Compulsory acquisition capital gains are taxable in the year of transfer, not when compensation is later determined or paid.

Capital gains from compulsory acquisition of land are taxable in the previous year in which the transfer occurs, not in the year compensation is later determined or received. Compulsory acquisition is treated as a transfer under the Income-tax Act, and where the relevant acquisition law provides that the land vests on publication of the notification, the transfer is complete on that date. The timing of compensation therefore does not defer chargeability, because section 45 deems the gains to arise in the year of transfer and the computation provisions remain workable.

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Issues: Whether capital gains arising from compulsory acquisition of land are chargeable to tax in the year of transfer, even if the compensation is determined or received in a later year.

Analysis: Under section 45 of the Income-tax Act, 1961, profits or gains arising from the transfer of a capital asset are deemed to be income of the previous year in which the transfer took place. Section 2(47) of the Act includes compulsory acquisition within the meaning of transfer. Under section 71(2) of the M. P. Town Improvement Trust Act, 1961, the acquired land vests absolutely in the trust on publication of the notification, so the transfer is effected on that date. The date on which compensation is determined or paid is therefore not relevant for fixing the year of chargeability. The computation provisions were capable of application in such a case, and the decision relied on by the assessee concerning goodwill of a new business was distinguishable.

Conclusion: Capital gains from the compulsory acquisition were chargeable in the year of transfer, and the answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: For compulsory acquisition of a capital asset, the year of taxability of capital gains is the year in which the transfer occurs and is not postponed to the year in which compensation is determined or received, because section 45 deems the gains to arise in the previous year of transfer and section 2(47) treats compulsory acquisition as a transfer.

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