Compulsory acquisition compensation taxed as long-term capital gain where RFCTLARR Act exemption did not apply.

Compensation for compulsory land acquisition was held taxable as long-term capital gain because the acquisition had been completed under the National Highways Act, 1956, not under the RFCTLARR Act, 2013. Section 96 of the RFCTLARR Act, 2013 was treated as inapplicable where the acquisition did not fall within that Act, and no section 105 notification extended its exemption to National Highways Act acquisitions. The land was also not established as agricultural land for section 10(37) of the Income-tax Act, 1961, and taxability was determined by accrual under sections 4 and 5 of that Act. Exemption was therefore rejected.

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Issues: Whether compensation received for compulsory acquisition of land was exempt from tax under the RFCTLARR Act, 2013 and the CBDT circular, and whether the amount was nonetheless taxable as long-term capital gain under the Income-tax Act, 1961.

Analysis: The compensation was held to be taxable because the land acquisition proceedings had been completed under the National Highways Act, 1956 and not under the RFCTLARR Act, 2013. The exemption under section 96 of the RFCTLARR Act, 2013 was treated as applicable only where the acquisition was covered by that Act, and no notification under section 105 extended its benefit to acquisitions under the National Highways Act, 1956. The decision also noted that the land was not shown to be agricultural land so as to attract section 10(37) of the Income-tax Act, 1961, and that taxability had to be determined with reference to accrual under sections 4 and 5 of the Income-tax Act, 1961.

Conclusion: The claim of exemption was rejected and the compensation was held chargeable as long-term capital gain.

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