tax liability on surrendering of tenancy rights

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CHETAN SOMAIYA (Querist)
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20 July 2011 1.An A became tenant for residnetial flat for 300sqft area on 1/1/2010
2. An A is surrendering his tenant right to builder/developer on 30/6/11
3.An A is entitle for residential flat in new constructued building for 400 sqft area
4.Redevelopment agreement is made on 1/7/11
5.The possession of the flat will be given on 31/3/13
querrry
1. is there any tax liability under capital gain either short term or long term
2. if yes then on what value?

CA Sachin D Jain

CA Sachin D Jain (Expert)
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23 July 2011 A tenancy for tenancy is a transfer by way of ‘exchange’ and the moneys worth of the new tenancy received in exchange constitutes the consideration for the old tenancy parted in the exchange. In CIT vs. D.P. Sandu Bros Chembur (P) Ltd ( 2005) 273 ITR 1 (SC) the apex court held that tenancy right is a capital asset as the cost of acquisition being nil no capital gain tax could be charged. After the amendment to section 55(2) w.e.f. 1-4-1995 if the tenant has not paid any cost for acquiring the tenancy the cost will be nil. In case the tenant gets alternative accommodation on ownership basis he may be liable to capital gains tax on the value of the ownership rights which he gets. In case if he is not owning any other house property he may be entitled to the benefit of section 54 F of the Income-tax Act subject to other conditions.

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