification. On the facts noted, the land was treated as non-agricultural, the market value as on 1 January 1954 was accepted on evidence, and the resulting gain was computed accordingly. The transfer was therefore brought to tax in the previous year relevant to assessment year 1965-66, and the alternative contention based on the notification date was rejected. The Tribunal's factual findings on classification and valuation were upheld because no legal error was shown.

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Issues: (i) whether the property acquired was agricultural land; (ii) whether capital gain of Rs. 3,27,994 arose on the acquisition; (iii) whether the capital gain was assessable in the relevant assessment year.

Issue (i): whether the property acquired was agricultural land.

Analysis: The classification of the property was accepted as non-agricultural. No contrary factual basis or legal principle was shown to displace the Tribunal's finding on this point.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): whether capital gain of Rs. 3,27,994 arose on the acquisition.

Analysis: The market value as on 1 January 1954 was treated as proved on the evidence and the computation of the difference between the compensation received and that value was treated as a factual determination. No legal infirmity was found in the Tribunal's appreciation of the evidence.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (iii): whether the capital gain was assessable in the relevant assessment year.

Analysis: For capital gains, the relevant transfer was held to occur when possession of the acquired land was taken and the land vested in the Government. On that basis, the transfer fell in the previous year relevant to assessment year 1965-66. The contention that the notification date under the Land Acquisition Act should control was rejected.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered in favour of the Revenue on all questions, sustaining the inclusion of the capital gain in the assessment and upholding the Tribunal's findings on the nature of the land and the timing of the transfer.

Ratio Decidendi: In compulsory acquisition cases, the taxable transfer for capital gains purposes occurs when possession is taken and the property vests in the Government, and factual findings on the nature and valuation of the property will not be disturbed absent legal error.

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