Capital gains on compulsory acquisition accrue on vesting, and later notifications do not retroactively change the tax position.

Compulsory acquisition under the urgency provisions of the Land Acquisition Act was treated as giving rise to capital gains when possession was taken and the land vested absolutely in the Government, not when the award was later made; on that basis, the gain was assessable in assessment year 1986-87. The later 1994 notification superseding the earlier inclusion of Thrikkakara Panchayat did not retrospectively alter the land's status as a capital asset or nullify pending assessment, because it operated prospectively and contained no express retrospective effect. The operative tax position was therefore determined by the notification and acquisition status prevailing when the transfer occurred.

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Issues: (i) Whether capital gains arising from compulsory acquisition of land were assessable in assessment year 1986-87 or only in assessment year 1987-88; (ii) whether the later notification issued in 1994, superseding the earlier notification that included Thrikkakara Panchayat, retrospectively deprived the land of its status as a capital asset and invalidated the pending assessment.

Issue (i): Whether capital gains arising from compulsory acquisition of land were assessable in assessment year 1986-87 or only in assessment year 1987-88.

Analysis: The land was acquired under the urgency provisions of section 17 of the Land Acquisition Act, 1894. In such a case, possession may be taken after the statutory notice period and the land then vests absolutely in the Government. The records showed that the urgency provisions were invoked, notice under section 9(1) was issued, and vesting had occurred during the previous year ending 31-3-1986. The relevant date for capital gains was therefore the date when possession was taken and vesting occurred, not the later date of the award.

Conclusion: The capital gains were rightly assessed in assessment year 1986-87, against the assessee and in favour of the Revenue.

Issue (ii): Whether the later notification issued in 1994, superseding the earlier notification that included Thrikkakara Panchayat, retrospectively deprived the land of its status as a capital asset and invalidated the pending assessment.

Analysis: The land was a capital asset when transferred because the earlier notification then in force treated the area as a notified area under section 2(14) of the Income-tax Act, 1961. The later notification expressly operated from its publication date and contained no express retrospective effect. A superseding notification does not, by itself, annihilate completed rights or liabilities arising under the earlier notification, and a change in law does not disturb pending proceedings unless a contrary intention is shown. The assessment had to be tested with reference to the legal position prevailing when the transfer occurred.

Conclusion: The later notification did not retrospectively nullify the assessment or remove the land from capital asset treatment for the relevant year, against the assessee and in favour of the Revenue.

Final Conclusion: The assessment of capital gains for assessment year 1986-87 was upheld and the assessee's challenge failed.

Ratio Decidendi: In compulsory acquisition under urgency provisions, capital gains accrue when the land vests in the Government upon possession being taken, and a subsequent notification superseding an earlier one does not retrospectively alter completed tax consequences or pending proceedings absent express legislative intent.

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