Holding

The land was compulsorily acquired under the Land Acquisition Act, 1894, and therefore the compensation received is exempt under Section 10(37) of the Income Tax Act, 1961.

Summary

The appellant, a landlord, owned agricultural land that was acquired by the Kerala government under the Land Acquisition Act, 1894 for a techno‑park project. After the award fixed compensation, the appellant negotiated a higher amount with the acquiring authority and executed a sale deed, receiving the agreed sum. The Income Tax Department initially allowed exemption of the capital gain under Section 10(37) of the Income Tax Act, 1961, but later reopened the assessment under Section 148, contending that the transaction was a voluntary sale, not a compulsory acquisition. The Supreme Court examined whether the land was indeed compulsorily acquired despite the subsequent settlement of compensation. It held that the acquisition remained compulsory because the statutory process of notification, declaration, and award under the Land Acquisition Act had been completed, and the later agreement on compensation did not alter the character of the acquisition. Consequently, the proceedings under Section 148 were quashed and the appellant’s claim for exemption was upheld.

Issues considered

Whether the land in question was acquired compulsorily under the Land Acquisition Act, 1894 despite the parties’ later agreement on compensation and execution of a sale deed.
Whether the exemption under Section 10(37) of the Income Tax Act, 1961 applies to the compensation received in such circumstances.
Whether the reopening of assessment under Section 148 of the Income Tax Act was justified.

Legislation cited

Income Tax Act, 1961s. 10(37), s. 148
Land Acquisition Act, 1894s. 18, s. 4, s. 6, s. 9
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013

Subjects

capital gains taxexemptioncompulsory acquisitionland acquisitionSection 10(37)Section 148compensation settlementsale deednegotiationland acquisition act

Judgment

[2017] 1S.C.R.519

BALAKRISHNAN A
v.
UNION OF INDIA & .ORS.
(Civil Appeal No. 344 of2017)
JANUARY 11, 2017 B

[A. K. SIKRI AND R. K. AGRAWAL, JJ.)
Income Tax Act, 1961 - ss. 10(37) and 148 - Capital gains
tax - Exemption ji-0111 - Agricultural land of landlord-appellant
acquired under Land Acquisition Act - Compensation fixed by the c
award was not acceptable to the landlord - Hence, he entered into
negotiation with the beneficiary of the acquisition to get the
compensation commensurate with market rate and arrived at
amicable settlement - After entering into agreement with the
beneficiary, landlord executed sale-deed in favour of the
beneficiary - Revenue initiated proceedings uls. 148 - Direction D
was issued to the Assessing Officer to assess the income of assessee
by not granting exemption u/s. 10(3 7) as the transaction of land
was not by way of compulsory acquisition - Direction challenged
by landlord - Courts' below upheld the stand of Revenue - On
appeal, held: The land in question was compulsorily acquired -
E
Merely because the compensation amount was agreed upon, would
not change the character of acquisition from that of compulsory
acquisition to the voluntary sale - Even under Right to Fair
Compensation and Transparency in Land Acuqisition, Rehabilitation
and Resettlement Act, 2013, the Collector is entitled to pass
rehabilitation and resettlement award with the consent of the parties/ F
landowners - Therefore, the proceedings 1tls. 148 are quashed.
Allowing the appeal, the Court
HELD: Insofar as acquisition of the land is concerned, the
same was compulsorily acquired as the entire procedure
prescribed under the Land Acqu'.sition Act, 1894 was followed. G
The settlement took place o .. iy qua the amount of the
compensation which was to be received by the appellant for the
land which had been acquired. Had the steps not been taken by
the Government under Sections 4 & 6 followed by award under
Section 9 of the Land Acquisition Act, the appellant would not H
519
520 SUPREME COURT REPORTS (20 I 7] I S.C.R.

A have agreed to divest the.land belonging to him to the beneficiary
of the acquisition. He was compelled to do so because of the
compulsory acquisition and to avoid litigation entered into
negotiations and settled the final compensation. Merely because
the compensation amount is. agreed upon would not change the
character of acquisition from that of compulsory acquisition to
B
the voluntary sale. This is now the procedure which is laid down
even under the Right to Fair Compensation and Transparency in
Land Acquisition, Rehabilitation and Resettlement Act, 2013 as
per which tlie Collector can pass rehabilitation and resettlement
award with the consent of the parties/land owners. Nonetheless,
c the character of acquisition remains compulsory. Therefore, the
proceedings under Section 148 of the Income Tax Act are
quashed. [Paras 8 and 10) (523-G-H; 524-A-C, G-H]
Info Park Kera/a v. Assistant Commissioner of Income
Tax (2008) 4 KLT 782 - overruled.
D Case Law Reference
(2008) 4 KLT 782 overruled Para6
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 344 of
2017.
E From the Judgment and Order dated I 9.02.2014 of the High Court
ofKerala at Ernakulam in W.A. N. 240 of2014.
K. Radhakrishnan, Sr. Adv. Ms. Kiran Bhardwaj, Adv. for the
Appellant.
H. R. Rao, Ms. Niranjana Singh, Arijit Prasad, R. M. Bajaj,
F Mrs. Anil Katiyar, Advs. for the Respondents.
The Judgment of the Court was delivered by
A.. K. SIKRI, J, 1. Leave granted.
2. Heard the matter finally at this stage with the consent of the
parties as it was fixed for final disposal.
G
3. The question of law that is raised in this appeal and squarely
arises for consideration is the :following:
"Whether, on the facts and circumstances of the case, the High
Court was justified in denying the claim for exemption under
Section 10(3 7) of the Income Tax Act, 1961 to the appellant?"
H
BALAKRISHNAN v. UNION OF INDIA & ORS. 521
[A. K. SIKRI, J.l

