Redevelopment tax beyond flat owners: tenants, slums, shops and societies

This is Part 4 of a four-part study of how income tax treats the existing occupants of a building that is redeveloped. Part 1 asks whether a flat owner transfers anything, when, at what value and at what cost. Part 2 covers the money members receive while the building is down: hardship compensation, corpus, transit rent and tax deduction at source. Part 3 covers members who leave for cash, sell their rights or their new flat, and claim sections 54 and 54F. Part 4 takes the holders who are not ordinary flat owners: tenants, slum dwellers, shop and office holders, companies, non-residents and the society itself.

Most buildings hold more than owners: tenants of a Mumbai cessed building who never owned anything, hutment dwellers with no title, shopkeepers on the ground floor of a Gujarat society, companies, trusts and banks that own flats, members who live abroad, and the society itself, which signs the development agreement, holds the land and often receives money of its own. Few of them can lean on the continuation argument that helps an owner, because most end the redevelopment holding something different in kind from what they gave up.

For tenants and societies the Mumbai Tribunal has now given answers, mostly in 2025 and 2026; slum dwellers, shopkeepers and company members have no decided case of their own.

Key points

• A tenant’s surrender of his tenancy for an ownership flat is a transfer taxed under capital gains, with the new flat as consideration and outside section 56(2)(x) (Varun Jaisingh Asher, Vasant Barabde, Haresh Damji Shah, and Tushar Talwalkar under the earlier section 56(2)(vii)(b)); no order has yet compared the tenancy’s value with the flat’s under the inadequate-consideration limb.
• A tenancy has a nil cost under section 55(2)(a) unless bought, by the tenant or by a previous holder from whom it came by inheritance, gift or another section 49(1) mode; the Tribunal has treated a non-refundable deposit paid to the landlord as its cost (Ebrahim Noormohamed, 2025), a reading the Revenue can contest on the words “from a previous owner”.
• Two Mumbai Tribunal orders (Sarjit Desai, Murtuza Kothari) take the new flat’s cost as the market value of the tenancy surrendered, rejecting the Revenue’s nil cost; its holding period starts afresh, so an early resale can be short-term and claw back section 54F.
• Where the agreement keeps the tenancy alive until possession of the new flat, the transfer happens on possession (Jigar Sevantilal Shah).
• No decision was traced on a slum dweller’s tenement, a shopkeeper’s loss-of-business compensation (where section 28(ii)(e) now helps the Revenue) or a company member’s exchange.
• Money paid directly to members is theirs, not the society’s (MIG Group II, upheld in 2024), if the society can show they paid tax (MIG Group II, 2025).
• From assessment year 2024-25 the Revenue will apply “any other right” in section 55(2)(a) to give a society’s development right a nil cost; the society’s answer, that the right is part of its land, is weaker on the words and exposes it to section 50C.
• On-money added as unexplained income is taxed under section 115BBE at 60 per cent from assessment year 2017-18; for tax years from 1 April 2026 its counterpart, section 195 of the Income-tax Act, 2025 (not a withholding provision), charges 30 per cent.

Tenants of cessed, pagdi and rent-controlled buildings: what the tenant owns and when he transfers it

The tenancy is a capital asset and its surrender is a transfer

The starting point is CIT v. D.P. Sandu Bros. Chembur (P) Ltd., Civil Appeal 2335 of 2003 (Supreme Court, 31 January 2005, (2005) 273 ITR 1), a surrender of a lease for Rs 35 lakh. The Court took it as “concluded” that “the tenancy right is a capital asset, the surrender of the tenancy right is a ‘transfer’”, and held that a receipt falling under capital gains could not be taxed under section 56: “If the income cannot be taxed under Section 45, it cannot be taxed at all.” It also agreed with the Revenue that a tenancy “may be acquired at a cost”.

The rule for flats received in exchange is the Tribunal’s extension of D.P. Sandu, now consistently applied by the Mumbai Tribunal, though no High Court has considered it. In ITO v. Varun Jaisingh Asher (ITA 8251/Mum/2025, 6 March 2026) the Tribunal said at paragraph 9 that “The allotment of a residential flat by the developer under the redevelopment scheme represents consideration received in exchange for such surrender of tenancy rights.” A tenancy that ends when the tenant takes an ownership flat is relinquished and extinguished within section 2(47) on any reading.

What the tenancy cost: nil, the purchase price, or pagdi

D.P. Sandu records that the Finance Act 1994 made the cost of a tenancy right nil from assessment year 1995-96. Section 55(2)(a) now gives the cost as “the amount of the purchase price” where the right was acquired “by purchase from a previous owner”, the previous owner’s price where it came by inheritance, gift, will, partition or another mode in section 49(1), and “in any other case … nil”. A tenant who bought from an outgoing tenant has a cost: in Jigar Sevantilal Shah v. ITO (ITA 7418/Mum/2025, 17 April 2026) the Assessing Officer himself allowed the Rs 30,00,000 paid to the outgoing tenant in 2015 and Rs 8,78,000 of registration charges. In Murtuza Kothari v. ITO (ITA 4080/Mum/2025, 6 January 2026) a claim that the family had paid pagdi on a tenancy held since 1940 was rejected as unsubstantiated.

The commonest Mumbai case is the tenant who paid pagdi or a non-refundable deposit to the landlord. The Revenue says he did not buy “from a previous owner”: no tenancy existed until he paid, and the landlord granted one rather than sold one, so the cost is nil. The one order that decides the point went the other way. In Ebrahim Noormohamed v. ACIT (ITA 5359/Mum/2024, 1 January 2025) a partnership firm that had been a tenant in Dongri since 1953 on a non-refundable deposit paid in 1954 settled its suit by consent terms, then took a flat under a permanent alternate accommodation agreement of 27 July 2017, and was assessed on its value of Rs 1,48,94,138 at nil cost. The Tribunal held that the deposit “can very well be taken as cost of acquisition” (paragraph 10), being “actual outflow from the pockets of the assessee” (paragraph 13), so that section 55(2)(a)(i) applied; it then allowed the tenancy’s fair market value on 1 April 2001 as cost (paragraph 14), which produced a loss, and deleted the addition (paragraph 15), noting also that the firm had offered the gain when it sold the flat in a later year. The order is short on statutory analysis: it does not deal with the words “from a previous owner”, and the 1 April 2001 option sits in section 55(2)(b), which applies only “in relation to any other capital asset”. It is still a Bench decision for the tenant, and one who can prove what he paid should rely on it.

When the tenant transfers: the agreement decides

A tenant usually vacates long before he gets his new flat, and the Tribunal fixes the date of transfer from the agreement. In Jigar Sevantilal Shah, clause 4 of the tripartite agreement of 18 December 2017 said the tenancy would “stand automatically surrendered/cease to exist only upon and at the time of” the handing over of the new flat, which came in April 2019. Against a short-term gain of Rs 1,10,32,000 taxed in the agreement year, the Tribunal held at paragraph 9 that the taxable event “if at all, can only happen in Financial Year (FY) 2019-20”. In Snehalata Heramb Dhayagude v. JAO (ITA 258/Mum/2026, 21 April 2026) the Tribunal said at paragraph 9.2 that until possession “the rights of the assessee remain in a state of suspension and not cessation”, and ITO v. Paresh Mulayamchand Panday (ITA 7802/Mum/2025, 20 May 2026, paragraph 34) noted the same view.

The Revenue’s untested answer is section 2(47)(v): a tenant who hands vacant possession to the developer under a registered tripartite agreement has arguably allowed possession in part performance of a contract within section 53A of the Transfer of Property Act. The tenant replies that the developer takes possession to build, not as transferee of the tenancy, and he has a textual answer, though a narrower one than it first appears. Clause (v) speaks of “immovable property”, which takes the meaning in section 269UA(d): land or a building, which by the Explanation to sub-clause (i) includes “any rights therein”, or rights in land or a building arising from a transaction “not being a transaction by way of sale, exchange or lease”. A tenancy arises from a lease, so it is outside the second limb. The Revenue will say that the tenant’s right of occupation is a right in the building and so within the first limb through the Explanation, and that clause (v) asks only whether possession of immovable property was allowed: the premises the developer takes are a building, whatever the tenant’s own interest. The tenant’s answer is that the second limb deliberately leaves out rights arising from a lease, and reading them back in through the first would defeat the exclusion. Section 2(109) of the 2025 Act writes the same words into the definition itself, so nothing changes from tax year 2026-27. The one order that fixed an earlier date, Vasantha Narayan Poojari v. ITO, ITA 9174/Mum/2025 (18 March 2026), concerned the owner of premises run as a motor garage who, directed by the competent authority to vacate (under section 95A of the Maharashtra Housing and Area Development Act, according to the assessee’s submission), accepted the developer’s offer letter of 17 November 2011 and vacated in 2012; the Tribunal valued the shop he received at 2011 and 2012 rates under the first proviso to section 56(2)(vii)(b), speaking only “for the sake of completeness” after quashing the reopening.

What the tenant receives, and the exemption

The full value of the consideration is the value of what the tenant receives: the new flat, plus any cash that is consideration rather than hardship compensation. In Vasant Nagorao Barabde v. DCIT (ITA 5372/Mum/2024, 22 May 2025) the Assessing Officer had added the stamp duty value of Rs 2,88,85,600 under section 56(2)(x)(b)(B). On appeal the assessee argued that the tenancy, which stood in his daughter’s name, had been surrendered for the flat, and claimed section 54F on a gain computed at that value with a nil cost. The Tribunal held at paragraph 8.1 that the “tenancy right is a capital asset which has been transferred and is liable to be taxed u/s. 45” and that section 54F “is available … since, there is an investment by way of PAA residential flat allotted by the builder of equivalent stamp duty value”, whichever of father and daughter was the transferor. Section 50C is doubtful here, because it reaches only “land or building or both”; where the flat’s value cannot be ascertained, section 50D takes the market value of the tenancy given up.

