Compulsory acquisition of agricultural land supported section 10(37) exemption and deleted long-term capital gains addition.

Exemption under section 10(37) was held allowable where agricultural land reserved for a public purpose had been subjected to acquisition proceedings by the municipal authority, and the compensation records described the payment as made for compulsory acquisition. The Tribunal applied the principle that the character of acquisition is not altered merely because compensation was settled by agreement and a sale deed was executed consequentially. As the land was treated as acquired for a sewerage treatment plant and the statutory conditions were satisfied, the addition for long-term capital gains was deleted.

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Issues: Whether the assessee was entitled to exemption under section 10(37) of the Income-tax Act, 1961 on capital gains arising from transfer of agricultural land on the footing that the land was acquired by compulsory acquisition.

Analysis: The Tribunal found that the land stood reserved for a public purpose, that acquisition proceedings had been initiated by the municipal authority under the relevant statutory framework, and that the compensation documents described the payment as relating to compulsory acquisition. It followed the co-ordinate bench decision in an identical group of cases concerning the same locality and relied on the principle that the character of acquisition does not change merely because compensation was settled by agreement and a sale deed was executed as a consequence. The Tribunal also noted that the land was treated as acquired for a sewerage treatment plant and that the conditions of section 10(37) were therefore satisfied.

Conclusion: The exemption under section 10(37) was allowable and the addition on account of long-term capital gain was deleted.

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