Capital gains on compulsory acquisition arise on award and vesting when urgency possession is not invoked.

In compulsory acquisition, where urgency powers under Section 17(1) of the Land Acquisition Act, 1894 were not invoked, possession and vesting under Section 16 governed the timing of transfer for capital gains purposes. The award was made on 29.9.1970, and the land vested in the Government on that date, so the transfer occurred in the previous year ending 31.3.1971. Read with Section 45(1) of the Income-tax Act, 1961, the capital gains were chargeable in the corresponding assessment year. The argument that taxability arose from the earlier notification date of 15.5.1968 was rejected.

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Issues: Whether capital gains arising from acquisition of land were assessable in the assessment year 1971-72 on the basis of the date of award and vesting, or on the basis of the earlier date of notification and alleged dispossession.

Analysis: The land was under lease with the college and, after expiry of the lease, remained in its possession. The acquisition proceedings did not show invocation of the urgency powers under Section 17(1) of the Land Acquisition Act, 1894. In the absence of a specific direction for urgent possession, Section 16 of the Land Acquisition Act, 1894 governed the taking of possession after the award under Section 11. The award was made on 29.9.1970, and on that date the land vested in the Government. Read with Section 45(1) of the Income-tax Act, 1961, capital gains became chargeable in the previous year in which the transfer took place, namely the year ending 31.3.1971.

Conclusion: The transfer was held to have taken place on 29.9.1970, and the capital gains were taxable in the relevant assessment year; the contention based on the notification date of 15.5.1968 was rejected.

Ratio Decidendi: In compulsory acquisition, where urgency powers under Section 17 are not invoked, the transfer for capital gains purposes occurs when possession is taken after the award and the land vests in the State under Section 16 of the Land Acquisition Act, 1894.

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