{"id":5738,"date":"2026-03-02T17:22:12","date_gmt":"2026-03-02T11:52:12","guid":{"rendered":"https:\/\/tradebrains.in\/money\/?p=5738"},"modified":"2026-03-04T10:57:35","modified_gmt":"2026-03-04T05:27:35","slug":"tenant-gives-up-tenancy-rights-gets-ownership-flat-in-return-sells-it-for-86-lakh-it-dept-taxes-full-amount-itat-rules-in-his-favor","status":"publish","type":"post","link":"https:\/\/tradebrains.in\/money\/tenant-gives-up-tenancy-rights-gets-ownership-flat-in-return-sells-it-for-86-lakh-it-dept-taxes-full-amount-itat-rules-in-his-favor\/","title":{"rendered":"Tenant Gives Up Tenancy Rights, Gets Ownership Flat in Return, Sells it for \u20b986 Lakh; IT Dept Taxes Full Amount, ITAT Rules in His Favor"},"content":{"rendered":"\n
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Synopsis<\/strong>: When apartment is received after giving up tenancy rights, its cost of acquisition cannot be nil as It was received in exchange for surrender of tenancy rights. Therefore, cost of acquisition should be based on Fair Market Value. So, tax should be applicable on capital gains and not entire selling amount of property.<\/em><\/p>\n<\/blockquote>\n\n\n\n

Murtuza Kothari is a Mumbai resident, who had lived several years in an old residential building as a tenant. The building later went for redevelopment as was the case with many of the old buildings around the city. The tenants who were there at the time under the redevelopment scheme had to hand over the property and relinquish their right to tenancy so that the developer could rebuild the same. Mr. Kothari, in exchange for giving up (surrendering) his tenancy rights<\/strong>, he received an Ownership flat<\/strong>.<\/p>

\"scapia<\/a><\/div>\n\n\n\n

Several years later, he chose to sell this flat at \u20b986 lakh<\/strong>. When he calculated tax, he showed only \u20b92.37 lakh LTCG<\/strong>, but the tax officer taxed the entire \u20b986 lakh<\/strong>. Murtuza argued,<\/p>\n\n\n\n

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  • The flat was not free<\/strong><\/li>\n\n\n\n
  • It was received in exchange for surrender of tenancy rights<\/strong><\/li>\n\n\n\n
  • Therefore, cost of acquisition should be based on FMV<\/strong><\/li>\n<\/ul>\n\n\n\n

    According to him, FMV of flat as of 22nd August, 2028 was \u20b945 lakh plus Indexation applied so LTCG computed is \u20b92,37,024<\/strong>. The Income Tax Department however did not agree with this method. On assessment, the tax officer presented that because Mr. Kothari had not made a direct purchase price of the flat, the cost of acquisition should be regarded as zero. It is on this basis that the department sought to tax the whole amount of sale of \u20b986 lakh as capital gains<\/strong>, and this matter caused a significant tax contention that was finally heard by the Income Tax Appellate Tribunal (ITAT), Mumbai.<\/p>