The Income Tax Appellate Tribunal (ITAT), Mumbai bench, has ruled in favour of a taxpayer who received a redeveloped flat worth Rs 11.7 crore in exchange for surrendering tenancy rights, holding that such a transaction cannot be taxed under “Income from other sources.”
The case involved taxpayer V Asher, whose assessment for the financial year 2019–20 was scrutinised by the Income Tax Department. The assessing officer had questioned the authenticity of the tenancy arrangement and treated the value of the flat as taxable income under the “other sources” category, thereby denying exemption under Section 54F of the Income Tax Act.
Section 54F allows individuals to claim capital gains tax exemption when proceeds from the sale or transfer of a long-term capital asset are reinvested in a residential property. If the entire amount is reinvested, no capital gains tax is applicable, while partial reinvestment allows proportionate relief.
The tax department argued that the tenancy agreement between Asher and his family members was a “colourable device” designed to avoid tax liability. It claimed the property originally belonged to family members and that the tenancy arrangement was formalised shortly before redevelopment.
However, Asher maintained that his tenancy dated back to 2013 and was supported by documentary evidence, including rent receipts, electricity bills, and records from the Maharashtra Housing and Area Development Authority, which recognised him as a legitimate tenant in the redevelopment project.
After reviewing the evidence, the ITAT concluded that the taxpayer had occupied the premises as a tenant for several years. It held that surrendering tenancy rights constitutes the transfer of a capital asset, making the transaction eligible for exemption under Section 54F.
Accordingly, the tribunal ruled that taxing the Rs 11.7 crore flat under “Income from other sources” was not justified.
Source: The Times of India