The exemption is under section 54F, for “any long-term capital asset, not being a residential house”, not section 54. If the cost of the new asset “is not less than the net consideration”, the whole gain is exempt, the usual result when the flat is the whole consideration; but from assessment year 2024-25 a cost above Rs 10 crore is ignored, so a tenant who receives a flat worth more is only partly exempt. Three conditions trip tenants up: before 23 July 2024 a tenancy, arguably not “land or building”, needed more than thirty-six months to be long-term; the tenant must not own more than one other house on the date of transfer; and the claim must be documented, as Murtuza Kothari, who lost it for want of documents, shows. A fourth is the time allowed to acquire the new house, and on it the Revenue’s leading authority is a tenant case: in Rasiklal M. Parikh v. ACIT (Bombay High Court, 10 March 2017; special leave refused in 2024), discussed in Part 3, a tenant who had surrendered his tenancy and booked three flats with a developer lost section 54F on two grounds. The developer’s allotment conferred no title before the agreement under the Maharashtra Ownership Flats Act, which was executed more than three years after the surrender, for a floor that was not yet approved (paragraph 34), and he had deposited nothing in the Capital Gains Accounts Scheme by the return due date, a deposit the Court held mandatory (paragraph 31). A tenant who takes his flat in kind under the alternate accommodation agreement, as in Barabde, is better placed on both grounds, though no court has yet distinguished Rasiklal for him; a tenant paid partly in cash who reinvests it must deposit whatever is unspent by the due date.

The cash-flow problem. A tenant who receives only a flat has a gain and no money. If section 54F fails, because the tenancy was short-term, because he owned more than one other house on the date of transfer, because the tenant is a firm, or because the flat’s cost above Rs 10 crore is ignored, the tax on the surrender is due for the year of transfer; in the worked example below it is Rs 24,00,000 for Asha, with interest if advance tax was not paid. Three things help. The first is the date: an agreement that keeps the tenancy alive until possession, as in Jigar Shah, puts the gain in the year the flat arrives, when the tenant can at least borrow against it or sell it. The second is a cash component: money paid as consideration is taxed, but it is also money to pay the tax with, and hardship compensation paid alongside the flat is a capital receipt on the Mumbai line (Part 2). The third is the claim itself. Section 54F is met by the new flat, so a tenant who qualifies should return the surrender and claim it; one who files nothing and is reassessed later faces interest and penalty proceedings on a gain that a timely, documented claim would have exempted.

Section 56(2)(x) and the tenant’s new flat

Assessing Officers, prompted by stamp duty values reported on registration, have added the whole value of the tenant’s new flat under section 56(2)(x). Clause (b)(A) taxes immovable property received “without consideration” at its stamp duty value; clause (b)(B) taxes property received “for a consideration” on the excess of stamp duty value over the consideration, where the excess is more than the higher of Rs 50,000 and ten per cent of the consideration. That is the tolerance from assessment year 2021-22; it was five per cent for assessment years 2019-20 and 2020-21 (Finance Act, 2018), and for 2018-19 the excess had only to exceed Rs 50,000, which matters because many tenant cases fall in those years. Four lines of Tribunal decisions answer the addition.

The surrender is the consideration. In Tushar Uday Talwalkar v. ITO (ITA 6107/Mum/2026, 20 August 2026, assessment year 2017-18) the Assessing Officer added a sub-tenant’s Rs 33,41,818 share of the stamp value of a promised flat under the earlier section 56(2)(vii)(b) as received without consideration, because he had paid no money for it, and the Commissioner (Appeals) upheld it because the tenancy surrendered had not been valued. The Tribunal said at paragraph 12: “The surrender or relinquishment of a valuable pre-existing tenancy/sub-tenancy right is itself the consideration flowing from the occupant to the developer”. The deletion rested on two “peculiar facts” taken together: that the flat was promised directly against the surrender, and that possession had not been received in the year (paragraph 18). The Revenue will say the order goes no further than those facts.

A specific head excludes the residuary head. Varun Asher (paragraph 9) held that the transaction “squarely falls within the ambit of capital gains and cannot be brought to tax under the residuary provisions of section 56(2)(x)”. It quoted the Bombay High Court’s order in the brother’s case, Vivek Jaisingh Asher (Writ Petition 4370 of 2022, 16 April 2024, known here only as quoted), setting aside an assessment whose notice did not specify the limb of section 56(2)(x) relied on. In Haresh Damji Shah v. ITO (ITA 4445/Mum/2025, 13 October 2025) the Tribunal deleted Rs 1,82,96,708 added for the flat, parking and the cash receipts, holding at paragraph 8 that “there is no applicability of section 56 in the present case”, and a later order (ITA 1934/Mum/2026, 19 May 2026) deleted the section 270A misreporting penalty because the addition had gone.

Nothing is received before possession. Snehalata Dhayagude said at paragraph 9.3 that “One cannot ‘receive’ a flat that does not exist in a habitable state”, and Manoj Devshi Chhadva v. ITO (ITA 7534/Mum/2025, 16 July 2026) applied that to units given for tenancies of four shops, where Rs 1,38,70,000 had been added.

Converting a tenancy is not a purchase. In Bipinchandra Shantilal Shah v. ITO (ITA 2933/Mum/2023, 22 October 2024) a pagdi tenant paid his landlord Rs 25,00,000 to convert the tenancy into ownership of a flat worth Rs 1,38,70,000 on stamp value, and the Tribunal held that section 56(2)(x) “cannot be so exhaustively interpreted to even cover the transaction of improvement of any right”.

The Revenue’s best untested point, and the burden of proof

None of these decisions deals with the inadequate-consideration limb on its own terms. If the surrender is consideration, it has a value, and clause (b)(B) asks whether the flat’s stamp duty value exceeds it by more than the tolerance. A tenant of a 300 square foot room who receives a 650 square foot flat has received more than he gave unless his tenancy is worth the whole of the larger flat. Talwalkar did not hold that the comparison could never be made. The tenant’s answer is that the tenancy carried the right to the larger flat under the scheme. A registered valuer’s report on the tenancy, obtained at the time, is the tenant’s best evidence, though the Assessing Officer is not bound by it, and a tenant who disputes the stamp duty value should ask in writing for a reference to the Valuation Officer under the third proviso to clause (b).

The occupant must also prove his prior occupation. In Naresh Bansilal Jain v. ITO (ITA 643/Mum/2025, 16 October 2025), where the assessee relied on a recital that he had been an occupant of the old building, the Tribunal accepted that section 56(2)(x) does not reach the “settlement or exchange of rights arising from redevelopment”, but held that a recital of prior occupation “does not conclusively establish the factum of prior occupation” (paragraph 3.3), and remanded.

Family tenancies created shortly before redevelopment draw attention: in Varun Asher the Assessing Officer was recorded as treating one as “a colourable device”, and the Tribunal decided on the registered documents without holding that such an arrangement could never be disregarded. In Mahendra Vishnu Chitre v. DCIT (ITA 1287/Mum/2025, 21 July 2025) an uncle’s tenancy passed to his nephew in the 2014 agreement that promised a new flat; the Tribunal deleted a short-term gain of Rs 90,90,708 because the transfer was from a relative and the 2014 agreement was never acted on, without approving tenancies created on the eve of redevelopment.

Sub-tenants, co-tenants and extra area bought by a tenant

A sub-tenant who surrenders his occupancy right for a share of the new flat stands where a tenant stands, as Talwalkar decided. Joint tenants each hold their share; in Haresh Damji Shah the assessee argued that he and his wife were co-tenants in equal shares, though the Tribunal did not need to decide it.

Extra area the tenant buys is a purchase and is tested separately. In Seema Hasmukh Shah v. ITO (ITA 3447 and 3448/Mum/2026, 17 July 2026) a tenant bought 347 square feet for Rs 42 lakh under a memorandum of 8 October 2013, paid that month, and the final agreement of July 2017 carried a stamp duty value of about Rs 1.40 crore; applying the first proviso, the Tribunal took Rs 42 lakh as the consideration, on thin reasoning. In Paresh Panday the Commissioner (Appeals) deleted additions under sections 69 and 56(2)(x) on a tenant’s payments for the outgoing tenancy and extra area, the bank source being proved and the Assessing Officer not having identified the property behind the Insight portal’s value, and the Tribunal dismissed the Revenue’s appeal.

Cost and holding period of the tenant’s new flat

The Revenue’s model: nil cost carried through. In Sarjit Ghanshyam Desai v. ITO (ITA 1620/Mum/2026, 8 May 2026) a tenant of a room in Girgaum received a shop in the redeveloped building and sold it in September 2010 for Rs 38,62,000. The lower authorities took the shop’s cost as nil “since the assessee had not incurred any identifiable monetary outlay for acquisition of the tenancy rights” (paragraph 4.1) and taxed the whole price.

The Tribunal’s model: two transactions, with market value as cost. The Tribunal held at paragraph 4.9 that “there are clearly two distinct and independent transactions”, the surrender in exchange for the new premises and the later sale, and at paragraph 4.10 that “the fair market value of such tenancy rights on the date of surrender, or equivalently the fair market value of the Permanent Alternate Accommodation received in exchange thereof, represents the true and legally sustainable cost of acquisition”. Murtuza Kothari had reached the same result for a flat sold on 21 May 2014 for Rs 86 lakh, holding at paragraph 11 that “the market value of such exchange of rights on the date of surrender would constitutes the cost of acquisition”. Both orders rely on Tauqeer Fatema Rizvi v. ITO (ITA 8862/Mum/2011, 2 May 2014), which took the flat’s market value on the date of possession as its cost (paragraph 9), and on Atul G. Puranik v. ITO (ITA 3051/Mum/2010, 13 May 2011). Puranik is not a tenancy case. The assessee’s father’s land had been compulsorily acquired. The City and Industrial Development Corporation of Maharashtra (CIDCO) later allotted the assessee sixty-year lease rights in a plot under its 12.5 per cent Gaothan Expansion Scheme, and he assigned them for Rs 2.50 crore; the Tribunal held that the market value of the lease rights on allotment was their cost because “Once a particular amount is considered as full value of consideration at the time of its purchase, the same shall automatically become the cost of acquisition” (paragraph 10.5), and remitted the computation to the Assessing Officer. The Revenue can distinguish it: the allotment was compensation from a public body, where, the Tribunal noted, “the question of any under-hand payment also stands ruled out”, and a private surrender of tenancy carries no such assurance.

