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Capital Gains on redevelopment

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Pallavi

21 Points Posted on 27 May 2009

Hello,

I had some queries regarding capital gains on redevelopment under rule 33(7) of MHADA. As per the said flat owners are alloted 225 sq.ft home & shop owners the same area as they were holding in the old building.

My questions are as follows:

a) After development when the owner hands over the possession of the same to the society and the erstwhile tenants become the owners of the newly constructed property will it attract capital gains tax?

b) For residential flats can benefit u/s 54 F be claimed?

c) what about the commercial premises or shops? Will they have to pay capital gains tax by virtue of reliquinshment of tenancy on society formation even if there is no monetary transaction?

Please let me know if there is any circular or case law for the same also

Pallavi P

Replies (1)

Satish

CA Final Student

465 Points Posted on 27 May 2009

This case seems to be redevelopement of existing houses, more precisely, if i am not mistaken, demolishing the old houses to construct the new one on the same land. If so first test is that whether the persons who will get property in newly developed scheme were the owners of the old flats? or they were tenants? In both the cases, capital gains does not arise. Even if it arises it gets exempted. In the first case, one situation is that the ownership does not get relinquished as the owners will get the new flat. If at all it is treated as capital gain, the same is reinvested in new house as there is no flow of additional money and an automatic exemption u/s54 could be available. Benefit of Section 54 F could not be available as the capital asset in question is residential property and Section 54 F is applicable to the transfer of capital asset other than residential property. In second case if they are tenants, the question of capital gains doesn't arise as there is no relinquishment of ownership right. So, the case could be decided otherwise also depending upon the other facts of the circumstances of such other case.