Case Details: Jigar Sevantilal Shah vs. Income-tax Officer - [2026] 185 taxmann.com 818 (Mumbai-Trib.)
Judiciary and Counsel Details
- Saktijit Dey, Vice President & Makarand Vasant Mahadeokar, Accountant Member
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Rajesh Shah for the Appellant.
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Nayanjoti Nath, Sr. AR for the Respondent.
Facts of the Case
The assessee, an individual, acquired tenancy rights in respect of a flat in 2015. In December 2017, the landlord entered into a redevelopment arrangement with a developer, and the assessee, as a confirming party, executed a tripartite agreement to receive specified permanent alternate accommodation instead of surrendering tenancy rights. Under the terms of this agreement, until the tenant was offered possession of the new premises with amenities, he was to remain a tenant and was not deemed to have surrendered the tenancy. The alternate permanent accommodation was handed over in April 2019.
During the assessment, the Assessing Officer (AO) noted that, for stamp duty purposes, the Stamp Valuation Authority had determined the value at about Rs. 1.49 crores. The AO called upon the assessee to explain why this value should not be taxed as Short Term Capital Gain by invoking section 56(2) read with section 50D. Assessee contended that, under the agreement, surrender would occur only upon taking possession of the alternate accommodation in April 2019; therefore, any capital gain would be long-term and assessable in AY 2020-21. Unsatisfied with the reply, AO computed STCG and added it to the assessee’s income.
On appeal, the CIT(A) sustained the addition. The aggrieved assessee filed the instant appeal before the Tribunal.
ITAT Held
The Tribunal held that the reading of the relevant clauses of the agreement made it amply clear that the tenancy rights of the assessee in the existing (old premises) would come to an end only upon the assessee receiving possession of pre-identified alternative permanent accommodation in the new building. It was a fact that possession of alternative permanent accommodation in the new building was handed over to the assessee in April 2019.
Therefore, the taxable event of capital gain arising from the surrender of the tenancy rights could occur only in the financial year 2019-20, and not in the impugned assessment year. When the tripartite agreement between the assessee, the developer, and the landlord specifically provides that the tenancy rights will continue with the assessee until the handing over of possession of alternative permanent accommodation in the newly developed building, the Departmental Authorities cannot interpret the terms of the agreement differently.
Thus, the AO was directed to delete the addition made on account of surrender of tenancy rights in the impugned assessment year, and capital gain, if any, was to be assessed in the year of surrender of tenancy rights.
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