Acquisition of Tenancy Right not eligible for Capital Gain Exemption: ITAT [Read Order]

Capital Gain - Taxscan

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the acquisition of the tenancy rights would not amount to purchase or construction of a new property and therefore, the capital gain exemptions under sections 54 and 54F of the Income Tax Act, 1961 is not available.

The assessee sold certain agricultural land situated in Gujarat during impugned AY for sale consideration of Rs.24 Lacs. The aforesaid property was inherited by the assessee from his father and the assessee was one of the four legal heirs of the said property. The property was purchased by the father prior to 01/04/1981. The assessee claimed the deduction in respect of the acquired tenancy right in a certain property.

However, applying the provisions of Section 50C, the sale consideration was adopted as Rs.24,28,200/- and assessee’s share in the same was worked out to be Rs.8,04,948/-. The Assessing Officer was of the view that the benefit of deduction u/s 54 was not available to acquire tenancy right in a rented property.

On first appeal, the FAA upheld the order of the Assessing Officer.

The Tribunal held that “the assessee has not acquired the ownership rights in the new property but merely acquired tenancy right which could not be equated with ownership rights. The conditions of Section 54, as well as Section 54F, is that the assessee must purchase or construct the new property within the specified time. The acquisition of tenancy right, in our opinion, does not tantamount to purchase or construction of a new property, in any manner. Therefore, the assessee would not be eligible to claim the aforesaid deduction either u/s 54 or u/s 54F.”

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