Question And Answer
Subject: Receipt of unit on re-development and capital gain
Querist: Manoj
Answered by:
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Date: February 21, 2023
Query asked by Manoj

Assessee is a doctor. He has purchased four residential flats having area of 800 sq. ft each in the year 1986. He started his medical profession in these flats by combining the all 4 flats, with the permission from the local authority for using the same for commercial purpose and paid the municipal taxes as applicable to commercial units from 1992.

He has not claimed any depreciation on the same.

The housing society in which these flats are situated is under re-development scheme and the developer offered the assessee 4 commercial units having area of 1000 sq ft each in the new premises against the original holding of area 800 sq ft each along with monthly rental of Rs. 25000/- for each flat for 18 months as a compensation.

Whether the assessee is liable to pay any capital gain tax as well as income tax on the above transaction.


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Yes, the Assesee has to pay Capital Gains on the exchange of four flats for four new flats. The Fair Market Value of the original 4 flats as of 2001 is to be ascertained and considered as the cost of acquisition. The benefit of indexation shall be available to the assessee. The Stamp Duty Value of the new 4 flats will be the full value of the consideration received.
With respect to the monthly compensation, there are several tribunal decisions holding that the same is hardship compensation i.e., a capital receipt not exigible for tax. However, the decisions are rendered for residential properties and not commercial properties. To err on the side of caution, any excess of rent received over the rent paid (if the assessee is temporarily occupying other premises) should be offered to tax under the head Income from other sources.

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