4. This question has arisen under the following circumstances: A
The appellant was the owner of 27.70 Acres of land in Sy. No.
18.60 hectares of paddy field in Block No. I 7 of Attippra village in
Thiruvananthapuram District comprised in Sy. No. 293/8. This was
agricultural land. The appellant was using the same to grow paddy.
5. The Government of Kerala sought to acquire the aforesaid B
property of the appellant for the public purpose namely, '3" phase of
development ofTechno Park'. For this purpose, Notification under Section
4(1) of the Land Acquisition Act, 1894 (hereinafter referred to as the
'LA Act') was issued on 01.10.2005. An opportunity was given to the
appellant to file his objections, if any, under Section SA of the LA Act. c
Record does not reveal as to whether such objections were filed or not.
However admittedly, thereafter, declaration under Section 6 of the LA
Act was issued on 02.09.2006 wherein the Government had declared
that it was decided to acquire the land for the aforesaid purpose. After
this acquisition, the Land Acquisition Collector {Special Tahsildar), after
following the due procedure, even passed the award on 15.02.2007. As D
per this award, compensation was fixed at Rs. 14,36,616/-. It appears
thatthe amount ofcompensation fixed by the Land Acquisition Collector
was not acceptable to the appellant. At that stage, some negotiations
started between the parties on the amount of compensation and ultimately
it was agreed by the Techno Park, for whom the property in question E
was acquired, to pay a sum of Rs. 38,42,489/-. After this amount was
agreed upon between the parties, the appellant agreed to execute a sale
deed of the property in question in favour of Techno Park. Such sale
deed was executed on 08.05.2008 and duly registered with the Sub-
Registrar, Kazhakkootam. While disbursing ihe aforesaid amount of sale
consideration, the Techno Park deducted I 0% of the amount of TDS F
and it was later refunded to the appellant herein by the Income Tax
Department taking a view that no capital gain was payable on the
aforesaid amount received by the appellant as the same was exempted.
under Section 10(37) of the Income Tax Act, I 961 (hereinafter referred
to as 'the Act'). We would like to re-produce the provisions of Section G
I 0(3 7) of the Act, which read as under:
"Section I 0(3 7). in the case of an assessee, being an individual or
a Hindu undivided family, any income chargeable under the head
"Capital gains" arising from the transfer of agricultural land, where-
(i) such land is situate in any area referred to in item (a) or item H

•
522 SUPREME COURT REPORTS (2017] I S.C.R.

A (b) of sub-clause (iii) of clause ( 14) of section 2;
(ii) such land, during the period of two years immediately preceding
the date of transfer, was being used for agricultural purposes by
such Hindu undivided family or individual or a parent of his;
(iii) such transfer is by way of compulsory acquisition under any
B law. or a transfer the consideration for which is determined or
approved by the Central Government or the Reserve Bank of
India;
(iv) such income has arisen from the compensation or
consideration for such transfer received by such assessee on or
after the I" day of April, 2004.
c Explanation - For the purposes of this clause, the expression
"compensation or consideration" - includes the compensation or
consideration enhanced or further enhanced by any court, tribunal
or other authority."
6. As it is clear from the above, on the transfer of agricultural land
D by way of compulsory acquisition under any law, no capital gain tax is
payable. It is clear from the above that the initial view of the Income
Tax Department, while refunding the aforesaid TDS amount to the
appellant, was that the land in question was compulsorily acquired under
the LA Act and, therefore, capital gain tax was not payable. The appellant
E filed income tax return for the Assessment Year 2009-10 and the income
was also assessed accordingly. However, thereafter on 30.05.2012, a
notice was issued to the appellant under Section 148 of the Act whereby
the Income Tax Department decided to re-open the assessment on the
ground that income which was assessable to income tax escaped
assessment during the year 2009-10. The stand which was taken by the
F Revenue in this notice was that the amount of compensation/
consideration received by the appellant against the aforesaid land was
not the result of compulsory acquisition and on the contrary it was the
voluntary sale made by the appellant to the Techno Park and, therefore,
the provisions of Section I 0(37) ofAct were not applicable. The appellant
G objected to the re-opening of the said assessment by filing his reply
dated 30.11.2012. However, respondent no. 2 namely, the .Joint
Commissioner, Income Tax Range-!, Kawadiar, Thiruvananthapuram,
took the view that the case did not come under compulsory acquisition
and directed the Assessing Officer to compute the income accordingly.
This direction dated 11.03.2013 of respondent no. 2 was challenged by
H the appellant by filing a Civil Writ Petition in the High Court ofKerala.

