In the case of tenanted property, while the buyer of property pays the owner of property for ownership rights, he may also have to pay, when he wants to have possession of the property and to remove the fetters of tenancy rights on the property so purchased, the tenants towards their surrendering the tenancy rights. Merely because he pays the tenants, for their surrendering the tenancy rights, at the time of purchase of property, will not alter the character of receipt in the hands of the tenant receiving such payment. What is paid for the tenancy rights cannot, merely because of the timing of the payment, be treated as receipt for ownership rights in the hands of the assessee. This distinction between the receipt for ownership rights in respect of a property and receipt for tenancy rights in respect of a property, even though both these receipts are capital receipts leading to taxable capital gains, is very important for two reasons:

First, that the cost of acquisition for tenancy rights, under section 55(2)(a) of the Act, is, unless purchased from a previous owner, treated as ‘nil’, and,

Second, since the provisions of section 50C of the Act can only be applied in respect of transfer by an assessee of a capital asset, being land or building or both’, the provisions of section 50C will apply on receipt of consideration on transfer of a property, being land or building or both, therefore, these provisions will not come into play in a case where only tenancy rights are transferred or surrendered.

The Hon’ble Income-tax Appellate Tribunal – Kolkata Bench in the case of DCIT v. Tejinder Singh [2012] 16 ITR(T) 45 (Kol) ( Trib) held that provisions of section 50C of the Act are not applicable in case of mere transfer of tenancy rights