Section 10(37)

Section 10(37) — the law in short

What the courts have decided on section 10(37), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Balakrishnan v Union of India Supreme CourtHelps taxpayer
  My land was notified and an award was made under the Land Acquisition Act, but I thought the award was too low, negotiated a higher figure and executed a sale deed. The Assessing Officer now says that was a voluntary sale and denies s.10(37). Is he right?
  No. Where the whole procedure under the Land Acquisition Act has been followed — notification under s.4, declaration under s.6 and an award under s.9 — the acquisition is a compulsory acquisition, and the fact that the amount of compensation was afterwards settled by negotiation and a sale deed executed does not convert it into a voluntary sale. The Supreme Court allowed the appeal and quashed the s.148 proceedings, and overruled the Kerala High Court's contrary decision in Info Park Kerala.
• Anvar Ali Poolakkodan v ITO — interest on delayed compensation is an accrual to compensation, taxable as capital gains and covered by s.10(37) High CourtHelps taxpayerHigh Courts differ
  The Tribunal split my client's land acquisition interest into 9 per cent as capital gains and 15 per cent as income from other sources. Is that right?
  The Kerala High Court says no. It held that interest amounts received in respect of delayed payment of compensation under the Land Acquisition Act are treated as accruals to the principal compensation amount and are classified as capital gains, so that where the land compulsorily acquired is agricultural land the interest also gets the benefit of s.10(37). Because such interest is not interest as defined in s.2(28A), s.56 is not attracted at all.
• PCIT v Inderjit Singh Sodhi (HUF) — interest on compensation and enhanced compensation is income from other sources after the 2010 amendment High CourtHelps departmentHigh Courts differ
  My client received interest on enhanced compensation for compulsorily acquired land. Ghanshyam says it is part of compensation. Does that still hold?
  Not in the Delhi High Court. It held that on a conjoint reading of s.56(2)(viii) and s.145B, interest received on compensation or on enhanced compensation is chargeable under the head 'income from other sources', and that the conclusions drawn from CIT v Ghanshyam (HUF), decided in 2009, are unsustainable because the position as it exists today came into being only in 2010. The Tribunal was held to have erred in following Ghanshyam and ignoring the changes made by the Finance (No.2) Act 2009 with effect from 1 April 2010.
• L. Venkataramana Raju v. Union of India (Karnataka High Court) — where compensation is payable under the RFCTLARR Act, 2013, section 96 of that Act exempts it from income-tax and from TDS even though the land is not agricultural and section 10(37) cannot apply High CourtHelps taxpayer
  My client's commercial property was compulsorily acquired for a metro project and tax was deducted at source on the compensation. Section 10(37) does not help because the land is not agricultural. Is there anything else?
  Yes — section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, which provides that no income tax or stamp duty shall be levied on any award or agreement made under that Act except one under its section 46. The Karnataka High Court held that where the acquisition was initiated after 1 January 2014 the compensation had to be paid under the 2013 Act, and that on a conjoint reading of section 96 of that Act, CBDT Circular No. 36/2016 dated 25 October 2016, the second proviso to section 194LA of the Income-tax Act and section 10(37), such compensation is exempt both from income-tax and from tax deduction at source. The writ petitions were allowed, the awards and endorsements quashed, and a refund of the TDS with interest directed.
• Mahender Pal Narang v Central Board of Direct Taxes High CourtHelps departmentHigh Courts differ
  For a year after 2010, is the interest I received under s.28 of the Land Acquisition Act still capital gains following Ghanshyam, or has s.56(2)(viii) changed that?
  The Punjab and Haryana High Court held that the insertion of s.56(2)(viii) and s.57(iv) has changed the position, and that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. It said in terms that Ghanshyam does not come to the rescue of a claimant seeking to have s.28 interest treated as compensation, and it expressly recorded its disagreement with the Gujarat High Court in Movaliya Bhikhubhai Balabhai.
• DCIT v Ganga Developers ITATHelps taxpayerNo later treatment found
  My land was compulsorily acquired and the award was made after 1 January 2014 but the proceedings began under the 1894 Act. Is the compensation taxable?
  No, on the Tribunal's reasoning. The Mumbai Bench held that where the award is made after the Land Acquisition Act, 1894 stood repealed, the acquisition is governed by the RFCTLARR Act, 2013, and section 96 of that Act provides that income-tax shall not be levied on any award or agreement made under it except as provided in section 46. Section 46 was not attracted, so the compensation of Rs. 69,92,42,974 was not chargeable at all. Because the exemption operates at the level of the charge and not through section 10(37), the Revenue's objections that section 10(37) covers only individuals and Hindu undivided families, and only agricultural land, did not arise. The appeal was dismissed.
• Statutory position — s.2(14)(iii): when agricultural land is NOT a capital asset, and the aerially measured distance test substituted by the Finance Act, 2013 with effect from 1 April 2014 CBDT Circulars & InstructionsCuts both ways
  My client sold ancestral farm land near a town and the Assessing Officer has charged capital gains. What are the exact population and distance limits in section 2(14)(iii), and from when is the distance measured aerially rather than by road?
  Agricultural land in India is not a "capital asset" at all unless it falls inside one of the two areas described in s.2(14)(iii), so a sale of land outside them produces no capital gain to charge. Item (a) catches land within the jurisdiction of a municipality (however described) or a cantonment board having a population of not less than ten thousand. Item (b) catches land within an aerially measured distance of the local limits of such a municipality or cantonment board: not more than two kilometres where its population is more than ten thousand but not exceeding one lakh; not more than six kilometres where it is more than one lakh but not exceeding ten lakh; and not more than eight kilometres where it is more than ten lakh. Item (b) in that aerially measured form was substituted for the earlier item (b) by the Finance Act, 2013, with effect from 1 April 2014.
• Statutory position — s.10(37): the four cumulative conditions for exempting capital gain on the compulsory acquisition of urban agricultural land CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client's agricultural land inside the municipal limits has been compulsorily acquired. Section 2(14)(iii) does not help because the land is urban. What exactly must he prove under section 10(37)?
  Section 10(37) exempts capital gain on the transfer of agricultural land where four conditions are ALL satisfied. The assessee must be an individual or a Hindu undivided family. The land must be situated in an area referred to in item (a) or item (b) of s.2(14)(iii) — that is, it must be the urban agricultural land which IS a capital asset. The land must, during the period of TWO YEARS immediately preceding the date of transfer, have been used for agricultural purposes by that Hindu undivided family or individual, or by a parent of his. The transfer must be by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India. And the income must have arisen from compensation or consideration received on or after 1 April 2004. An Explanation provides that "compensation or consideration" includes compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.