Compulsory acquisition and capital gains: transfer completes on statutory vesting, not on preliminary notification, in ordinary acquisition.

In compulsory acquisition, capital gains under section 45 arise only when transfer is completed by statutory vesting of the land in the Government. For ordinary acquisition under the Land Acquisition Act, 1894, notification under section 4 and other preliminary steps do not divest the owner; vesting occurs on possession after the award under section 16. Section 17 applies only in urgency acquisitions and requires the statutory conditions for earlier vesting to be shown. On the stated facts, the acquisition was treated as an ordinary acquisition, so transfer was complete on the award date and capital gains were assessed accordingly. A prior Tribunal order in a different year did not bar the Revenue because the factual and statutory setting was materially different.

---

---

Issues: (i) Whether, on the facts and in the circumstances of the case, the transfer of the capital asset for the purposes of section 45 of the Income-tax Act, 1961 was complete on 15.05.1968, the date of notification under section 4 of the Land Acquisition Act, 1894, or only on 29.09.1970, the date of award; and whether the capital gains were chargeable to tax with reference to the date of award. (ii) Whether the assessee could rely on the Tribunal's order in the connected assessment year 1975-1976 to contend that the Revenue was precluded from disputing taxability in the present assessment year.

Issue (i): Whether, on the facts and in the circumstances of the case, the transfer of the capital asset for the purposes of section 45 of the Income-tax Act, 1961 was complete on 15.05.1968, the date of notification under section 4 of the Land Acquisition Act, 1894, or only on 29.09.1970, the date of award; and whether the capital gains were chargeable to tax with reference to the date of award.

Analysis: Capital gains arise on transfer of a capital asset, and in compulsory acquisition the transfer is complete when the land vests in the Government upon taking possession in the manner recognised by the Land Acquisition Act, 1894. Under the ordinary procedure, notification under section 4, declaration under section 6 and notice under section 9 do not divest the owner; vesting occurs on possession after the award under section 16. Section 17 applies only in urgency cases on Government direction and even then vesting follows expiry of fifteen days from the section 9 notice, not merely the preliminary notification. On the facts, the acquisition was not shown to be an urgency acquisition, and the land continued with the College as a tenant at sufferance after expiry of the lease. The possession of the Government, and hence completion of transfer, occurred only on the award date when the statutory vesting under section 16 took place. The award-based interest allowance did not alter the date of vesting or convert the preliminary notification into the date of transfer.

Conclusion: The transfer was complete on 29.09.1970 and the capital gains were rightly assessed with reference to the date of award, against the assessee.

Issue (ii): Whether the assessee could rely on the Tribunal's order in the connected assessment year 1975-1976 to contend that the Revenue was precluded from disputing taxability in the present assessment year.

Analysis: The earlier decision concerned a different factual situation, treated there as an urgency acquisition under section 17 with a proved date of possession. The present case was an ordinary acquisition under section 16, with no proved invocation of section 17 and no demonstrated identity of facts. A prior favourable order in another year does not bar the Revenue where the legal setting and statutory route are materially different and where the earlier view did not govern the present controversy.

Conclusion: The Revenue was not precluded from contesting the issue in the present case, against the assessee.

Final Conclusion: The assessment of capital gains by reference to the award date was upheld, and the assessee's attempt to shift accrual to the date of the preliminary notification failed.

Ratio Decidendi: In compulsory acquisition under the Land Acquisition Act, 1894, capital gains accrue only when transfer is completed by statutory vesting of the land in the Government, which in ordinary acquisition occurs on possession after the award under section 16, and in urgency acquisition only after the statutory period under section 17; a preliminary notification or pre-existing possession does not by itself complete the transfer.

---