The tenant’s case is that the model fits the statute: section 55(2)(a) gives the tenancy a nil cost but says nothing about the flat, which costs what was given for it; and where the flat has been taxed under section 56(2)(x), section 49(4) makes the value taxed its cost, so the Revenue cannot have both an addition and a nil cost. The model has a price. It treats the surrender as a taxable transfer at full value, so the tenant must pay tax on it or bring it within section 54F. Puranik’s own reasoning makes the point: market value became cost there because it had been the full value of consideration on the first transaction. A tenant who claims market-value cost on the sale while having offered nothing on the surrender invites the Assessing Officer to tax the surrender, if that year is open. The two legs fit together only where the first is offered or computed, as the assessee in Barabde did on appeal, when the Tribunal admitted his section 54F claim though it had not been made in the return.

Holding period. The new flat’s holding period starts when the tenant acquires it, which on Tauqeer Rizvi (paragraph 9) is possession; a sale within twenty-four months is short-term. The member-side argument that holding runs from allotment (Part 1) fits poorly with an agreement that keeps the tenancy alive until possession. A sale within three years of acquisition also brings back the exempted gain under section 54F(3), as long-term capital gain of the year of sale.

The 23 July 2024 proviso. The second proviso to section 112(1)(a) caps a resident individual’s tax at 20 per cent with indexation for “land or building or both, which is acquired before the 23rd day of July, 2024” (section 197(3) of the 2025 Act). A flat received on possession before that date qualifies; one received after it does not, however long the tenancy was held.

The sale of the new flat is an ordinary sale of a building, so section 50C applies. In Ila M. Parekh v. ITO (ITA 2634/Mum/2014, 19 February 2018) a co-tenant’s sale of her share of a redevelopment shop escaped the stamp duty value because the stamp authority had valued a larger area than was sold.

Worked example: a tenant becomes an owner

The facts are illustrative. Asha inherited a tenancy her father obtained in 1978 by paying the landlord Rs 15,000 as pagdi. Bharat bought his from the outgoing tenant on 20 December 2015 for Rs 26,50,000 including Rs 1,50,000 of stamp duty and registration. Both sign a registered tripartite agreement on 10 December 2019 which, like clause 4 in Jigar Shah, surrenders each tenancy only when the new flat is handed over. Each receives a 650 square foot flat on 15 June 2022, when its stamp duty value is Rs 1,20,00,000, and a registered valuer values each tenancy on that date at the same figure. Neither owns another house. Tax is before surcharge and cess, with a marginal rate of 30 per cent where a slab rate is needed; the Cost Inflation Index values are those notified (100 for 2001-02, 254 for 2015-16, 331 for 2022-23, 348 for 2023-24 and 376 for 2025-26).

Step 1: the surrender (financial year 2022-23, assessment year 2023-24)

On Jigar Shah the transfer happens on 15 June 2022. Both tenancies are long-term and the transfer is before 23 July 2024, so the gain is indexed and taxed at 20 per cent.

	Asha, cost nil	Asha, pagdi treated as purchase price	Bharat
Full value of consideration (value of new flat)	Rs 1,20,00,000	Rs 1,20,00,000	Rs 1,20,00,000
Cost	Rs 0	Rs 15,000	Rs 26,50,000
Indexed cost	Rs 0	Rs 49,650	Rs 34,53,346
Long-term capital gain	Rs 1,20,00,000	Rs 1,19,50,350	Rs 85,46,654
Tax at 20 per cent if section 54F is not available	Rs 24,00,000	Rs 23,90,070	Rs 17,09,331
Exempt under section 54F (cost of new flat equals net consideration)	Rs 1,20,00,000	Rs 1,19,50,350	Rs 85,46,654
Taxable	Rs 0	Rs 0	Rs 0

Asha’s pagdi, if a purchase price, was paid before 1 April 2001, so indexation runs from 2001-02. On the text the 1 April 2001 market value option in section 55(2)(b) does not reach a tenancy right, though Ebrahim Noormohamed allowed it (paragraph 14); a tenant relying on that order needs a valuer’s report as at 1 April 2001.

Step 2: what the Revenue might do with section 56(2)(x) in the same year

Position	Addition	Tax at assumed 30 per cent
(i) Assessing Officer: flat received “without consideration”, taxed at stamp duty value	Rs 1,20,00,000	Rs 36,00,000
(ii) Untested inadequate-consideration limb: tenancy valued at Rs 90,00,000; excess Rs 30,00,000 against a tolerance of Rs 9,00,000 (higher of Rs 50,000 and ten per cent of the consideration)	Rs 30,00,000	Rs 9,00,000
(iii) Tribunal line (Varun Asher, Barabde, Haresh Damji Shah; Talwalkar under section 56(2)(vii)(b))	Rs 0	Rs 0

Step 3: the new flat is sold on 20 August 2025 for Rs 1,50,00,000

Net of Rs 1,50,000 brokerage the consideration is Rs 1,48,50,000. The flat was held for more than twenty-four months and acquired before 23 July 2024, so the lower of 12.5 per cent and 20 per cent indexed applies, and section 54F(3) does not bite after three years. The columns are the Tribunal’s two-transaction model (Sarjit Desai), the flat costing the tenancy’s value on 15 June 2022; the Revenue’s nil cost for Asha; and the Revenue’s carried cost for Bharat, his tenancy price, held from 20 December 2015.

	Two transactions	Revenue’s nil cost (Asha)	Revenue’s carried cost (Bharat)
Cost	Rs 1,20,00,000	Rs 0	Rs 26,50,000
Gain without indexation	Rs 28,50,000	Rs 1,48,50,000	Rs 1,22,00,000
Tax at 12.5 per cent	Rs 3,56,250	Rs 18,56,250	Rs 15,25,000
Indexed cost	Rs 1,36,31,420	Rs 0	Rs 39,22,835
Gain with indexation	Rs 12,18,580	Rs 1,48,50,000	Rs 1,09,27,165
Tax at 20 per cent	Rs 2,43,716	Rs 29,70,000	Rs 21,85,433
Tax payable (the lower)	Rs 2,43,716	Rs 18,56,250	Rs 15,25,000

Step 4: total tax over both events

Route	Surrender (AY 2023-24)	Sale (AY 2026-27)	Total
Asha or Bharat, two transactions, section 54F allowed	Rs 0	Rs 2,43,716	Rs 2,43,716
Asha, two transactions, section 54F denied	Rs 24,00,000	Rs 2,43,716	Rs 26,43,716
Bharat, two transactions, section 54F denied	Rs 17,09,331	Rs 2,43,716	Rs 19,53,047
Asha, nil cost, nothing taxed at surrender	Rs 0	Rs 18,56,250	Rs 18,56,250
Bharat, carried cost, nothing taxed at surrender	Rs 0	Rs 15,25,000	Rs 15,25,000
Asha, Assessing Officer’s section 56(2)(x) addition, then cost of Rs 1,20,00,000 under section 49(4)	Rs 36,00,000	Rs 2,43,716	Rs 38,43,716

Step 5: the same flat sold early, on 10 March 2024

The flat is then short-term, and the sale is within three years of acquisition. The price and brokerage are taken as in Step 3.

	Asha	Bharat
Short-term gain on the new flat (Rs 1,48,50,000 less Rs 1,20,00,000)	Rs 28,50,000	Rs 28,50,000
Tax at assumed 30 per cent	Rs 8,55,000	Rs 8,55,000
Section 54F exemption on the surrender clawed back under section 54F(3) as long-term gain of financial year 2023-24	Rs 1,20,00,000	Rs 85,46,654
Tax at 20 per cent on the clawback	Rs 24,00,000	Rs 17,09,331
Total tax for assessment year 2024-25	Rs 32,55,000	Rs 25,64,331

An earlier acquisition date on the Circular 471 allotment line would avoid both results, but no tenant case has accepted it.

The landlord, the original owner’s heirs, and public housing lessees

A tenanted building has a landlord, who usually grants the development rights, as in Murtuza Kothari and Haresh Damji Shah. He transfers land and development rights as any landowner does, and pays capital gains on what he receives. The landlord will say the tenants’ flats are the price the developer pays to clear the land, not his consideration; the Revenue may say that a developer who rehouses the tenants discharges what would otherwise be the landlord’s obligation to them, and that discharging a transferor’s obligation is part of his consideration. A landlord who is a confirming party to the tenants’ allotments should make sure the documents say whose obligation is being met. In ITO v. Subhash S. Nadkarni (ITA 1959/Mum/2016, 29 March 2019) the Assessing Officer treated two extra flats given to the landlord’s son and his brother’s wife as disguised consideration, on a developer director’s statement in a search; the Tribunal held at paragraph 8 that they “were given on account of independent right being a tenant in the building.”

Three things make the landlord’s computation harder than an ordinary owner’s. The first is cost. He will usually take the fair market value on 1 April 2001 under section 55(2)(b), capped at stamp duty value, and a building full of protected tenants on controlled rents was worth far less to him than vacant land; a valuer who ignores the tenancies overstates his cost. The tenants claim the opposite: in Ebrahim Noormohamed the Tribunal accepted a valuer’s attribution of two-thirds of the property’s 2001 value to the tenancy, on a submission that Mumbai practice splits value one-third to landlord and two-thirds to tenant. The second is section 50C. A ready reckoner value that ignores the tenancies can exceed what the landlord receives by far more than ten per cent; his remedy is the reference to the Valuation Officer under section 50C(2). The third is compulsory acquisition. On MHADA’s published notes on sections 79A and 91A of the Maharashtra Housing and Area Development Act (the statutory text was not read), the owner of a dangerous cessed building has the first chance to redevelop, the tenants the second, and the Board may then acquire it, or a stalled scheme, for compensation. If the Board acquires, section 45(5) charges the gain on the compensation first awarded in the year it is first received, and any enhancement when received. No decision was found on a cessed-building landlord’s consideration or gain, on any of these points.

