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Capital Gain in case of compulsory land acquisition accrues at the time of taking possession

The Hon’ble Supreme court of India in Raj Pal Singh V. Commissioner of income Tax, Haryana, Rohtak (Civil Appeal No. 2416 of 2010) held that Capital Gains shall be deemed to have accrued upon arrival of the relevant stage of taking possession and not before that, the legal issue before the three judge bench comprising of Hon’ble Justice AM Khanwilkar, Justice Hemant Gupta and Justice Dinesh Maheshwari was that when Capital Gains would accrue in a case of compulsory acquisition of land where possession had already been taken before reaching of the relevant stage for taking over possession has already been taken before reaching of the relevant stage for taking over possession in the structured process contemplated by the statute?

While referring to the statutory scheme of the Land Acquisition Act, the Hon’ble Court observed that the compulsory acquisition of land under the act for public purpose, the property was to vest absolutely in the government only after taking possession in either of the methods i.e. after making of award, as provided in section 16; or earlier than making of award, as provided in section 17. In other words, the owner was divested of property and same vested in the government in absolute terms only if and after the possession was taken by wither of the processes envisaged in Sections 16 and 17 of the act.

The Hon’ble court while referring to various judgements of High Court and Supreme Court held that “The matters relating to compulsory acquisition of land under the Act of 1894, completion of transfer with vesting of land in the government essentially correlates with taking over of possession of the land under acquisition by the government. However, where the possession is taken over before arriving of relevant stage for such taking over, capital gains shall be deemed to have accrued upon arrival of relevant stage and not before. To be more specific, in such cases, capital gains shall be deemed to have accrued: (a) upon making of the award, in the case of ordinary acquisition referable to Section 16; and (b) after expiration of fifteen days from the publication of the notice mentioned in Section 9(1), in the case of urgency acquisition under section 17.”

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