MUMBAI: The Income Tax Appellate Tribunal (ITAT) in Mumbai has favored a taxpayer who received a flat valued at ₹11.7 crore as part of a redevelopment project in exchange for surrendering his tenancy rights.
ITAT determined that the surrender of tenancy rights constituted the transfer of a capital asset, qualifying taxpayer V Asher for an exemption under Section 54F of the Income Tax Act. The tribunal also stated that the flat’s value should not be taxed as ‘Income from other sources.’
During the review of Asher’s 2019-20 tax return, the I-T officer questioned the legitimacy of the tenancy arrangement. Consequently, the officer classified the flat’s value under ‘Income from other sources’, making it taxable at the applicable slab rate, and denied Asher’s exemption claim under Section 54F.
Section 54F allows for capital gains tax exemption when an individual sells a long-term asset, such as through the surrender of tenancy rights, if the proceeds are reinvested in a residential property. Full investment eliminates capital gains tax, while partial investment allows for a proportionate exemption. The I-T department claimed that the tenancy agreement between Asher and his family was a contrived arrangement aimed at tax avoidance, as the property was initially owned by family members and the tenancy was formalized shortly before the redevelopment.
However, Asher presented evidence indicating that the tenancy had existed since 2013, supported by rent receipts, electricity bills, and documentation from the Maharashtra Housing and Area Development Authority (MHADA), which recognized him as a legitimate tenant under the redevelopment scheme.
ITAT acknowledged the evidence demonstrating Asher’s long-term tenancy and ruled that the surrender of these rights constituted a transfer of a capital asset. Therefore, the tribunal concluded that categorizing the ₹11.7 crore as ‘Income from other sources’ was unjustified, affirming the taxpayer’s entitlement to claim an exemption under Section 54F.