•
BALAKRISHNAN v. UNION OF INDIA & ORS. . 523
[A. K. SlKRl, J.l

The learned Single Judge, however, dismissed the said writ petition vide A
judgment dated l l.07.2013 relying upon the earlier judgment of the same
High Court in case of Info Park Kera/a vs. Assistant Co111111issio11er
·o(lncome Tax (2008) 4 KLT 782. The writ appeal preferred by the
appellant met the same fate as it was dismissed affirming the view of
the learned Single Judge.
B
7. It is in the aforesaid factual backdrop, this Court is to determine
as to whether it can be treated that the land of the appellant was
compulsorily acquired. From the facts mentioned above, it becomes
apparent that the acquisition process was initiated by invoking the
provisions of LA Act by the State Government. For this purpose, not
only Notification under Section 4 was issued, it was followed by c
declaration under Section 6 and even Award under Section 9 of the LA
Act. With the award the acquisition under the LA Act was completed.
Only thing that remains thereafter was to pay the compensation as fixed
under the award and take possession of the land in question from the
appellant. No doubt, in case, the compensation as fixed by the Land D
Acquisition Collector was not acceptable to the appellant, the LA Act
provides for making a reference under Section 18 of the Act to the
District Judge for determining the compensation and to decide as to
whether the compensation fixed by the Land Acquisition Collector was
proper or not. However, the matter thereafter is only for quantum of
compensation which has nothing to do with the acquisition. It is clear E
from the above that insofar as acquisition is concerned, the appellant
had succumbed to the action taken by the Government in this behalf.
His only objection was to the market value of the land that was fixed as
above. To reiterate his grievance, the appellant could have either taken
the aforesaid adjudicatory route of seeking reference under Section 18 F
of the LA Act leaving it to the Court to determine the market value.
Instead, the appellant negotiated with Tech no Park and arrived at amicable
settlement by agreeing to receive the compensation in the sum of Rs.
38,42,489/-. For this purpose, after entering into the agreement, the

•• appellant agreed to execute the sale deed as well which was a necessary
consequence and a step which the appellant had to take. G

8. In our view, insofar as acquisition of the land is concerned, ·the
same was compulsorily acquired as the entire procedure prescribed under
the LA Act was followed. The settlement took place only qua the amount
of the compensation which was to be received by the appellant for the
H
524 SUPREME COURT REPORTS [2017] I S.C.R.

A land which had been acquired. It goes without saying that had steps not
been taken by the Government under Sections 4 & 6 followed by award
under Section 9 of the LA Act, the appellant would not have agreed to
divest the land belonging to him to Tech no Park. He was compelled to
do so because of the compulsory acquisition and to avoid litigation entered
into negotiations and settled the final compensation. Merely because the
B
compensation amount is agreed upon would not change the character of
acquisition from that of compulsory acquisition to the voluntary sale. It
may be mentioned that this is now the procedure which is laid down
even under the Right to Fair Compensation and Transparency in Land
Acquisition, Rehabilitation and Resettlement Act, 2013 as per which the
c Collector can pass rehabilitation and resettlement award with the consent
of the parties/land owners. Nonetheless, the character of acquisition
remains compulsory.
9. This Court has doubts aboutthe correctness of the judi,'Tllent in
the case of Info Park Kera/a vs. Assistallf Co111111issioner o( Income
D Tax (2008) 4 KLT 782. The Court in the said case took the view that
since the title in the property was passed by the land owners on the
strength of sale deeds executed by them, it was not a compulsory
acquisition. We are not in agreement with the aforesaid view. It is clear
that but for Notification under Section 4 and Award under Section 9 of
the LA Act, the appellant would not have entered into any negotiations
E for the compensation of the consideration which he was to receive for
the said land. As far as the acquisition of the land in question is concerned,
there was no consent. The appellant was put in such a condition that he
knew that his land had been acquired and he cannot reiterate the same.
The appellant, therefore, only wanted to salvage the situation by receiving
F as much compensation as possible commensurate with the market value
thereofand in the process avoid the litigation so that the appellant is able
to receive the compensation well in time. If for this purpose the appellant
entered into the negotiations, such negotiations would be confined to the
quantum of compensation only and cannot change or alter the nature of
acquisition which would remain compulsory. We, therefore, overrule the
G judgment of the Kerela High Court in Info Park Kera/a vs. Assista/1/
Commissioner of!ncome Tax (2008) 4 KLT 782.
10. As a result the appeal of the appellant is allowed and
proceedings under Section 148 of the Act are quashed.
H Kalpana K. Tripathy Appeal allowed.