Compulsory acquisition compensation taxed on accrual basis; 2013 land acquisition law did not apply to the prior award.

Compensation for compulsory acquisition was treated as taxable where the acquisition award and the right to receive compensation had crystallised before the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 came into force. Section 24 of the 2013 Act was therefore inapplicable to the transaction, and the exemption claim failed. For income-tax purposes, the relevant test was accrual under section 5 of the Income-tax Act, 1961, so taxability turned on when the compensation right arose rather than on the date of actual receipt.

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Issues: Whether compensation received for compulsory acquisition of land was exempt from tax on the footing that the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 applied, and whether the relevant date for taxability was the date of actual receipt or the date on which the right to receive compensation accrued.

Analysis: The land was acquired and the award was passed before the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 came into force. The compensation arose under section 3G of the National Highways Act, 1956, and the entitlement to receive the amount crystallised when the award was made. On that basis, section 24 of the 2013 Act was held inapplicable to the transaction. For tax purposes, the receipt had to be tested under section 5 of the Income-tax Act, 1961, which brings to charge income when it accrues or is deemed to accrue, not merely when it is actually received.

Conclusion: The compensation was held taxable and the claim for exemption failed.

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