Agricultural land acquisition and section 10(37): negotiated compensation settlement did not alter compulsory acquisition character, so exemption applied.

Section 10(37) applies where the land falls within the specified urban area, was used for agricultural purposes during the two years before transfer, and is transferred by compulsory acquisition or for consideration fixed or approved under the acquisition process. On the facts discussed, the land was treated as agricultural based on the agricultural officer's certificate, the nature of improvements, the acquisition records, and surrounding circumstances. Execution of a sale deed after negotiation on compensation did not change the character of the transfer, because the acquisition proceedings had already been initiated and the settlement related only to compensation. The capital gains exemption was therefore available.

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Issues: Whether the assessee was entitled to exemption under section 10(37) on transfer of the land acquired for Vizhinjam International Seaport, on the ground that the land was agricultural land used for agricultural purposes and that the transfer was by way of compulsory acquisition.

Analysis: The majority held that section 10(37) requires the land to fall within the specified urban area, to have been used for agricultural purposes during the two years preceding transfer, and to have been transferred by way of compulsory acquisition or for consideration determined or approved by the prescribed authority. The evidence on record, including the agricultural officer's certificate, the nature of improvements on the land, the classification adopted in acquisition proceedings, and the surrounding circumstances, established that the land was agricultural and had been used for agricultural purposes. The fact that a sale deed was executed after negotiations did not alter the character of the transfer, because the acquisition proceedings had been initiated under the land acquisition process and the settlement related only to compensation.

Conclusion: The assessee was entitled to exemption under section 10(37), and the claim of capital gains tax exemption succeeded.

Ratio Decidendi: Where agricultural land is subjected to acquisition proceedings and the owner executes a sale deed only as part of a negotiated settlement on compensation, the transfer remains one by compulsory acquisition for section 10(37), provided the land was used for agricultural purposes in the relevant period.

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