Compulsory acquisition exemption remains available when negotiated compensation does not change the nature of the land acquisition.

Compulsory acquisition of agricultural land under the Land Acquisition Act remained within section 10(37) despite compensation being fixed through a negotiated settlement, because the statutory acquisition process had been followed and the land's agricultural character was not disputed. The Tribunal applied the principle that agreement on compensation does not convert a compulsory acquisition into a voluntary sale. On those facts, the exemption from long-term capital gains under section 10(37) was allowable, subject to the statutory conditions being satisfied.

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Issues: Whether the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961 on transfer of agricultural land acquired for the Vizhinjam International Seaport, where the compensation was fixed through a negotiated settlement.

Analysis: The land was notified for compulsory acquisition and the acquisition proceedings were taken under the Land Acquisition Act. The fact that the final compensation was settled by agreement did not alter the character of the acquisition, because the entire acquisition procedure had been followed. The Assessing Officer did not dispute that the land was agricultural land. In these circumstances, the Tribunal applied the principle that negotiated fixation of compensation does not convert a compulsory acquisition into a voluntary sale.

Conclusion: The assessee was entitled to the benefit of section 10(37) of the Income-tax Act, 1961, and the exemption from long-term capital gains was allowable.

Ratio Decidendi: Where land is compulsorily acquired and the statutory acquisition process is followed, a negotiated settlement only on compensation does not change the acquisition into a voluntary sale, and exemption under section 10(37) remains available if the statutory conditions are otherwise satisfied.

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