Compulsory acquisition for tax exemption remains unchanged by a later compensation settlement and supports section 10(37) relief.

Where statutory land acquisition proceedings have culminated in acquisition, a later agreement fixing compensation does not change the transfer into a voluntary sale for income-tax purposes. The character of the transfer remains compulsory acquisition even if a sale deed is executed only to record the compensation arrangement, and the availability of a reference for enhanced compensation confirms that the dispute is confined to valuation. On that basis, compensation for acquired agricultural land falls within the exemption under section 10(37) of the Income-tax Act, 1961, and reassessment based on treating the transfer as a sale is unsustainable.

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Issues: Whether agricultural land acquired under the Land Acquisition Act, 1894, with compensation settled by agreement after initiation of acquisition proceedings, could be treated as a transfer by compulsory acquisition for the purpose of exemption under section 10(37) of the Income-tax Act, 1961.

Analysis: Acquisition had commenced through statutory notification, declaration and award under the Land Acquisition Act, 1894. Once those steps were completed, the character of the transfer stood determined as compulsory acquisition. The subsequent negotiation concerned only the amount of compensation. An agreement on compensation and execution of a sale deed for that purpose did not alter the underlying legal character of the acquisition. The availability of a reference for enhanced compensation also showed that the dispute after acquisition was confined to valuation and not to the nature of the acquisition. The contrary view that execution of a sale deed converted the matter into a voluntary sale was rejected.

Conclusion: The transfer was by compulsory acquisition, and the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961.

Final Conclusion: The reassessment proceedings were unsustainable because the compensation received for the acquired agricultural land fell within the statutory exemption; the appeal succeeded.

Ratio Decidendi: Where statutory land acquisition proceedings have culminated in acquisition, a later negotiated settlement only on compensation does not change the transfer into a voluntary sale for income-tax purposes.

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