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capital gain on tenancy rights

Asif Khan (Taxation executive) (410 Points)

05 August 2009

dear friends

one of our clients transfered his tenancy rights this year for Rs 5635000 for which he made a deposit of Rs 22 in the year 1962.

is there any way to avoid capital gain

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9 Replies

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 05 August 2009

give the details of transaction

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Asif Khan (Taxation executive) (410 Points)
Replied 05 August 2009

sir

i dont know all the details of the transaction bt i want to know is d above transaction attracts capital gain or not.

CA CS Amit Borade (Chief Accountant) (2828 Points)
Replied 05 August 2009

Yes, transfer of Tenancy Right is a transaction in the nature of Transfer of Capital asset, so above transaction attracts capital gains.

CA Guru M (B.com, CA, CS) (1552 Points)
Replied 05 August 2009

Yes it fall within the definition of Transfer & attracts Capital gains .

Bansi Karia (article ) (31 Points)
Replied 05 August 2009

yes asif guru and amit are right

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CA. Megha Topiwala (Job) (1534 Points)
Replied 05 August 2009

yeh... this attracts capital gain..... as there is relinquishment of rights in d property...

Abhijit Sengupta (Business) (22 Points)
Replied 05 August 2009

Relinquishment means Voluntary conveyance of property in the goods without consideration.. So Megha, its not relinquishment.. but it comes within the scope of section 2(47) as a sale and hence chargeable to Capital Gain!!

Suresh M (Financial Analyst) (124 Points)
Replied 06 August 2009

Tenancy rights is a capital asset. Hence, the amount received on sale of such an asset is chargeable to tax under, ‘Capital gain'. If you have paid any amount to the landlord for acquiring the tenancy rights, you can claim the benefit of indexed cost of acquisition. If no amount is paid for acquisition, then indexed cost of acquisition will be nil. If these assets were acquired by gift, or will, under Section 49(1) of the Income Tax Act, 1961, and the previous owner had purchased these assets, then your cost will be the cost to the previous owner.

Whether expenditure made on renovation of property can be claimed as deduction is a debatable matter. For claiming the benefit of cost of improvement, the expenditure must be of capital nature and it must be incurred for addition or alteration to the capital asset. Here, the capital asset is the tenancy right and not property. Hence, expenditure made on renovation cannot be claimed as deduction as it is not incurred for addition or alteration to the tenancy right. However, as mentioned earlier, the matter is open to litigation.

Long-term-capital-gain (LTCG) can be saved by investing the amount in bonds issued by the National Highway Authority of India and the Rural Electrification Corporation. This is covered under Section 54EC. LTCG can also be saved under Section 54F by purchasing a residential house property (old or new) or construct a residential house property within the time limit: A home should be purchased within one year before or within two years after the date of transfer of the original asset. The construction of a new home should be completed within three years from the date of transfer of the original asset.