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Issues: Whether capital gains arising from compulsory acquisition of land became taxable in the assessment year corresponding to the year in which possession was taken, or only in the year in which the award was made and title vested in the Government.
Analysis: Capital gains are chargeable under section 45 of the Income-tax Act, 1961 in the year in which the transfer takes place. In compulsory acquisition proceedings, the transfer is completed when the award is made under section 11 of the Land Acquisition Act and the property vests in the Government free from encumbrances. Where possession is taken earlier without exercise of urgency powers under section 17 of the Land Acquisition Act, such earlier possession does not by itself complete the transfer. The taxable event therefore coincides with the making of the award and the vesting of title, not merely with physical possession.
Conclusion: The capital gains were not taxable in the earlier assessment year based only on possession, but were taxable in the later assessment year in which the award was made and title vested.
Final Conclusion: The references were answered on the basis that compulsory acquisition capital gains accrued on the date of award and vesting, resulting in taxability in the later assessment year and non-taxability in the earlier year.
Ratio Decidendi: In compulsory acquisition without urgency powers, capital gains accrue when the award is made and the property vests in the State, not when possession is taken earlier.
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