Capital gains exemption for acquired agricultural land and rectification of interest component can both apply under income-tax law.

Compulsory acquisition compensation for agricultural land within municipal limits was treated as capital gains arising from transfer of a capital asset, but the exemption under section 10(37) applied on the stated facts because the land remained agricultural in character. The commentary also states that rectification under section 154 was available to exclude the interest component in light of the Supreme Court ruling in Ghanshyam (HUF), since applying a binding declaration of law under Article 141 did not require adjudication of disputed facts. A revised return was not necessary for that correction.

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Issues: (i) Whether compensation arising from compulsory acquisition of agricultural land situated within municipal limits was exempt under section 10(37) of the Income-tax Act, 1961. (ii) Whether the Assessee could seek rectification under section 154 of the Income-tax Act, 1961 to exclude the interest component in the light of the Supreme Court decision in Ghanshyam (HUF).

Issue (i): Whether compensation arising from compulsory acquisition of agricultural land situated within municipal limits was exempt under section 10(37) of the Income-tax Act, 1961.

Analysis: The land was agricultural in character, but because it was situated within the municipal limits it fell within the definition of a capital asset under section 2(14)(iii)(a). Its transfer therefore attracted capital gains tax under section 45. However, section 10(37) specifically excludes from total income the capital gains arising from transfer of such agricultural land, and the exemption was applicable on the facts.

Conclusion: The exemption under section 10(37) applied and the contrary view was unsustainable.

Issue (ii): Whether the Assessee could seek rectification under section 154 of the Income-tax Act, 1961 to exclude the interest component in the light of the Supreme Court decision in Ghanshyam (HUF).

Analysis: A decision declared by the Supreme Court is binding under Article 141 of the Constitution of India. The exclusion of the interest component in accordance with that declaration did not require adjudication of a disputed question and therefore constituted a matter capable of rectification. The absence of a revised return did not take the matter outside section 154.

Conclusion: The rectification request was maintainable under section 154 and had to be allowed.

Final Conclusion: The orders of the authorities below were set aside, and the Assessee was granted consequential relief by allowing the rectification application and the tax exemption claim.

Ratio Decidendi: Capital gains arising from acquisition of agricultural land situated within municipal limits are exempt under section 10(37), and a binding Supreme Court declaration may be applied through rectification where no disputed factual adjudication is required.

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