The heirs of an original owner who never conveyed the land are landowners too. In Pramod J. Jayakar v. ACIT (ITA 2770/Mum/2014 and connected appeals, 28 July 2017) the father had sold six flats without conveying the land, and four heirs each received Rs 12,75,000 on redevelopment. Rejecting the Revenue’s “windfall” argument, the Tribunal held that the balance floor space and the right to load transferable development rights “exclusively belong to the land owner” (paragraph 6) and allowed the 1 April 1981 value as cost (paragraph 8); today the date is 1 April 2001, capped at stamp duty value.

Gujarat Housing Board allottees and MHADA lessees. A large share of Gujarat’s redevelopment is of Housing Board colonies. Section 60A of the Gujarat Housing Board Act, 1961, as quoted by the Gujarat High Court in Jayantibhai Somachand Contractor v. Estate Manager (17 March 2025), allows redevelopment with the consent of 75 per cent of the owners or occupiers, and the State’s 2016 guidelines (developer series, Part 1) allow a new unit of up to 140 per cent of the existing carpet area or 30 square metres, whichever is higher (125 per cent for a non-residential unit). For the allottee, free extra area of up to 40 per cent raises the section 56(2)(x) and holding-period questions of Part 1, and his rent, deposit and shifting money (in Hansaben Ratubhai Prajapati, a rent deposit of Rs 27,000, advance rent of Rs 13,500 and shifting charges of Rs 10,000) is the displacement compensation of Part 2. What he owns depends on his papers: an allottee who has paid off the Board and holds a sale deed owns a building with land; one who still holds under a lease or hire-purchase owns a leasehold or contractual right. That decides whether section 50C, the 1 April 2001 cap and the “land or building” proviso for the 23 July 2024 comparison apply to him. A MHADA lessee is in the second position: in MIG Co-operative Housing Society Group II, on a ninety-year MHADA lease, the society “was only the lessee and what was transferred to the developer was development rights not land or building” (paragraph 5), and section 50C, like section 43CA in Triple Securities (below), reaches “land or building or both”, not a right in them. The lessee gains on section 50C and loses on the 23 July 2024 comparison.

Slum dwellers: the rehab tenement

What the slum dweller holds and receives

A hutment dweller usually has no title to the land, only eligibility fixed by a cut-off date and occupation of a structure. Gujarat’s schemes run under the 2010 slum regulations and the 2013 policy (known here only from secondary sources), Mumbai’s under the Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971. The Bombay High Court said in Moinuddin Pashamiya Shaikh v. Slum Rehabilitation Authority, Writ Petition (L) 7714 of 2023 and batch (19 and 20 June 2023), at paragraph 18, that “the rehab tenements are provided free of all cost on ownership basis”, with a ten-year lock-in that “has never been monitored”. The lock-in is in section 3E(1) of that Act, quoted in Satyanarayan Mallayya Billa v. State of Maharashtra (Writ Petition (L) 506 of 2020, 20 January 2021). Neither decides anything about tax.

The tax questions, none of them decided

Section 56(2)(x) on allotment. The Revenue will build its case on the High Court’s words: a tenement provided “free of all cost” is property received “without consideration”. The dweller’s answer is Talwalkar: the surrender of a valuable pre-existing tenancy or occupancy right “is itself the consideration”. That is strong where the occupation was protected and weaker where the entitlement comes only from the scheme; and on Snehalata Dhayagude nothing is received before possession.

A gain on surrender of the hut. If the right to occupy is a capital asset, its surrender is a transfer. Before assessment year 2024-25 a right with no cost and not listed in section 55(2)(a) attracted the no-computable-cost principle on which the society cases below rest; from that year “any other right” supplies a nil cost and the gain is the tenement’s whole value, though section 54F would exempt it for a dweller who owns no more than one other house.

Cost on resale, and the lock-in. On the two-transaction model the tenement costs the value of the right surrendered; on the Revenue’s view, nothing. A sale inside the lock-in, as in Billa (a room sold by a deed of 6 May 2014 for Rs 60 lakh), is still a transfer for tax if consideration and possession pass, and the seller also faces section 50C, because rehab tenements often change hands well below their stamp duty value. Section 2(24)(xviii), on government assistance “in cash or kind”, does not obviously reach a tenement built by a private developer, though the Revenue may point to the slum authority’s allotment.

Transit rent paid to slum dwellers

DCIT v. Shivalik Ventures Pvt Ltd (ITA 1477/Mum/2025, 20 June 2025) held that alternate accommodation charges paid to slum dwellers were not “rent” under section 194-I, following Sarfaraz S. Furniturewalla. The Assessing Officer’s theory there, unanswered because only the developer was before the Tribunal, was that “any non-utilized money in the hands of recipients shall be taxable”. On the recipient’s side, ITO v. Farida Zulfikar Lokhandwala (ITA 2512/Mum/2023, 26 March 2024) upheld the deletion of transit rent received by a tenant in a trust-led cluster redevelopment. Part 2 deals with the occupant’s tax credit.

Buyers of rehab tenements

In Bharat Harekrishna Sahoo v. ITO (ITA 6629/Mum/2025, 24 April 2026) an electrician who bought a rehabilitation unit for Rs 19,50,000 against a stamp duty value of Rs 32,49,758 was picked up after “a survey at the premises of various Slum Rehabilitation project offices”; the section 56(2)(x) addition went back for a Valuation Officer’s report and the section 69 addition fell to Rs 9,000. In Deepika Dilip Nadkar v. ITO (ITA 9374/Mum/2025, 10 September 2026) the Tribunal held that an Assessing Officer “cannot sit in appeal over the technical valuation” of the Valuation Officer, and ordered a fresh valuation asking whether free-sale flats were comparable to one in a composite building with rehabilitation floors.

The benami pattern is the cash purchase of tenements from dwellers, before rehabilitation, in relatives’ names. In Vikas Vilas Rasal v. ACIT (ITA 6903/Mum/2025, 20 April 2026) a search found unregistered agreements for two such purchases at Rs 40 lakh each in a nephew’s and a brother-in-law’s names, and a retracted statement admitting them. The Tribunal deleted the Rs 80 lakh addition: unregistered documents conveyed nothing, no enquiry had been made, a retracted statement needed corroboration, and the benami Adjudicating Authority’s order should not have influenced the appeal.

Shops and offices: the commercial unit holder

Compensation for loss of business

No redevelopment decision on a shop or office holder’s loss-of-business compensation was traced, and the statute now speaks first. From assessment year 2019-20 section 28(ii)(e), inserted by the Finance Act, 2018, taxes as business income “any compensation or other payment due to or received by … any person, by whatever name called, at or in connection with the termination or the modification of the terms and conditions, of any contract relating to his business” (section 26(2)(b)(iii) of the 2025 Act). The Revenue will say a trader’s occupation agreement, modified so that he trades elsewhere during construction, is such a contract; the holder, that an agreement to give up his premises concerns a capital asset, not his business.

The Supreme Court tests of whether a receipt is capital came before the clause. The Revenue’s text is Kettlewell Bullen and Co. Ltd v. CIT (1 May 1964, AIR 1965 SC 65): “compensation for injury to trading operations, arising from breach of contract or in consequence of exercise of sovereign rights, is revenue”. A monthly sum computed on lost profits while the shopkeeper trades elsewhere looks like that. The holder’s text is the other half of the same judgment, that compensation “would be regarded as capital, if it is for loss of an asset of enduring value”, and Oberoi Hotel Pvt Ltd v. CIT ((1999) 236 ITR 903), where a payment for giving up a right to operate a hotel was capital because “it is loss of source of income to the assessee”. The agreement’s description will decide most cases: a lump sum tied to surrender of the premises reads as capital, a monthly figure measured on turnover as revenue. Capital here is not exempt: a lump sum that is part of the price for the shop is consideration for its transfer under section 45, and no order traced applies the residential hardship line of Part 2 to a commercial holder.

The shop as a business asset

A trader who owns his shop or office and has claimed depreciation on it holds the building in a block, depreciated on written down value under section 32(1)(ii). There is no terminal deduction on demolition: section 32(1)(iii), for a building “sold, discarded, demolished or destroyed”, applies only to assets depreciated under clause (i), confined to power undertakings. Instead, under section 43(6)(c) the block is reduced by “the moneys payable” for the old shop and increased by “the actual cost of any asset falling within that block, acquired during the previous year”. If, in the year of transfer, the moneys payable exceed the opening written down value plus the cost of additions and the transfer expenses, the excess is a short-term capital gain under section 50(1), even if the block survives; if every asset in the block is transferred and the block ceases to exist, section 50(2) computes a short-term gain or loss on the whole block, whatever the holding period. Land is not depreciable, so the part of the consideration that is for the land share is an ordinary capital gain.

If the new shop enters the block in the year the old one leaves, the exchange may produce no gain; if it arrives later, after the only building has gone, the block may have ceased and the whole consideration less written down value is short-term. In N.K. Gems v. ITO (ITA 3526/M/2024, 12 February 2026) new office premises bought by full payment under registered agreements before the year end were held to enter the block though possession had not been given, so the block survived the sale of the old office; a trader whose new shop is allotted under a registered agreement in the same year has that argument. Neither the text nor any order found says what the “moneys payable” and the “actual cost” are in an exchange; the trader will say they are the same figure, so the block is unchanged, and the Revenue will point to the Explanation to section 32(1)(iii), under which “sold” includes “a transfer by way of exchange”, though that Explanation is written “For the purposes of this clause” only.

A shop that is not a business asset is an ordinary capital asset. Section 54 does not apply to it, and section 54F needs reinvestment in a house, so a shop-for-shop exchange gets neither; section 54EC is open on long-term gains from land or building (Part 3). A commercial tenant stands where a residential tenant stands: Sarjit Desai’s new unit was a shop, and in Manoj Chhadva units received for four shop tenancies were kept out of section 56(2)(x) until possession. A premises society of shops and offices has mutuality like a housing society (Mittal Court Premises Co-operative Society Ltd v. ITO, Bombay High Court, 2009).

