LEGAL MINEFIELD: LEASEHOLD, TENANCY RIGHTS AND THE CAPITAL GAINS TAX TRAP

You must value tenancy rights and leasehold at stamp duty rate for accurate tax calculations

- DHARMESH SHAH

The land was valued at Rs 1.25 crore for the purpose of stamp duty; he is required to pay capital gains tax based on a sale value of Rs 1.25 crore and not Rs 1 crore. The issue of whether Section 50C covers tenancy rights has been raised before various appellate authorities.

Judicial position on tenancy rights

In the case of Atul G. Puranik, a Mumbai tribunal rendered a decision in 2011, holding that Section 50C applied only to assets in the nature of 'land or building or both'. Leasehold rights are neither land nor building, so it was held that these provisions would not apply. This view was upheld in two other cases - CIT vs Heatex Products Pvt. Ltd, and CIT vs Greenfield Hotels and Estates Pvt. Ltd.