Capital gains on acquired land upheld where the land was non-agricultural and compensation arose under the operative acquisition proceedings.

Compensation received on compulsory acquisition was held chargeable to capital gains because the land was found, on the facts, to be non-agricultural and therefore a capital asset. The Tribunal relied on the absence of land revenue payment, the absence of agricultural operations, conversion of neighbouring lands into plots, and the land's location within eight kilometres of municipal limits. It further held that an earlier notification could not control the acquisition because it had been quashed and was non est; the later notification and subsequent proceedings governed the acquisition. As the compensation was received during the accounting year relevant to assessment year 1978-79, the assessment in that year was upheld.

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Issues: Whether the compensation received on acquisition of the land was chargeable to capital gains in the assessee's hands, whether the land was agricultural land outside the definition of capital asset, and whether the assessment in assessment year 1978-79 was barred by limitation or referable to an earlier acquisition process.

Analysis: The land was held not to be agricultural in character. The Tribunal noted that no land revenue was paid, no agricultural operations were carried on, and the surrounding lands had already been converted into plots. It further relied on the factual position that the land fell within eight kilometres of the municipal limits, bringing it within the capital asset ambit for capital gains purposes. The contention that an earlier notification of 15-12-1970 fixed the relevant date of acquisition was rejected because that notification had been quashed by the High Court and was therefore non est. The later proceedings under the fresh notification, enquiry under section 5A, declaration under section 6, and award proceedings governed the acquisition. The plea that the gains were assessable in assessment year 1977-78 was also rejected because the compensation was received on 30-7-1977, which fell within the accounting year relevant to assessment year 1978-79.

Conclusion: The compensation was rightly subjected to capital gains tax in the assessee's hands for assessment year 1978-79, and the assessment was not barred by limitation.

Ratio Decidendi: Compensation arising from acquisition of land is chargeable to capital gains where the land is found on facts to be non-agricultural and the relevant acquisition proceedings and receipt of compensation fall within the assessment year in question; a quashed earlier notification cannot be relied upon to displace the operative acquisition process.

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