Section 84 — Capital gains on compulsory acquisition of lands and buildings not to be charged in certain cases. Successor to s.54D of the 1961 Act.
Section 84 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.
Sub-section (1) applies where two things are true. First, the assessee has capital gains from the transfer by way of compulsory acquisition under any law of land or building or any right therein, forming part of an industrial undertaking belonging to him, which he used for that undertaking's business in the two years immediately preceding the transfer — the original asset. Second, within three years after that date he has purchased other land or building or a right therein, or constructed another building, for shifting or re-establishing the undertaking or setting up another industrial undertaking — the new asset. The gain is then not charged in the year of transfer but dealt with under clauses (i) and (ii): where the gains exceed the cost of the new asset, the excess is charged under section 67 and, on a transfer of the new asset within three years of its purchase or construction, its cost is nil; where the gains are equal to or less than that cost, nothing is charged and on such a transfer the cost is reduced by the amount of the gains.
Sub-section (2) deals with gains not yet spent. If they are not utilised before filing the return under section 263, the unutilised amount must be deposited in a specified bank or institution and used as per the scheme notified by the Central Government; the deposit must be made before filing the return and not later than the section 263(1) due date; and proof of deposit must be submitted with the return.
Sub-section (3) treats the amount already utilised together with the amount deposited as the cost of the new asset. Sub-section (4) charges any part of the deposit not fully utilised within the sub-section (1) period under section 67 as income of the tax year in which three years from the date of transfer expire, and entitles the assessee to withdraw that amount under the scheme.
A compulsory acquisition is a transfer the owner did not choose, and taxing the gain at once would take away the money needed to put the undertaking back on its feet elsewhere. The section defers the charge for so long as the proceeds are recommitted to land or a building for the undertaking, and the deposit mechanism keeps the relief available where reinvestment cannot be completed by the return date. The nil-cost and reduced-cost rules collect the deferred gain if the new asset is sold within three years.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Period of use of the original asset before transfer | Two years | Used by the assessee for the industrial undertaking's business in the two years immediately preceding the transfer | Sub-section (1)(a) |
| Window for purchasing or constructing the new asset | Three years after the date of transfer | Purchase of other land or building or a right therein, or construction of another building, for shifting or re-establishing the undertaking or setting up another | Sub-section (1)(b) |
| Cost of the new asset on its transfer within three years | Nil | Where the capital gains exceeded the cost of the new asset and the excess was charged under section 67 | Sub-section (1)(i) |
| Cost of the new asset on its transfer within three years | Cost reduced by the amount of the capital gains | Where the capital gains exceeded the cost of the new asset and the excess was charged under section 67 | Sub-section (1)(ii) |
| Outer date for depositing the unutilised gains | Before filing the return and not later than the section 263(1) due date | For gains not utilised to purchase the new asset before filing the return under section 263 | Sub-section (2)(b) |
| Year in which an unutilised deposit is charged | The tax year in which three years from the date of transfer of the original asset expire | Where the deposit is not fully utilised within the sub-section (1) period | Sub-section (4)(a) |
Two clocks run and they differ. Reinvestment has three years from the date of transfer, but the deposit must be made before the return is filed and in any case by the section 263(1) due date, with proof attached. Missing the deposit date costs the relief on the unspent amount even though the reinvestment window is still open. Sub-section (3) is what makes the deposit work: the comparison in clauses (i) and (ii) is made against spend plus deposit, not spend alone. And the relief is not final for three more years — selling the new asset inside three years brings the deferred gain back, through a nil cost or a reduced cost.
Factory land is compulsorily acquired, producing capital gains of Rs. 5 crore. Before the section 263(1) due date the assessee has spent Rs. 3 crore on land for the new site and deposits Rs. 2 crore under the scheme, filing proof with the return. Under sub-section (3) the cost of the new asset is Rs. 5 crore, so clause (ii) applies and nothing is charged. If only Rs. 1.5 crore of the deposit is spent within three years, the unspent Rs. 50 lakh is charged under section 67 in the tax year the three years expire, and may then be withdrawn under the scheme.
It is claimed in the capital gains schedule of the return filed under section 263, with proof of the scheme deposit attached as sub-section (2)(c) requires, and it comes back into view in the assessment for the third year after the transfer if the deposit was not fully spent.
such deposit shall be made before the filing of the return not later than the due date applicable in the case of the assessee for filing the return of income under section 263(1)
the unutilised amount shall be charged under section 67 as the income of the tax year in which three years from the date of the transfer of the original asset expires
See the full 1961 to 2025 concordance.