Garages, parking spaces and terrace rights

What a garage owner holds. A garage conveyed as a separate unit, with a share in the land, is a building and a capital asset in its own right. It is not a residential house, so section 54 does not apply to its transfer; section 54F does, if the holder reinvests in a house. Vasantha Narayan Poojari concerned premises in a Bandra East society from which the owner ran a motor-garage business: he received a shop in the redeveloped building, and the Tribunal, after quashing the reopening, observed that the transfer had taken place in 2012, when he accepted the developer’s offer letter of 17 November 2011 and vacated, and that the shop was not received without consideration (paragraph 11). On that alternative finding a garage or other non-residential premises exchanged for a shop is an exchange, taxed in the year of transfer, with no section 54 because neither is a house; the owner can argue continuation, though, as the next paragraph explains, that argument is weak where what comes back differs in kind.

What a parking slot is. What comes back is usually a parking space. The Supreme Court held in Nahalchand Laloochand Pvt. Ltd. v. Panchali Co-operative Housing Society Ltd., decided on 31 August 2010, that a stand-alone garage “is not a ‘flat’” under the Maharashtra Ownership Flats Act (paragraph 29) and that a promoter “has no right to sell ‘stilt parking spaces’”, which are common areas (paragraph 40). A member who surrenders an owned garage for an allotted stilt or open slot therefore gives up a building and receives a right of use. Rajesh Shamji Furia’s continuation view is much weaker where what comes back is not property he owns, and if the slot is a right rather than a building, section 50C and section 56(2)(x) have less to work on. Where parking is allotted with the flat as one entitlement, it is part of the same bargain: Haresh Damji Shah (paragraph 8) deleted an addition for a car park “allotted along with alternative flat”.

Terrace rights. A member who surrenders an exclusive terrace right for extra area or cash has relinquished a right within section 2(47)(i). If the right came with his flat, its surrender is part of the same exchange, sheltered by section 54. If it is separate, the Revenue will say that from assessment year 2024-25 it is “any other right” with a nil cost, and not a house, leaving only section 54F. Apart from Poojari, which concerned business premises, no decision on the exchange of a parking garage or on terrace rights in a redevelopment was found.

Companies, firms, LLPs and trusts as members

Almost every member-side decision read concerns an individual or a Hindu undivided family; the exception is the firm in Ebrahim Noormohamed. A company, firm, limited liability partnership or trust that owns a unit differs on five points, with no redevelopment decision on any of them.

No section 45(5A). Section 45(5A) applies only to “an assessee, being an individual or a Hindu undivided family”, and its 2025 counterpart in section 67(14) to (16) likewise. Whether section 194-IC applies to cash paid to a company is open: the section refers to “the agreement referred to in sub-section (5A) of section 45”, and the definition of a specified agreement speaks of “a person owning land or building” without limiting it to individuals, though section 45(5A) itself operates only for individuals and Hindu undivided families.

No section 54 or section 54F, and no 23 July 2024 proviso. Both exemptions are confined to individuals and Hindu undivided families; section 54EC is open to any assessee on long-term gains from land or building. A domestic company pays 12.5 per cent on long-term gains on any transfer on or after 23 July 2024 under section 112(1)(b), and firms, limited liability partnerships, trusts and other residents the same under section 112(1)(d); the 20 per cent indexed cap is for resident individuals and Hindu undivided families only.

Section 56(2)(x) applies to “any person”. A company receiving a new flat or extra area faces the same addition as an individual and has the same answers, but the relative and inheritance exclusions are of little use to it.

Stock in trade. A builder or dealer holding a flat as stock is outside capital gains, and outside section 56(2)(x), whose “property” means a capital asset. In Bharat Manubhai Patel v. ITO (ITA 6587/Mum/2025, 5 February 2026) an individual builder who redeveloped his own chawl was held taxable on his project completion method “on the date of handing over possession of the flats” (paragraph 7), not on registration under section 2(47). It did not consider section 45(2), on conversion of a capital asset into stock, or section 43CA. For a builder-member who exchanges unsold flats held as stock, the Revenue would say the exchange realises the stock within section 43CA; the member, that stock has been exchanged for stock. ACIT v. Triple Securities Pvt. Ltd. (ITA 2270/Mum/2021, 20 December 2022), on a tenanted Mumbai building, held that section 43CA reaches only “land or building or both” and not a right in them (paragraph 20), which helps the member only if what he gives up is a right, not his registered flats, and that extra area given to tenants was not the developer’s stock at all (paragraph 23), a point about a developer that never owned the area. The Revenue will add that once the new flats are registered, they are buildings.

Trusts. A charitable or religious trust is outside sections 54 and 54F but has its own rule. Section 11(1A)(a) applies where “a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held”: the whole gain is deemed applied to the trust’s purposes where the whole net consideration is so utilised, and otherwise only so much as the amount utilised exceeds the cost of the old asset. A trust taking a new flat for its old one has, on the exchange view, utilised the whole consideration; on the continuation view there is no transfer. Either way it should record that the new flat is held on the original trust, the relief being tied to an asset “to be so held”; cash received as consideration must itself be reinvested. The 2025 Act has the rule in section 341(9). A private trust has no such rule.

Non-resident members

The merits: the same answers as for residents

In Narayan Devarajan Iyengar v. ITO (International Tax) (ITA 106/Mum/2023, 10 May 2023) a non-resident member of MIG CHS (Bandra East) Group IV exchanged a 907 square foot flat for one of 1,814 square feet and received Rs 80 lakh in instalments, transit rent and shifting charges. The Tribunal held the compensation and the rent capital (paragraph 10), recording at paragraph 7 that the developer paid the society “for and on behalf of the members”, which answers the argument that money routed through a society is the society’s. Mildred Ponnoth v. ITO (International Tax) (ITA 1802/Mum/2024, 30 July 2024) is to the same effect. The limit appears in June Alice Fernandes v. ITO (IT) (ITA 4071/Mum/2026, 31 August 2026): a non-resident buyer could not carry a 1988 booking into a 2016 purchase, and a section 56(2)(vii)(b) addition stood.

Withholding under section 195

Section 195(1) requires a person paying a non-resident “any interest … or any other sum chargeable under the provisions of this Act (not being income chargeable under the head ‘Salaries’)” to deduct tax “at the rates in force”, with no threshold; section 194-IA does not apply, being confined to a resident transferor. Cash that is consideration for a non-resident’s transfer is chargeable and must suffer deduction. The Supreme Court settled the general rule in GE India Technology Centre Pvt. Ltd. v. CIT, decided on 9 September 2010: “the obligation to deduct TAS arises only when there is a sum chargeable under the Act” (paragraph 9), and the payer “is bound to deduct TAS only if the tax is assessable in India” (paragraph 8). On that rule hardship compensation or transit rent that is a capital receipt suffers no deduction; but no order applying GE India to a redevelopment payment was found, the developer carries the risk if the receipt is later treated as income, and in practice developers deduct unless an order covers the position. The payer can apply under section 195(2), and the non-resident can seek a lower or nil deduction certificate under section 197. Under the Income-tax Act, 2025 the provision is section 393(2), Table serial 17, in the same words; the payer applies under section 395(2) and the payee under section 395(1).

Rate, jurisdiction and treaties

A non-resident individual’s long-term gain on land or building is taxed at 12.5 per cent without indexation on any transfer on or after 23 July 2024 under section 112(1)(c); the indexed 20 per cent cap is for residents only, so a non-resident selling a flat received before that date is worse placed than his resident neighbour. Jurisdiction can decide the case: in DCIT (IT) v. Dr (Mrs) Kusum Nangia (ITA 87/Del/2020, 22 January 2021) the assessment of a non-resident who had signed a collaboration agreement for her Delhi house was quashed because the section 143(2) notice came from an officer without jurisdiction (paragraph 19).

No decision applying a tax treaty to a member’s redevelopment receipt was traced. A treaty in the usual form leaves India free to tax a non-resident on an Indian flat. India’s treaty with Mauritius is an example: income from immovable property “may be taxed in the Contracting State in which such property is situated” (Article 6(1)), and so may “Gains from the alienation of immovable property, as defined in paragraph (2) of article 6” (Article 13(1)), a definition that follows “the law and usage of the Contracting State in which the property is situated” and includes “rights to which the provisions of general law respecting landed property apply” (Article 6(2)). The same treaty makes gains from other property “taxable only in the Contracting State of which the alienator is a resident” (Article 13(4)), so a non-resident who says that what he gave up was a right and not immovable property has a treaty argument a resident does not need, though, because Article 6(2) takes its meaning from Indian law, a tenancy or an interest in a flat is likely to be within it. Treaties differ on capital gains, and the member’s own treaty must be read before advice is given.

The society: who is taxed on what the developer pays

Circular 9 of 1969 and the members’ ownership

The Central Board of Direct Taxes stated in Circular 9 of 25 March 1969, as quoted by the Tribunal in Colombia Co-operative Housing Society, that in a tenant co-partnership housing society “the individual members should be regarded as the legal owners of the property in question” for all purposes, including recovery of tax. It was issued about house property income and says nothing about the land or floor space, which remain the society’s, but it binds the Department and underlies every decision below.

In Colombia Co-operative Housing Society Ltd v. ITO (ITA 4222/Mum/2025, 22 December 2025) the developer had paid Rs 2.28 crore for balance floor space by individual cheques to the society’s forty members, who offered their shares. The Tribunal deleted the society’s assessment: the money went directly to members, and two Rs 18 lakh credits in the society’s account were a refundable parking deposit (paragraph 6). At paragraph 7.1 it distinguished a “Tenant Ownership Housing Society”, commonly a plot owners’ society where members own the buildings, from a “Tenant Co-partnership Housing Society” like Colombia, to which Circular 9 applied.

