In Income Tax Officer, Ward-1(1), Faridabad v. Dharam Singh (ITAT Delhi, order dated 09 January 2026), the Delhi Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal and upheld the grant of exemption under Section 10(37) of the Income Tax Act, 1961 in respect of compensation received on compulsory acquisition of urban agricultural land.

The assessee, being the legal heir of Late Smt. Bati Devi, received a sum of ₹5,00,16,500 as compensation pursuant to acquisition of land by the Government of Haryana. Although the land had earlier been sold to a private company for industrial purposes, the sale deed was cancelled by a civil court due to non-payment of consideration, and legal ownership stood restored to the original owner prior to acquisition. The compensation was ultimately paid to the assessee following directions of the Hon’ble Delhi High Court.

The Assessing Officer denied exemption under Section 10(37) on the ground that the land was a capital asset situated within municipal limits and was intended for industrial use. The Commissioner (Appeals), however, held that the land was an urban agricultural land compulsorily acquired by the State Government, and that the earlier cancelled sale transaction or subsequent intended use by the purchaser was irrelevant for determining the taxability in the hands of the assessee.

The Tribunal affirmed the findings of the CIT(A), observing that exemption under Section 10(37) applies specifically to urban agricultural land, and that the agricultural character of land on the date of acquisition is determinative. Relying on judicial precedents including Balakrishnan v. Union of India (SC), CIT v. Heenaben Bhadresh Mehta (Guj), and CIT v. Rajshibhai Meramanbhai Odedra (Guj), the Tribunal held that subsequent non-agricultural use or negotiated compensation does not alter the nature of compulsory acquisition.

Accordingly, the Tribunal concluded that the assessee was entitled to exemption under Section 10(37) and dismissed the Revenue’s appeal.

SOURCE LINK- https://itat.gov.in/public/files/upload/1768196869-jMHJtK-1-TO.pdf

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