The Income Tax Appellate Tribunal (ITAT), Mumbai, has set aside an income tax assessment of Rs 80.14 lakh imposed on a taxpayer who sold a redeveloped flat in Chunabhatti, Sion, for approximately Rs 1.95 crore. The tribunal ruled that redevelopment does not automatically create a new property or reset the holding period for capital gains taxation.
Rajesh Shamji Furia and his wife purchased a 510-square-foot flat in a housing society in Chunabhatti during the financial year 2006-07. In 2012-13, the society entered into a redevelopment agreement with a developer, under which the couple was entitled to a replacement apartment with 30% additional area.
A Permanent Alternative Accommodation Agreement was executed on January 12, 2018. Eight days later, on January 20, the couple sold the redeveloped flat for Rs 1,95,48,000.
Furia claimed a tax deduction under Section 54F of the Income Tax Act, treating the profit as long-term capital gains. He maintained that the entire sale proceeds had been invested in another residential property.
However, the Assessing Officer at Bandra East treated the redeveloped apartment as a separate, newly acquired capital asset. Since it was sold within eight days of the accommodation agreement, the officer classified the gains as short-term and denied the claimed tax benefits and cost adjustments. Consequently, Furia’s 50% share of the gains, amounting to Rs 80.14 lakh, was added to his taxable income.
Challenging the assessment, Furia approached the ITAT, which ruled in his favour on July 16, 2026.
The tribunal observed that redevelopment does not necessarily extinguish an original owner’s existing property rights and replace them with entirely new ones. The alternative accommodation agreement documents the rights arising from the original ownership, rather than necessarily marking the beginning of a fresh holding period.
The ruling underscores the importance of examining the continuity of ownership rights when determining whether gains from the sale of a redeveloped property qualify as long-term or short-term capital gains. The outcome turned on the circumstances of the redevelopment and the taxpayer’s existing rights.
Source: Lokmat Times