MIG Group II in the Tribunal and the High Court

In MIG Co-operative Housing Society Group II Ltd v. ITO (ITA 896 and 1099/Mum/2016, 17 February 2017) members of a society on MHADA leasehold land gave their old flats to the developer for new flats, Rs 53.50 lakh each and Rs 15 crore to the society’s corpus. The Assessing Officer assessed the society at Rs 103.58 crore; before the Tribunal the Revenue argued that “only society could transfer the right to the developer”. The Tribunal held at paragraph 4.4.1 that “once the members had shown the income received by them in their hands there can-not be any justification for taxing the same in the hands of society.” The Bombay High Court dismissed the Revenue’s appeal (Income Tax Appeal 1642 of 2017, 14 February 2024), recording at paragraph 7 that the Revenue was “not even questioning” the similarity with Raj Ratan Palace CHS (not read in its own text), whose special leave petition had been dismissed on 28 October 2013.

Later orders follow it. The MIG Co-op Hsg Soc (Bandra East) Group IV Ltd v. ITO (ITA 484/Mum/2018, with ITA 492/Mum/2018, common order of 31 July 2018) deleted a short-term gain of Rs 1,39,16,46,972 assessed on the Group IV society, of which Narayan Devarajan Iyengar was a member. ITO v. RBI Employees Bhagvati Co-op Housing Society Ltd (ITA 3595/Mum/2025, 27 October 2025) held at paragraph 12 that “the consideration was to flow to the individual members”. ITO v. The Borivali Ashwini CHS (ITA 9287/Mum/2025, 11 May 2026) held at paragraph 11 that the society “continued to retain ownership rights in the property and the developer was merely granted limited development rights”, so it made no transfer under section 2(47)(v), and at paragraph 13 followed RBI Employees Bhagvati.

The condition: members must have paid

The line now carries a condition. In ITO v. MIG Co-op Housing Society Group II Ltd (ITA 4075/Mum/2025, 19 December 2025) the society was entitled under a 2014 supplemental agreement to ten and a half flats for its share of extra floor space, and the Assessing Officer added Rs 5,24,63,648 as short-term gain and Rs 8,97,82,846 as other sources; members’ tax details had been furnished for only 45 of 96 members. The Tribunal accepted at paragraph 12 that the society “would not be responsible to pay taxes on the same amount again” if the members had paid, but because payment “could not be verified”, it remanded the issue. That is the Revenue’s best recent foothold: a society should keep each member’s payment record and return, and where it receives flats for its own floor space the answer may not be available at all.

The same risk arises at registration. In Ghatkopar Devang CHS v. ITO (ITA 4954 and 4955/Mum/2026, 15 September 2026) the Assessing Officer added Rs 17,38,15,500 in the society’s hands as short-term gain, being the stamp value of the development agreement (Rs 14,29,66,000) and half of members’ extra-area deals and of a new buyer’s purchase; the society’s explanation was that the stamp authority had reported its permanent account number as the seller’s because it was the first party to the agreement. The appeals were restored to the Commissioner (Appeals) on the delay, without a decision on merits. Where the agreement is never acted upon the society has a decided answer: ITO v. Suraj Heights B Co-op Housing Society Ltd (ITA 1371/Mum/2026, 13 May 2026, paragraph 11) deleted an addition of the registered value of Rs 11,38,67,000 because the agreement “was never acted upon” and the figure was “merely an agreement value” (Part 2).

Two later orders deleted additions of the same kind on the merits. In Hardinge House Co-operative Housing Society Ltd. v. ITO, ITA 3050/Mum/2026, pronounced on 31 August 2026, the Assessing Officer had taxed as the society’s long-term gain Rs 18,40,18,300, the total stamp values of the development agreement and seven members’ alternate accommodation agreements, to which the society was a party, on information returns alone; the Tribunal, recording that the society had executed the agreement as its members’ representative under a directive issued under section 79A of the Maharashtra Co-operative Societies Act, 1960 and had received no part of the consideration, and noting that reassessment for the next year had been dropped on identical agreements, held that “direct tax liability cannot be transferred or foisted upon another entity when the underlying transaction demonstrates that the rights in the flats belong to the individual members” (paragraph 5.3). The Revenue will cite the same paragraph’s statement that the society “merely holds the legal title to the land/building as a collective representative of its members”: on its case, that title carries the development potential. In Udayachal Goregaon Co-operative Housing Society Ltd. v. ITO, ITA 2814/Mum/2026, decided on 10 September 2026, an ex parte addition of Rs 71,29,000, the stamp value of a tripartite agreement under which two members surrendered 323 square feet of their entitlement to the developer for Rs 29,07,000 payable to them, was deleted as lacking “both factual and legal foundation” (paragraph 14). Neither order decides anything about the members; the figures belong in their assessments.

The society’s own receipts: corpus, extra floor space and flats

Corpus received by the society

The only reasoned decision read is MIG Group II. Of the Rs 15 crore corpus, Rs 3.50 crore was received in the year. The Assessing Officer taxed it as “nothing but a windfall”; the Tribunal held at paragraph 8.3 that, possession of the land not having been given, the Rs 3.50 crore “was to be assessed under the head capital gains, as claimed by the assessee”, and that the unreceived balance was not taxable that year. The High Court was “unable to find any error in the conclusion arrived at by the ITAT” (paragraph 10), but the Revenue’s question had been about the year, not the head.

Cost: the no-cost line and the 2023 amendment

For years the Mumbai Tribunal held that additional floor space available to a society under the 1991 development control rules had no cost, so its transfer produced no computable gain. In Land Breez Co-operative Housing Society Ltd v. ITO (ITA 4130/Mum/2011, 14 September 2012) the right was “definitely a ‘Capital Asset’” (paragraph 15), but “no cost of acquisition can be ascribed to a right which has emanated from DCR, 1991” (paragraph 16). SBI Staff Chitralekha CHS Ltd v. CIT (10 February 2020) followed it; ITO v. State Bank of India Staff Vaibhav Co-op Hsg Society (19 June 2019, paragraph 8.4) held section 50C inapplicable to development rights; and Bhatia Nagar Premises Co-operative Society Ltd v. ITO (21 June 2013, paragraph 9) held that the society “could transfer the additional FSI only on demolition of old building”. As recently as 22 December 2025, Colombia applied the line for assessment year 2015-16, reading Sambhaji Nagar at paragraph 8 as holding that floor space from TDR loading had “no cost of acquisition paid or ascertainable u/s. 55 and thus, the computation machinery failed”.

Behind these stands CIT v. Sambhaji Nagar Co-operative Housing Society Ltd, cited as [2015] 54 taxmann.com 77 (Bom). It was not found in its own text; its paragraph 11, known only as quoted in a submission recorded in Colombia (paragraph 5.1), treats the Tribunal’s no-cost conclusion as a possible view on the facts, in the light of section 55(2) and B.C. Srinivasa Setty, and should not be cited for more; Colombia’s paragraph 8 reads it more broadly than that paragraph bears.

From assessment year 2024-25 the no-cost line is unlikely to survive. The Finance Act, 2023 (Act No. 8 of 2023) inserted “or any other intangible asset” and “or any other right” into section 55(2)(a) with effect from 1 April 2024. An unpurchased right now has a cost of nil, not an incomputable cost, so the gain is the whole consideration. The 2025 Act carries the same words in section 90(3), ending “(c) nil, in any other case.”

The society can argue that “any other right” takes colour from the rights listed before it, which are rights to carry on a trade or occupy premises (goodwill, brand, a right to manufacture or carry on business, tenancy rights, stage carriage permits, loom hours), and that development potential inherent in land is part of the land, with the land’s cost. The list is wider than business intangibles, which weakens the argument; the Revenue will add that the words were inserted to end the no-cost cases and that if the right is land, section 50C applies. No decision on the amended text was traced. One more Revenue point: in Jethalal D. Mehta v. DCIT ([2005] 2 SOT 422 (Mum), ITA 672/Mum/2000), known only as quoted in Land Breez, an amount received for the right to load transferable development rights was said to end up “reducing effective cost of acquisition of the land and building”, to be reflected when the property is later transferred. The reasoning would reach members too.

An illustration. A society receives Rs 2,00,00,000 of corpus for itself in financial year 2025-26, offers it as capital gains as MIG Group II did, and the Assessing Officer applies “any other right”. The right is assumed to have been held for more than twenty-four months, so the gain is long-term.

	Corpus received in FY 2025-26
Consideration	Rs 2,00,00,000
Cost under section 55(2)(a) as amended (“any other right”, nil)	Rs 0
Long-term capital gain	Rs 2,00,00,000
Tax at 12.5 per cent under section 112(1)(d), before surcharge and cess	Rs 25,00,000
Tax on the pre-2024-25 no-cost line (computation fails)	Rs 0

Section 54EC is open to it only if the gain is from land or building, the same characterisation that would let the Revenue apply section 50C.

Flats received by the society for its own floor space, as in the 2025 MIG Group II order, are either consideration for a transfer by it or a receipt under section 56(2)(x); the order did not decide which. On the tenant reasoning they are not received without consideration, but the society must then accept that it transferred something.

Mutuality, section 80P and distribution to members

What mutuality covers

Mutuality protects a society’s receipts from its own members under its bye-laws. The Bombay High Court in Sind Co-op. Housing Society v. ITO (Income Tax Appeal 931 of 2004, 17 July 2009) held transfer fees within the bye-laws mutual and said at paragraph 20 that an amount retained beyond what the bye-laws or Government directions allow would be taxable. The Gujarat High Court had taken the same position for a plot-holders’ society in CIT v. Adarsh Co-operative Housing Society Ltd, [1995] 213 ITR 677 (Guj). The Supreme Court in Bangalore Club v. CIT ((2013) 350 ITR 509) held at paragraph 33 that interest on surplus funds placed in fixed deposits, even with member banks, was taxable while the surplus itself was exempt.

A developer’s payment is therefore not a members’ contribution, and mutuality does not cover the society’s corpus. Nor is a developer’s payment to a member a dividend from the society: that theory from the MIG Colony reopenings (Late Chitra Chakola v. ITO, 1 August 2024) has failed in every order read, though usually without engaging with Bangalore Club.

