Gujarat High Court quashes reopening of assessment order in land acquisition case, compensation not taxable as capital gains

The Gujarat High Court consisting of Justice Ashutosh Shastri and Justice J. C. Doshi has quashed reopening of assessment order and notice in land acquisition case and ruled that the compensation is not taxable as capital gains.

BACKGROUND 

The petitioner is an individual and citizen of India and was holding parcels of land with other co-owners. The parcels of land alongwith 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. 

In response to the process of acquisition, the petitioner along with 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 along with other co-owners received 75% of the consideration against the acquisition of three land parcels, as indicated above, on 08.12.2015. The petitioner along with other co-owners executed an agreement to sale 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 has vehemently contended that authority has recorded practically only one reason to believe that income has escaped assessment. The petitioner alongwith three more co-owners have claimed that their land was compulsorily acquired by GIDC and they have received consideration against the same and such consideration is claimed exempt from taxation under Section 10(37) of the Act.

The respondents submitted that it is not correct that only on the basis of 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. The concept of change of opinion does not apply when in respect of other co-owners the order is passed under Section 263.

OBSERVATIONS

The court held that on the transfer of agricultural land by way of compulsory acquisition under any law, no capital gain tax is payable. 

“Land appears to be compulsory 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 said.

Case Title: Anilaben Rohitbhai Modi Versus Income Tax Officer

Citation: R/SPECIAL CIVIL APPLICATION NO. 3526 of 2022