The High Court of Gujarat has held that compensation received for the compulsory acquisition of land is not taxable as capital gains.
Anilaben Rohitbhai Modi, the petitioner is an individual and citizen of India and was holding a parcel of land with other co-owners bearing Survey Nos.766, 777 and 786 at Village Khoraj, Taluka Sanand. The said parcels of land along with many others were required for public purposes and as such a notification was issued in the Extra Ordinary Gazette dated 07.10.2013 to acquire the same portion of lands which are narrated in the notification.
The petitioner alongwith other co-owners provided the details of the land owned by them on 30.08.2013 and later on, the petitioner was served with a notice dated 30.12.2013 to receive consideration against the same. The petitioner alongwith other co-owners received 75% of the consideration against the acquisition of three land parcels, as indicated above, on 08.12.2015. Subsequently, the petitioner alongwith other co-owners executed an agreement to sell on 16.12.2015. Eventually, sale deeds were executed on 30.06.2017 for the sale of these lands by the petitioner alongwith other co-owners.
The petitioner claimed exemption on income from compulsory acquisition of land totalling around Rs.2,74,83,074/-. After having satisfied, the respondent authority passed an assessment order under Section 143(3) of the Act on 31.10.2018 wherein the assessing officer accepted the claim of the petitioner and assessed the income according to the return submitted by the petitioner.
Mr. B. S. Soparkar, the advocate who appeared for the petitioner has vehemently contended that the impugned action i.e. notice as well as order passed by respondent Nos. 1 and 2 respectively are impermissible and it violates the relevant proposition of law and the issue. It has been submitted that respondent No.1 authority has recorded practically only one reason to believe that income has escaped assessment.
Mr. Varun K. Patel, advocate for the respondents has submitted that it is not correct that only based on one reason about order under Section 263 of the Act action is sought to be initiated. On the contrary, after due application of mind, the action is tried to be initiated and therefore, cannot be said to be erroneous in any form.
A division bench comprising Justice Ashutosh Shastri and Justice J C Doshi observed that “merely because the 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 Collector can pass rehabilitation and resettlement awards with the consent of the parties/land owners. Nonetheless, the character of the acquisition remains compulsory.”
It was evident that the land appears to be compulsorily acquired and the income is rightly claimed as exempted and therefore, the conclusion of an authority that income has escaped assessment, appears to be erroneous.
The Court quashed and set aside the impugned order dated 27.01.2022 and also the impugned notice.
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