Capital gains on compulsory acquisition depend on actual accrued consideration, while rent capitalisation may fail for undeveloped property valuation.

For capital gains on compulsory acquisition, only consideration actually received or legally accrued can be brought to tax; a higher amount merely claimed before the land acquisition authorities does not count as accrued consideration. The amount awarded by the Special Land Acquisition Officer was therefore the operative figure for computation, and any future enhanced compensation was not substituted on these facts. On valuation, rent capitalisation was held unsuitable where the property was substantially land and the rental return was not a reliable commercial measure. The fair market value as on 1 January 1954 had to be recomputed by a suitable land-and-building or other appropriate method.

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Issues: (i) Whether, for computing capital gains on compulsory acquisition, the full value of consideration was limited to the amount actually awarded, and whether the higher amount claimed by the assessee could be treated as having accrued; (ii) Whether the fair market value of the property as on 1 January 1954 could properly be determined by capitalising rent.

Issue (i): Whether, for computing capital gains on compulsory acquisition, the full value of consideration was limited to the amount actually awarded, and whether the higher amount claimed by the assessee could be treated as having accrued.

Analysis: The computation under the capital gains provision had to proceed on the consideration actually received or legally accrued. The amount claimed by the assessee before the land acquisition authorities had not become a legal debt due to the assessee during the relevant year, and the assessment order did not in substance apply the deeming machinery relating to substitution of fair market value. The amount ultimately awarded by the Special Land Acquisition Officer alone represented the consideration available on the facts then existing.

Conclusion: The full value of consideration was confined to the amount actually awarded, and the assessee succeeded on this point.

Issue (ii): Whether the fair market value of the property as on 1 January 1954 could properly be determined by capitalising rent.

Analysis: Capitalisation of rent is appropriate only where the property is fully developed and the return is a normal commercial return. On the facts, the property consisted substantially of land, and the rental method would not yield a reliable valuation. A valuation based solely on rent capitalisation was therefore not a proper method for determining market value in these circumstances.

Conclusion: The adoption of rent capitalisation was set aside and the fair market value was directed to be recomputed by a suitable land-and-building method or other appropriate method.

Final Conclusion: The assessee succeeded on the computation of consideration and obtained a remand on valuation, while the Department's request to substitute any future enhanced compensation was declined.

Ratio Decidendi: For capital gains, only consideration actually received or legally accrued can be taken into account, and rent capitalisation is not a proper method of valuation where the property is not fully developed or the rental return is not a reliable commercial return.

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