Section 80P

MIG Group II allowed Rs 47.08 lakh under section 80P(2)(d) and Rs 50,000 under section 80P(2)(c)(ii) (paragraph 12.3), and later orders followed. Clause (d) deducts “the whole” of interest or dividends a co-operative society derives “from its investments with any other co-operative society”. None of these orders engaged with the Revenue’s argument that a co-operative bank, which section 80P(4) excludes from claiming the deduction itself, is not “any other co-operative society” for clause (d), or with the Supreme Court’s decision in Citizen Co-operative Society, which the Revenue raised in the 2025 appeal without the Tribunal discussing it. For interest from a co-operative bank the point is live. The 2025 Act has the same provisions in section 149(2)(c), (2)(d) and (5).

Distributing corpus to members, and converting sinking funds

No decision was traced on a society distributing a developer’s corpus to members, or converting its sinking and repair funds into a corpus. The members will say a surplus returned in proportion is their own money (Adarsh CHS, Sind CHS) and a second tax after the society paid is double taxation; the Revenue, that money from an outsider is not a return of contributions, and is income or, on Jethalal Mehta, reduces the cost of their flats. Sinking funds, built from members’ own contributions, are the strongest mutuality case, but interest earned on them or on a converted corpus comes from the bank, not the members, and is taxable unless section 80P covers it.

Self-redevelopment, from the member’s side

In a self-redevelopment the society borrows, builds its members’ flats through a contractor and sells the surplus itself. Its side is in Part 1 of the developer series; no decision was traced on either side.

The member’s contribution is cost. A member’s payments to the society towards his new flat are part of its cost on either the continuation or the exchange view, and should go through the bank and be receipted against his flat. In Anshul T. Bhimjyani v. PCIT (ITA 3373 and 3374/Mum/2018, 31 December 2018), discussed in Part 3, family members who redeveloped a society’s building at their own cost and were admitted as members kept, against a revision, a section 54 claim on cost incurred mostly before their sale (the Revenue’s High Court appeal was withdrawn on monetary limits, the question left open).

Section 80C and the loan. Both deductions below are lost under the default regime of section 115BAC, which from assessment year 2024-25 applies unless the member opts out under section 115BAC(6). Instalments to the society “towards the cost of the house property allotted to him” are within section 80C(2)(xviii)(b), excluding admission fees and share money, and the deduction reverses on a transfer within five years from the end of the year of possession. Interest on money borrowed for the contribution falls under section 24(b), which covers property “acquired, constructed, repaired, renewed or reconstructed” with borrowed capital; for a self-occupied house it is capped at Rs 30,000, rising to Rs 2 lakh only where the house is “acquired or constructed” with capital borrowed on or after 1 April 1999 and completed within five years from the end of the year of borrowing. Reconstruction is not in the higher limit, so the continuation view of Part 1, under which the flat is rebuilt rather than acquired, can cost the member the higher limit; and a delayed project can miss the five years.

Extra area at cost. Members who take more area usually pay the society at cost or below market, and the Revenue can say the excess of stamp duty value over that price is taxable under section 56(2)(x)(b)(B). The member’s answer is that he pays his own society for construction on land in which he already has an interest, which improves an existing right rather than acquiring new property (Bipinchandra Shah), and that his surrender of the old flat is part of the price. Neither argument appears in an order read. No order deals with a member’s share of the society’s surplus either; if it is applied to reduce his contribution, his cost is lower by that amount, and if it is paid out, Open question 10 applies.

The Gujarat owner who builds himself. An Ahmedabad owner often demolishes his bungalow, builds flats, keeps some and sells others. In Ushaben Jayantilal Sodhan v. ITO (Tax Appeal 393 of 2014, 1 May 2018), set out in Part 3, the Gujarat High Court treated the land share in each flat as passing when its sale deed was executed (paragraph 18), and held at paragraph 29 that section 54F, claimed against the flats she kept, was available only on the one flat sold before construction was complete. An owner who treats the flats as stock is in business income, on Bharat Manubhai Patel.

When the new flat or the extra area goes into a family member’s name

Clubbing. Section 64(1)(iv) adds to an individual’s income what arises “to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration”. Where the gain is clubbed, the Mumbai Tribunal in Late Rajeshbhai Muljibhai Amin v. ACIT (ITA 8307/Mum/2025, 10 June 2026) allowed the matching section 54 relief with it (paragraph 21). The same rule applies to a son’s wife (section 64(1)(vi)) and a minor child (section 64(1A)), but not to an adult child. For house property, section 27(i) deems an individual who transfers a house “otherwise than for adequate consideration” to a spouse or minor child to be “the owner of the house property so transferred”, so a second flat registered in the wife’s name remains the member’s for sections 22 to 26, its rent or deemed rent under section 23(4) is his, and it counts among his houses for the house property computation; whether it also counts for the ownership bar in the section 54F proviso is not answered by section 27, which is confined to sections 22 to 26. Whether a direct allotment by the developer in the wife’s name is a transfer by the member “to” her, when his old flat and money paid for it, is undecided.

Section 56(2)(x). Property received “from any relative” is excluded, but the exclusion protects a receipt from the relative, not from the developer: if the developer allots extra area to the child below its stamp duty value, the child has received it from the developer.

Sections 54 and 54F. A house bought in the spouse’s name from the member’s own money was allowed section 54F by the Delhi High Court in CIT v. Kamal Wahal (ITA 4 of 2013, 11 January 2013), which noted a contrary Bombay High Court view; Part 3 sets out the cases.

Benami. The Prohibition of Benami Property Transactions Act, 1988 excludes property an individual holds in the name of his spouse or child where the consideration is paid out of his known sources (section 2(9)(A)(b)(iii)), and property in the name of a brother, sister, lineal ascendant or descendant only where the individual and that relative are joint owners and the consideration comes from his known sources (section 2(9)(A)(b)(iv)). A flat put solely in a sibling’s or parent’s name, or paid for in unaccounted cash, is outside both. Family members who are tenants in their own right are a different case, as Subhash Nadkarni showed.

On-money paid to members and found in a developer search

The developer’s side is in Part 2 of the developer series and on the search provision page.

How the addition is framed. Sections 68 to 69B tax unexplained credits, investments, money and assets, section 69A reaching money of which the assessee “is found to be the owner”. A member whose cash appears only in the developer’s seized papers has nothing “found” with him, so the addition is more often undisclosed consideration for his flat, as in Subhash Nadkarni. Where the addition is framed under sections 68 to 69D, section 115BBE taxes it with no deduction or set-off, at 60 per cent from assessment year 2017-18 and at 30 per cent for assessment years 2013-14 to 2016-17 (the section did not exist before 2013-14, so Subhash Nadkarni’s assessment year 2000-01 carried no special rate), and from 2017-18 section 271AAC adds a penalty of ten per cent of that tax in place of a penalty under section 270A, unless the income was returned and the tax paid by the end of the year.

The defence. In Subhash Nadkarni the developer’s director put the landlords’ cash at Rs 1,04,50,000 in a 2005 statement under section 132(4) and at Rs 47 lakh plus “two extra flats” in 2011; the Tribunal held the statement “contradictory” (paragraph 8), found the flats went to family members for their own tenancies, and deleted the addition, affirming a Commissioner (Appeals) who had allowed cross-examination. The Gujarat High Court in Kailashben Manharlal Chokshi v. CIT (Income Tax Reference 111 of 1997, 1 September 2008) held that an admission alone cannot support an addition “unless and until, some corroborative evidence is found in support of such admission”, but confirmed Rs 1 lakh of unaccounted cash out of Rs 7 lakh: a retraction does not wipe out what is independently found. In Naresh Bansilal Jain the Tribunal warned that if the claim of prior occupation failed, on-money admitted by the developer might be examined under section 69A.

The 2025 Act. Sections 102 to 104 replace sections 68 to 69B. Section 195 of the 2025 Act, the counterpart of section 115BBE, taxes such income at 30 per cent, substituted for 60 per cent by the Finance Act, 2026 (Act No. 4 of 2026) from 1 April 2026. The same Act inserted clause (g) in section 439(11), so that income determined under section 195(1)(b) (an addition the assessee did not return) is misreporting attracting a penalty of 200 per cent of the tax, and omitted section 443, the ten per cent penalty that had replaced section 271AAC, both from 1 April 2026. For tax years beginning before 1 April 2026, section 536(2)(c) of the 2025 Act keeps the 1961 Act’s procedure even for proceedings started later, section 536(2)(a) and (b) preserve the liability incurred under the 1961 Act, which carries its section 115BBE rate, and section 536(2)(d) keeps penalties for those years under the 1961 Act. A member may argue that the lower rate is a beneficial change reaching old years, but nothing in section 536 supports it and no decision was traced.

Gujarat: what the record shows

No decision of the Ahmedabad, Surat or Rajkot Benches, or of the Gujarat High Court, was traced on the tax position of any holder in this Part; Gujarat orders reported only in subscription services may exist. Mumbai orders are coordinate Bench decisions; the Ahmedabad Bench should follow them on like facts or refer a disagreement to a Special Bench. Gujarat has this.

CIT-III v. Gaurang S. Desai (Tax Appeal 1174 of 2007 and connected appeals, 14 July 2008). Plot-holding members of a society who gave their land to a developer in 1995 for a flat each kept section 54F, the High Court declining to frame a question of law (Part 1 sets out the order). Because the Revenue itself treated the members, not the society, as transferors, the order gives some support to members of Gujarat tenement and bungalow societies (Colombia’s “tenant ownership” type) who say they transfer land or building for section 54F; it predates section 45(5A) and says nothing about it.

Adarsh CHS (mutuality), Kailashben Manharlal Chokshi (retracted admissions) and Ushaben Jayantilal Sodhan (the owner who redevelops her bungalow) are discussed above; Sarojben Kiritbhai Shah v. Ahmedabad Municipal Corporation (Letters Patent Appeal 1075 of 2022, 23 January 2023), a civil judgment under section 41A of the Gujarat Ownership Flats Act, 1973, is in Part 3.

Open questions in Part 4, argued both ways

1. Is pagdi paid to a landlord the “purchase price” of a tenancy under section 55(2)(a)? For the tenant: the landlord parted with the right to occupy for a price, D.P. Sandu accepted that a tenancy “may be acquired at a cost”, and Ebrahim Noormohamed (2025) held a non-refundable deposit to be cost. For the Revenue: the clause needs purchase “from a previous owner”, which a landlord granting a tenancy is not, and the 2001 option is confined to “any other capital asset”. Decided for the tenant in one order that does not engage with those words; it matters only if section 54F fails.

