Where the capital gain arises from the transfer by way of compulsory acquisition under any law, if a capital asset being land or building or any right in land or building forming part of an industrial undertaking, which was being used by assessee for two year preceding the previous year in which the asset was acquired for his own business and the assessee reinvests the capital gains from such a transfer in purchase of another land or building or right in land or building or constructs another building within 3 years after the transfer, the capital gain so invested is exempted from tax. If the amount invested is less than the capital gain earned, the balance shall be taxable.
The new asset so purchased cannot be sold or transferred within a period of 3 years from the date of transfer. If sold or transferred earlier, old exempted gain along with new capital gain will be taxable in the previous year in which new asset is transferred.
It can be summarised as follows :
1. Land and building or any right in land and building compulsorily acquired under any law forming part of an industrial undertaking belonging to the assessee.
2. Such land and building must have been used by the assessee for the purposes of the business of the said undertaking during the period of two years immediately preceding the date on which transferred or compulsory acquisition took place.
3. The assessee must have constructed a building or purchased another piece of land by investing capital gain arising on the transfer of the asset within a period of 3 years from the date of such transfer.
4. The land and building acquired by re-investing capital gain must be for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking.
Non-utilisation of Long Term Capital Gain before due date of filing of return [Section 54D(2)]
“The amount of the capital gain which is not utilised by the assessee for the purchase or construction of the new asset before the date of furnishing the return of income under Section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under subsection (1) of section  in any account in any such bank or institution as may be specified and such return shall be accompanied by proof of such deposit. The amount already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset
If amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then
- the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.