Section 10(37) exemption applies where acquisition proceedings are duly followed despite a negotiated compensation settlement.

Section 10(37) exemption remained available where agricultural land was acquired through proceedings under the Land Acquisition Act, 1894, even though compensation was settled by negotiated sale deed. The controlling principle was that once acquisition proceedings are duly initiated and the statutory procedure is followed, a negotiated settlement on compensation does not change the character of the transaction into a voluntary sale. On the stated facts, the land was urban agricultural land and the acquisition process had been followed, so the capital gains exemption could not be denied on the ground of negotiated transfer.

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Issues: Whether the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961 in respect of capital gains arising from transfer of agricultural land said to have been acquired under the Land Acquisition Act, 1894.

Analysis: The sole objection was that the land was transferred by a sale deed pursuant to negotiations and therefore was not a compulsory acquisition. The controlling principle applied was that where the acquisition proceedings under the Land Acquisition Act, 1894 are initiated and the statutory procedure is followed, a negotiated settlement on compensation does not change the character of the transaction from compulsory acquisition to voluntary sale. On the facts, the land was urban agricultural land and the acquisition process under the land acquisition law had been followed.

Conclusion: The assessee was entitled to the benefit of section 10(37) of the Income-tax Act, 1961, and the capital gains exemption could not be denied on the ground that the transfer was effected through a negotiated sale deed.

Ratio Decidendi: Where acquisition proceedings under the Land Acquisition Act, 1894 are duly invoked and completed, a negotiated settlement on compensation does not alter the acquisition into a voluntary sale for the purpose of exemption provisions tied to compulsory acquisition.

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