Compulsory acquisition under section 10(37) can remain eligible for exemption even when compensation is settled by agreement.

For section 10(37), land transferred to a municipal corporation pursuant to acquisition proceedings for a public purpose was treated as compulsory acquisition, even though the compensation amount was settled by agreement and sale deeds were executed. The agreement on compensation did not change the statutory character of the transaction, which remained within the acquisition regime rather than a voluntary sale. The note further states that personal conduct of agricultural operations by the assessee was not essential for the exemption. On that basis, exemption under section 10(37) was available and the long-term capital gains addition was directed to be deleted.

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Issues: Whether the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961 on capital gains arising from transfer of agricultural land to Surat Municipal Corporation, where the land was claimed to have been acquired compulsorily and the authorities had treated the transaction as a voluntary sale.

Analysis: The land records, the municipal correspondence, and the governmental notification showed that the land was reserved for a public purpose and placed at the disposal of the municipal corporation for acquisition. The municipal communication described the payment as relating to compulsory acquisition, and the Tribunal followed its own earlier decision on the same Dindoli acquisition, which had been affirmed by the jurisdictional High Court. The fact that the owners agreed on the amount of compensation and executed sale deeds did not alter the character of the acquisition, because the settlement related only to the quantum of compensation and not to the nature of the acquisition. The Tribunal also relied on the principle that, for section 10(37), it is not necessary that the assessee himself must have personally carried out agricultural operations on the land.

Conclusion: The transfer was treated as compulsory acquisition and the assessee was held entitled to exemption under section 10(37). The disallowance of the exemption was reversed and the addition of long-term capital gains was directed to be deleted.

Ratio Decidendi: For the purposes of section 10(37), where acquisition proceedings are initiated for a public purpose and the compensation is settled by agreement, the transaction remains compulsory acquisition if the factual and statutory setting shows that the land was acquired under the acquisition regime and not by a purely voluntary sale.

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