Compulsory acquisition exemption under section 10(37) survives negotiated compensation where land acquisition proceedings were invoked.

Where land acquisition proceedings under the Land Acquisition Act were invoked, the fact that compensation was settled by agreement and the transfer was executed through a sale deed did not alter the transaction's character from compulsory acquisition to voluntary sale. The operative principle was that negotiated fixation of compensation under acquisition machinery does not defeat exemption where the land otherwise satisfies the statutory conditions. The assessee was therefore entitled to exemption under section 10(37) of the Income-tax Act, and denial of the benefit merely because the compensation was negotiated was not justified.

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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 gains arising from transfer of agricultural land said to have been acquired by the Government through a negotiated sale deed.

Analysis: The land was subjected to acquisition proceedings under the Land Acquisition Act and the only feature relied on to deny exemption was that the compensation was fixed by agreement and the transfer was completed through a sale deed. The legal position applied was that where the acquisition machinery under the land acquisition law has been invoked and the parties merely settle the compensation amount, the character of the transaction does not change from compulsory acquisition to voluntary sale. The land retained its character as acquired urban agricultural land for the purpose of the exemption provision.

Conclusion: The assessee was entitled to the benefit of section 10(37) of the Income-tax Act, 1961, and the exemption could not be denied on the ground that the compensation was settled by negotiation.

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