Exemption for compulsory acquisition compensation turns on agricultural land conditions and timing under the land acquisition regime.

Compensation received on compulsory acquisition of agricultural land was stated to qualify for exemption under section 10(37) of the Income-tax Act, 1961 because the land was agricultural, used for agricultural purposes, and the statutory conditions for individual or HUF ownership, compulsory acquisition, and receipt on or after 1 April 2004 were satisfied. The note also states that section 96 of the RFCTLARR Act, 2013 could not exempt compensation received before 1 January 2014, when that regime came into force. On that basis, the long-term capital gains addition was described as unsustainable.

---

---

Issues: (i) Whether compensation received on compulsory acquisition of the land was exempt from tax under section 10(37) of the Income-tax Act, 1961. (ii) Whether section 96 of the RFCTLARR Act, 2013 applied to exempt the compensation received before the Act came into force.

Issue (i): Whether compensation received on compulsory acquisition of the land was exempt from tax under section 10(37) of the Income-tax Act, 1961.

Analysis: The land was found to be agricultural in nature and had been used for agricultural purposes. The conditions in section 10(37) requiring that the assessee be an individual or Hindu undivided family, that the land be agricultural land in the relevant area, that it be used for agricultural purposes for the prescribed period, that the transfer be by compulsory acquisition, and that compensation be received on or after 1 April 2004, were held to be satisfied.

Conclusion: The compensation qualified for exemption under section 10(37) and was not taxable as capital gains.

Issue (ii): Whether section 96 of the RFCTLARR Act, 2013 applied to exempt the compensation received before the Act came into force.

Analysis: Section 96 of the RFCTLARR Act, 2013 was held inapplicable because the compensation had been received before 1 January 2014, the date on which that statutory regime came into force. The exemption under that provision could not govern a prior receipt.

Conclusion: Section 96 of the RFCTLARR Act, 2013 did not apply to the compensation in question.

Final Conclusion: The addition made on account of long-term capital gain from the compulsory acquisition compensation was unsustainable, and the assessee succeeded on the substantive tax issue.

Ratio Decidendi: Compensation received for compulsory acquisition of agricultural land is exempt under section 10(37) of the Income-tax Act, 1961 when the statutory conditions are satisfied, and a later land acquisition exemption under the RFCTLARR Act, 2013 cannot apply to compensation received before its commencement.

---