Land acquisition compensation exempt as capital gain, not business profits. Tax based on post-acquisition compensation.

The compensation received for the acquisition of lands was held not assessable as business profits but exempt as a capital gain arising from agricultural land. The notification under the Land Acquisition Act did not change the character of the land, and taxability was determined by the compensation received post-acquisition. The decision on the questions referred was upheld, with each party bearing their own costs.

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Issues involved: Five questions of law referred u/s 256(1) of the Income-tax Act, 1961 for the assessment year 1963-64.

Question 1: Whether the compensation received for the acquisition of lands is assessable as business profitsRs.
- Previous decision: The land remained agricultural till acquisition, thus not business profits.
- Current decision: Compensation not assessable as business profits.

Question 2: Whether the compensation received is agricultural income exempt from taxRs.
- Previous decision: Compensation not taxable as income or capital gains.
- Current decision: Compensation not agricultural income, exempt as capital gain.

Question 3: Whether the character of lands changed to capital asset due to Land Acquisition Act notificationRs.
- Academic nature, notification u/s 4 doesn't change land character.
- Compensation received post-acquisition determines taxability.

Question 4: Whether income from property assessable under 'Property' headRs.
- Affirmative decision in favor of the Department.

Question 5: Whether claim for repairs and depreciation rightly restrictedRs.
- Does not arise due to previous decision on Question 4.

The judgment emphasizes that the compensation for land acquisition is not taxable as business profits but exempt as a capital gain arising from agricultural land. The notification u/s 4 of the Land Acquisition Act does not alter land character, with taxability determined by compensation received post-acquisition. The decision on previous questions is upheld, with parties to bear their own costs.

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