Opinion Of Eminent Legal Luminaries On Controversial Issues

When Capital Gain Arises On Transfer Of Tenancy Right?

QUERY: Which of the following is the date of transfer of tenancy rights –

(a) date of agreement entered into by the assessee with landlord whereby he agrees to surrender tenancy in lieu of new flat to be allotted to him on ownership (for which tenant will pay construction cost to landlord @ Rs. 1,500 per sq. ft);

(b) date on which the tenant moves into an alternative accommodation so as to enable the landlord to demolish the building and construct new building;

(c) date on which the new building is constructed and occupancy certificate obtained;

(d) date on which the tenant pays the construction cost to the landlord. The agreement provides that if the tenant does not pay construction cost to the landlord within 30 days of being called upon to pay so, he shall continue to be the tenant in the new premises and shall pay rent at a certain agreed rate which is nominally more than the rent which was being paid by the tenant. Also, what is full consideration due to the assessee on transfer of tenancy. The tenant is not eligible to claim exemption u/s. 54F since he already owns 2 houses.
ANSWER: As tenancy rights are surrendered only when tenant pays for construction cost to landlord. For the reason that the agreement provides that if the tenant does not pay construction cost to the landlord within 30 days of being called upon to pay so, he shall continue to be the tenant in the new premises and shall pay rent at a certain agreed rate which is nominally more than the rent which was being paid by the tenant. Thus, no consideration received for surrender of tenancy right. The tenant surrenders his tenancy right plus pays Rs. 1,500/- per sq. ft. for getting ownership right in the new building.
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2 comments on “When Capital Gain Arises On Transfer Of Tenancy Right?
  1. Ajay D Sharma says:

    In our case th situation is where the tenant temporarily vacates his premises, the building is demolished and reconstructed, and the tenant is provided premises in the new building on an ownership basis. In such a case, the tenant is exchanging his tenancy for the new premises on ownership basis. in our case we got possession on Feb 2011 and we sold it on May 2011 @25lacs and market value was 48Lacs and we purchase new flat @14lacs in Oct 2011 .
    Could you please tell me what will our tax liability

  2. atul says:

    The above same issue i also face please give expert opinion.

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