Negotiated land sale not treated as compulsory acquisition, so Section 10(37) exemption failed for capital gains tax.

A negotiated land sale, even if preceded by an acquisition notification, does not qualify as a transfer by way of compulsory acquisition for exemption under Section 10(37) of the Income-tax Act, 1961. The exemption applies only where the transfer is by compulsory acquisition and the land is used for agricultural purposes; on those facts, the claim failed. Reference to Section 194LA did not change the taxability of the capital gains arising from the transaction, so the assessee remained liable to tax under the head of capital gains.

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Issues: Whether the sale transaction was a negotiated sale or a compulsory acquisition for the purpose of claiming exemption under Section 10(37) of the Income-tax Act, 1961, and whether the assessee was entitled to resist tax liability on capital gains.

Analysis: The land acquisition notification preceded the sale deed, but the transaction was found to be a negotiated sale and not a transfer by way of compulsory acquisition. The exemption under Section 10(37)(iii) of the Income-tax Act, 1961 is attracted only where the transfer is by way of compulsory acquisition and the land is used for agricultural purposes. On that basis, the claim for exemption failed. The reference to Section 194LA of the Income-tax Act, 1961 did not alter the taxability of the capital gains arising from the transaction.

Conclusion: The claim for exemption under Section 10(37) of the Income-tax Act, 1961 was correctly rejected, and the assessee remained liable to pay income tax under the head of capital gains.

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