10(37) of the Income Tax Act

[Bayyareddy DK]

Sir,

My client urban agricultural land compulsorily acquired by the Government of Karnataka on 24/1/1996 and approved cash compensation and concessional price site allotment of one site for every one acre of land acquired. Cash award compensation received on 2/4/1998 & 28/8/2008. Site allotted on 5/6/2014. Assessee deposited to Bangalore development authority sum of Rs. 30 lakhs on 5/6/2014 to get the two sites at concessional value. Government registered two sites on 25/04/2017 in assessee name. Assessee sold the two sites at guidance value of rs. 1.53 crore on June 2017.

My query is

01. Compulsory acquisition of urban agricultural land in exempted under Income tax Act?

02. What will be the cost of acquisition for sites sold on June 2017?.

03. Can I adapt guidance value of Rs. 1.53 cr as cost of acquisition (treating it has enhanced compensation) as this is the value in April 2017?.

Kindly advice.

[Padmanathan KV]

1. Compulsory acquisition of urban agricultural land is not covered under section 10(37) of Income Tax Act, 1961. Moreover, the acquisition is not under RFCTLARR Act, 2013. Hence, in my view it was taxable in the year of acquisition ie 1995-96.

2. Since no income is offered under section 56(2)(x) (which is applicable from 1-4-2017 only), the actual amount paid of Rs.30 lakhs shall be cost of acquisition/ improvement.

3. In my view no for the reasons explained above.

[Bayyareddy DK]

Sir,

Cash award and Two sites received are part of compulsory acquisition of the agricultural land as decided in 1996 order. These two sites are allotted in 2014 by paying Rs. 30 lakhs (concessional value) & registered on April 2017 and sold by the assessee in June 2017 for Rs. 1.53 Cr.

01. What is the cost of acquisition of the two sites?

02. These two sites are allotted at concessional value of Rs. 30 lakhs because of land acquisition by the Government. So Rs. 1.53 guidance value as on April 2017 will be value of the cost of acquisition in my view as it is enhanced compensation?

03. Is BR Shetty case applies here where cost of acquisition fails, so capital gains are not taxable?. Please advice

[Padmanathan KV]

1. In my view it is not enhanced compensation as generally enhanced compensation means when the transferee is not satisfied with original compensation and he approache court/ releavnt forum who orders the enhancement of compensation. In this case, the facts are not so.

However, I would not dispel your proposition completely as the documentation regarding compulsory acquisition, compensation and allotment are not verified.

2. Assuming that you want to treat the allotment at concessional value as enhanced compensation, then it will be liable to capital gains. (section 45(5) provides for the computation)

3. In no case, B.C. Srinivasa Shetty - 1981 (2) TMI 1 - SUPREME COURT can be pressed in to operation here as cost of acquisition is not indeterminable. In my opinion, it would be amount paid for allotment Rs.30 lakhs.

AI Summary

Government Land Acquisition Taxable, Not Exempt Under Section 10(37); Actual Cost, Not Guidance Value, Applies. A user inquired about the tax implications of urban agricultural land acquired by the government, receiving cash compensation and sites at a concessional price. The user sought advice on whether the acquisition is exempt under the Income Tax Act, the cost of acquisition for sites sold in 2017, and whether the guidance value can be used as the cost of acquisition. A respondent clarified that compulsory acquisition is taxable and not covered under section 10(37) of the Income Tax Act. The cost of acquisition should be the actual amount paid, Rs. 30 lakhs, and not the guidance value. The case of B.C. Srinivasa Shetty does not apply here.