Compulsory acquisition retains capital gains exemption where compensation is negotiated after statutory land acquisition proceedings.

Land transferred under duly completed acquisition proceedings retained the character of compulsory acquisition for purposes of section 10(37) exemption. The decisive factor was that the statutory acquisition process under the Land Acquisition Act, 1894 had been invoked and completed, and the later negotiation concerned only the compensation payable. A negotiated fixation of compensation did not convert the acquisition into a voluntary sale. On that basis, exemption from capital gains tax on the acquired agricultural land was available, and the Revenue challenge failed.

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Issues: Whether the assessee was entitled to the benefit of section 10(37) of the Income-tax Act, 1961 in respect of land transferred pursuant to acquisition proceedings.

Analysis: The land was treated as acquired under the Land Acquisition Act, 1894, and the only basis for denial of exemption was that the conveyance was executed through a sale deed after negotiations on the compensation amount. The decisive factor was that the statutory acquisition process had been invoked and completed, with the settlement confined to the compensation payable. A negotiated fixation of compensation does not alter the legal character of an acquisition when the proceedings under the land acquisition law are otherwise followed.

Conclusion: The assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961, because the transaction retained the character of compulsory acquisition.

Final Conclusion: The Revenue's challenge failed and the assessee's claim to capital gains exemption on the acquired agricultural land was upheld.

Ratio Decidendi: Where acquisition proceedings under the land acquisition law are duly followed, a negotiated settlement on compensation does not convert compulsory acquisition into a voluntary sale for purposes of exemption.

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