Sec. 54 relief not available on transfer of tenancy rights

Where assessee was not owner of property but held mere tenancy rights in respect of property, exemption under section 54 was not allowable

Facts:

a) The assessee had surrendered the tenancy rights in the property which resulted in capital gains liable to tax in her hands. While computing the taxable long-term capital gains on surrender of tenancy rights the assessee had claimed deduction under section 54.

b) Before the Assessing Officer (‘AO’), the assessee claimed that she was deemed owner of the property in terms of section 27(iiib), read with section 269UA(b). The AO, however, rejected the claim of the assessee under section 54 and allowed deduction under section 54F.

c) On appeal, the CIT (A) confirmed the action of the AO and held that as the tenancy right was a capital asset other than residential house, the AO has rightly granted the deduction under section 54F.

The Tribunal held as under:

1) It was clear from the facts of the case that the ground floor was taken on rent and the rights vested in assessee which were the tenancy rights;

2) Thus, the CIT(A) rightly gave the finding that the assessee was not the owner of the property but held mere tenancy rights in respect of the property;

3) The deemed ownership is relevant only in connection with computation of income from house property and not in relation to exemption under section 54;

4) The assessee was not entitled to exemption under section 54, thus, there was no error or illegality in the impugned order of CIT(A) - Meher R. Surti v. ITO [2013] 40 taxmann.com 138 (Mumbai - Trib.)