2. When does a tenant transfer? For the tenant: the agreement controls, so a clause keeping the tenancy alive until possession fixes the transfer then (Jigar Sevantilal Shah, Snehalata Dhayagude), and the definition of “immovable property” for section 2(47)(v) leaves out rights arising from a lease, though its Explanation counts rights in a building as part of the building. For the Revenue: section 2(47)(v) catches the vacant possession handed over under a registered contract, and Vasantha Narayan Poojari, obiter and for an owner, fixed the date in 2012, when he accepted the developer’s offer and vacated. No order has applied clause (v) to a tenant; open where the agreement is silent.

3. Can section 56(2)(x)(b)(B) tax the excess of the flat’s stamp duty value over the tenancy’s value? For the tenant: the exchange is taxed under capital gains, so section 56 has no role (D.P. Sandu, Varun Asher, Barabde), and the tenancy’s value includes the redevelopment entitlement. For the Revenue: the Tribunal’s own reasoning gives the surrender a value to compare. Untested.

4. Is the cost of the tenant’s new flat its market value, or nil? For the tenant: the flat was paid for in kind, and section 55(2)(a) governs the tenancy, not the flat. For the Revenue: the tenant paid nothing, and a market-value cost lets a gain escape unless the surrender was taxed. Decided for the tenant in two Mumbai Tribunal orders (Sarjit Desai, Murtuza Kothari), both relying on Tauqeer Fatema Rizvi (2014) and on Atul G. Puranik (2011), a compulsory acquisition case; no High Court decision. Coherent only if the surrender gain was offered or exempted.

5. Is a slum dweller taxed on the tenement, or on surrender of the hut? For the dweller: the tenement is consideration for surrender of a protected occupation, and nothing is received before possession. For the Revenue: a tenement “free of all cost” falls within section 56(2)(x)(b)(A), or from 2024-25 the dweller transfers “any other right” at nil cost. Undecided.

6. Is a shopkeeper’s loss-of-business payment capital or revenue? For the shopkeeper: it is part of the price for premises that were an asset of enduring value and his source of income (Oberoi Hotel; Kettlewell Bullen’s second limb). For the Revenue: a sum measured on lost profits while trade continues is compensation for injury to trading operations (Kettlewell Bullen), and from assessment year 2019-20 section 28(ii)(e) reaches compensation connected with modifying a contract relating to the business. No redevelopment decision; the drafting decides most cases.

7. After the 2023 amendment, does a society’s floor space have a nil cost? For the society: “any other right” takes colour from the trade and occupation rights before it, and development potential is part of the land. For the Revenue: the words were inserted to end the no-cost cases, and the list already includes tenancy rights and loom hours. No decision; on the words the Revenue has the stronger argument, since “any other” is residuary, and the society’s best answer, that the right is costed with its land, exposes it to section 50C.

8. Must a developer deduct under section 195 from hardship compensation paid to a non-resident? For the member: only a “sum chargeable” is caught (GE India Technology Centre, Supreme Court, 2010), and hardship and transit rent are capital receipts (Iyengar, Ponnoth). For the Revenue: the payer must deduct unless an order under section 195(2) or section 197 is obtained; chargeability is for the assessment. Undecided.

9. Is a society taxable on what passed to members whose tax payment it cannot prove? For the society: income received by members is theirs (MIG Group II, upheld in 2024). For the Revenue: the society signed, and holds the legal title, which Hardinge House itself acknowledges (paragraph 5.3); the defence turns on proof. Remanded in 2025, with verification treated as a condition; where the society received nothing, Hardinge House and Udayachal Goregaon (2026) deleted the addition outright.

10. What is a member’s position on a self-redevelopment surplus? For the member: a mutual body’s distribution returns members’ own funds, and a reduced contribution only reduces cost. For the Revenue: surplus from sales to outsiders is not the members’ contribution (Bangalore Club), and extra area below stamp duty value attracts section 56(2)(x). Open.

A practitioner’s checklist

1. For a tenant, fix the date of surrender in the agreement. A clause keeping the tenancy alive until possession, as in Jigar Shah, keeps the transfer in the year the flat arrives.
2. Value the tenancy at the date of surrender. A registered valuer’s report supports the consideration, section 54F, the new flat’s cost and the answer to section 56(2)(x)(b)(B).
3. Prove the tenancy and its cost. Keep rent receipts, the landlord’s records, any assignment from an outgoing tenant and the receipt for any pagdi or deposit, which Ebrahim Noormohamed treated as cost; for a tenancy older than 1 April 2001, get a valuer’s report as at that date too. A recital is not proof (Naresh Bansilal Jain).
4. Return the surrender and claim section 54F, checking that no more than one other house was owned that day; market-value cost on a later sale depends on it.
5. Plan the resale. A sale within twenty-four months of acquiring the new flat is short-term, and within three years it claws back the section 54F exemption.
6. Price extra area in writing and pay part by cheque on or before the agreement.
7. For a shop or office, draft the compensation clause. Tie lump sums to the surrender of the premises, not to lost turnover, and plan the depreciation block so that the new unit enters it in the same year if it can.
8. For a garage, parking or terrace right, say what is surrendered. State whether it goes with the flat or separately, what is given for it, and whether the slot allotted is a garage or a common-area space.
9. For a company, firm or trust, remember what is missing. No section 45(5A), section 54, section 54F or 23 July 2024 proviso; section 54EC is the only reinvestment relief, except that a charitable trust has section 11(1A) and should record that the new flat is held on the original trust.
10. For a non-resident, apply before payment under section 195(2) or section 197 (section 395 of the 2025 Act), check that any notice comes from an officer with jurisdiction, and read his own treaty.
11. For the society, route members’ money to members. Have the developer pay members directly, record who receives what, keep evidence that each member offered his share to tax, and check the permanent account numbers on every registered document (Ghatkopar Devang).
12. Decide what the corpus is for. If it is for maintenance, keep it in the society and expect it to be taxed there; if it is the members’, have it paid to them. Do not assume section 80P covers interest from a co-operative bank.
13. If a developer search names the member, ask for the material and for cross-examination, as in Subhash Nadkarni, and retract a wrong statement promptly.

Concordance: the Income-tax Act, 1961 and the Income-tax Act, 2025

Subject	Income-tax Act, 1961	Income-tax Act, 2025
Transfer: relinquishment, extinguishment, membership, part performance	section 2(47)(i), (ii), (vi), (v)	section 2(109)(a), (b), (f), (g)
Short-term capital asset; previous owner’s holding included	section 2(42A) and Explanation 1(i)(b)	section 2(101)(a) and (c)(B)(I)
Charge to capital gains	section 45(1)	section 67(1)
Conversion of a capital asset into stock in trade	section 45(2)	section 67(6)
Compulsory acquisition: compensation first received; enhanced compensation	section 45(5)	section 67(12)
Capital gains on a specified agreement	section 45(5A)	section 67(14) to (16)
Mode of computation; indexed cost for the comparison	section 48	section 72(1); section 72(2) and (8)
Cost where the asset came by inheritance, gift or will	section 49(1)	section 73(1), Table serial 1
Cost of property taxed under section 56(2)(x)	section 49(4)	section 73(1), Table serial 17
Stamp duty value as full value of consideration	section 50C	section 78
Fair market value where consideration is not ascertainable	section 50D	section 80
Cost of tenancy rights and “any other right”	section 55(2)(a)	section 90(3)
Market value on 1 April 2001, capped at stamp duty value	section 55(2)(b)	section 90(9)(a) and (b), and (10)
Exemption on sale of a residential house	section 54	section 82
Exemption on sale of any other long-term asset	section 54F	section 86
Clawback of section 54F where the new house is sold within three years	section 54F(3)	section 86(7)
Investment in specified bonds	section 54EC	section 85
Property received without or for inadequate consideration	section 56(2)(x)	section 92(2)(m), with exclusions in section 92(3) and valuation in section 92(4)
Long-term capital gains rate and the 23 July 2024 comparison	section 112(1) and second proviso to section 112(1)(a)	section 197(1) and (3)
Deduction from payments to non-residents	section 195(1)	section 393(2), Table serial 17
Deduction under a specified agreement	section 194-IC	section 393(1), Table serial 3(ii)
Lower or nil deduction: payee’s certificate; payer’s application	section 197; section 195(2)	section 395(1); section 395(2)
Clubbing: spouse, son’s wife, minor child	section 64(1)(iv), (1)(vi) and (1A)	section 99(1)(a)(ii), (1)(b) and (1)(c)
Compensation on termination or modification of a business contract	section 28(ii)(e)	section 26(2)(b)(iii)
Capital gains on depreciable assets	section 50	section 74
Stamp duty value for business assets (stock)	section 43CA	section 53
Capital gain of a charitable trust deemed applied	section 11(1A)	section 341(9)
Deduction for co-operative societies	section 80P(2)(c), (d) and (4)	section 149(2)(c), (d) and (5)
Unexplained credits, investments and assets	sections 68, 69 and 69B, 69A	sections 102, 103, 104
Special rate on unexplained income	section 115BBE (60 per cent from assessment year 2017-18)	section 195 (30 per cent from 1 April 2026)
Penalty for under-reporting and misreporting	section 270A	section 439
Penalty on unexplained income	section 271AAC	section 443, omitted from 1 April 2026; such income now in section 439(11)(g)
Instalments to a co-operative society for a house allotted	section 80C(2)(xviii)(b)	section 123 with Schedule XV, paragraph 3(a)(ii)
Repeal of the 1961 Act and savings	(not applicable)	section 536

The 2025 Act references were checked against that Act’s text on the Income Tax Department’s website.

Go back to Part 1: transfer, cost and holding period, Part 2: hardship compensation, corpus, rent and tax deduction at source or Part 3: cash exits, resale and sections 54 and 54F. The developer’s side of the same transactions is in the developer series.

This note is general commentary on the law as at 22 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.