Compulsory acquisition under section 10(37) is not negated by sale deeds executed after compensation negotiation.

Land transferred to a municipal corporation was treated as compulsorily acquired where statutory acquisition proceedings had been initiated after the land was reserved for a sewage treatment plant. Execution of sale deeds after negotiation on compensation did not alter the compulsory character of the acquisition, and a negotiated settlement on compensation was not enough to convert the transaction into a voluntary sale for section 10(37) purposes. The fact that the assessee did not personally carry out agricultural operations did not defeat exemption where the governing interpretation of section 10(37) was otherwise satisfied. The capital gain claim was accepted and the disallowance by the lower authorities was set aside.

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Issues: Whether the land transferred to Surat Municipal Corporation was acquired by compulsory acquisition so as to qualify for exemption under section 10(37) of the Income-tax Act, 1961.

Analysis: The land had been placed under reservation for a sewage treatment plant and the record showed initiation of acquisition proceedings under the relevant town planning and municipal provisions. The fact that the owners ultimately executed sale deeds after negotiation on compensation did not alter the underlying character of the acquisition. The Tribunal followed the coordinate bench decision in the same Dindoli land dispute, as affirmed by the jurisdictional High Court, and also relied on the principle that a negotiated settlement on compensation does not convert a compulsory acquisition into a voluntary sale. The objection that the assessee himself had not carried out agricultural operations did not defeat the claim in view of the governing interpretation of section 10(37).

Conclusion: The land was held to have been compulsorily acquired, and the assessee was entitled to exemption under section 10(37).

Final Conclusion: The assessee's capital gain claim was accepted and the disallowance made by the lower authorities was set aside; the connected appeals were also disposed of on the same reasoning.

Ratio Decidendi: Where land is acquired pursuant to statutory acquisition proceedings, the mere execution of a sale deed or settlement on compensation does not change compulsory acquisition into a voluntary sale for the purposes of section 10(37) of the Income-tax Act, 1961.

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