Surrender of tenancy rights taxable specifically under 'capital gains' head; exemption for reinvestment in new residential property allowed under section 54F of the Act although not claimed in return – Mumbai bench of Tribunal

In brief

The Mumbai bench of the Income-tax Appellate Tribunal¹ (Tribunal) has delivered a significant ruling concerning the taxability of a residential flat received from a developer on surrender and relinquishment of tenancy rights. It concluded that tenancy rights are a capital asset which has been transferred and is liable to capital gains tax under section 45 read with section 48 of the Income-tax Act, 1961 (the Act). The Tribunal also allowed exemption under section 54F of the Act for reinvestment made in the new residential property, although the claim was not made in the return of income. Finally, it concluded that the provisions of section 56(2)(x) of the Act are not applicable as the income is already subject to tax under the head ‘capital gains’.