Where a tenant is provided accommodation in the new building on ownership basis, the value of accommodation for the purpose of determining the capital gains shall be the fair market value of the tenancy rights transferred and the cost of acquisition being ‘Nil’, the entire value will be subject to capital gains. However, since the tenancy rights are exchanged for the ownership of a flat, it can be considered as purchase of a residential house by investing the full value of consideration received on surrender of tenancy rights and the tenant would be entitled to claim the reinvestment benefit available under section 54F, subject to compliance of the certain conditions stipulated therein. However, serious difficulties may arise where new premises received in lieu of surrender of tenanted premises are commercial premises, since in such cases the tenant shall not be able to claim the reinvestment benefit available under section 54F as the reinvestment is in a property, other than a residential house. Hence, extreme care should be taken while drafting the agreements so as to ensure that the tenant does not end paying huge capital gains tax on the basis of market value of the tenanted premises upon surrender of tenanted premises for the commercial premises. In such a situation, it is advisable for the tenant to pay nominal consideration to the landlord i.e 120 month’s rent for acquiring ownership rights in the commercial premises.
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