Question And Answer
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Date: March 13, 2022
Query asked by JAYSHREE MODI

Tenanted Flat in the name of Grand Father
Cost of Acquisition: Not Known
Grand Father Expired in the Year 1972
Permanent Alternate Accommodation Agreement (PAAA) Between My Father (Only Legal Heir) and Land Owner cum Developer registered on 26.12.2013
Value of the flat as per Stamp duty Authority as on 26.12.2013  was Rs. 12.86 Lakhs
Condition in PAAA: Tenancy Will Surrender only on receipt of possession New flat on Ownership Basis
My Father Expired on : 07.01.2018
Full OC received on  : 25.03.2021
Possession of new flat on ownership basis handed over to Legal Heirs on 26.05.2021
New flat sold  on 12.08.2021


  1. Nature of Capital Gain…Whether it is short term or Long considering in the hands of Legal Heirs.
  2. Any benefit of Indexation available
File Uploaded: Not Available

The assessee has to ascertain the market value of the alternative accommodation allotted to the legal heir on surrender of tenancy rights .On the facts value adopted by the stamp authorities as on 26 -12 -2013 can be considered as value of Tenancy rights . Refer special judgement in Dr. D.A. Irani v. ITO (1994) 7 ITD 160/ 18 TTJ 402 (SB)(Mum)(Trib) wherein the Tribunal held that capital gain has to be computed by taking market value of the tenancy right as cost of acquisition.The Department has not challenged the ratio on this particular issue before the High Court. Bombay High Court in CIT v. Dr. D.A. Irani (1998) 234 ITR 850 (Bom)(HC) held that sale of ownership right which was acquired on January 1976 and which was sold on May 1976 was treated as short term capital gains .

The assessee may get the indexation benefit from December 26, 2013, It can be argued that it will be long term. Period of holding can be considered from December 26, 2013 [Refer Dy. CIT v. Manjula Shah (2010) 35 SOT 105/ 318 ITR (AT) 417 (SB) (Mum) (Trib), affirmed in CIT v. Manjula Shah (2013) 355 ITR 474(Bom)(HC)].

Considering the ratio of judgements referred to, it can be argued that the legal heirs may get the benefit of indexation on the stamp valuation.

One has to study the terms of the alternative agreement to advice properly. It may be desirable to approach the tax consultant who can advise properly after considering the agreement.

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