Rajesh Shamji Furia v. ITO

Case snapshot

Sections / provisions: 45; 48; 54F

Questions before the Court / Tribunal

• Redevelopment flat; capital gains; exemption: The matter concerns capital-gains computation arising from redevelopment and the treatment of the replacement residential property. The reported decision considers continuity of rights, cost/indexation and the conditions for residential-house exemption.

Material facts and background

The brief facts of the case are that the assessee is an individual who filed

his return of income for the Assessment Year 2018-19 on 25.07.2018 declaring a total income of ₹11,28,190/-. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had acquired Flat No. 503 in the 1

redeveloped building "Majala Priya Girish Vihar" under an Agreement for Permanent Alternate Accommodation dated 12.01.2018. The Assessing Officer examined the applicability of section 56(2)(x) of the Income-tax Act, 1961 (“the Act”), since the stamp duty value of the flat exceeded the amount of ₹6,00,000/paid by the assessee towards purchase of an additional 55 sq. ft. area. The assessee submitted that the new flat had been received under a redevelopment scheme in exchange for the old flat and the payment of ₹6,00,000/- was with respect only to the additional area purchased from the developer. The Assessing Officer accepted this explanation and held that the provisions of section 56(2)(x) of the Act were not attracted.

Thereafter, on examination of the return of income and supporting

documents, the Assessing Officer observed that the assessee, along with his wife, had purchased Flat No. 2 admeasuring 510 sq. ft. in the financial year 2006-07. Pursuant to a redevelopment agreement executed with the developer during the financial year 2012-13, the old building was demolished and a new flat bearing No. 503 was allotted to the assessee having the original carpet area, 30% additional area under the redevelopment scheme, 185 sq. ft. received as a gift from the assessee's mother and an additional 55 sq. ft. purchased for ₹6,00,000/. The new flat was handed over under the Agreement for Permanent Alternate Accommodation dated 12.01.2018 and this was sold by the assessee on 20.01.2018 for a consideration of ₹1,95,48,000/-. The assessee treated the 2

gain arising from such sale as long-term capital gain and claimed the benefit of exemption under section 54F of the Act in respect of purchase of another residential flat. The Assessing Officer was of the view that the transfer of the old flat to the developer under the redevelopment arrangement constituted an independent transaction from the subsequent sale of Flat No. 503. Since the new flat was allotted to the assessee on 12.01.2018 and sold by the assessee on 20.01.2018, the Assessing Officer held that the holding period was less than twenty-four months and, therefore, the gain arising from the sale constituted short-term capital gain. Accordingly, the Assessing Officer denied the claim of exemption under section 54/54F of the Act and the Assessing Officer also denied the indexation benefit and made an addition of ₹80,14,500/- being the assessee's 50% share of the short-term capital gain, in the hands of the assessee.

In appeal, the learned CIT(A) upheld the action of the Assessing Officer.

Appellant / assessee submissions

redeveloped building "Majala Priya Girish Vihar" under an Agreement for Permanent Alternate Accommodation dated 12.01.2018. The Assessing Officer examined the applicability of section 56(2)(x) of the Income-tax Act, 1961 (“the Act”), since the stamp duty value of the flat exceeded the amount of ₹6,00,000/paid by the assessee towards purchase of an additional 55 sq. ft. area. The assessee submitted that the new flat had been received under a redevelopment scheme in exchange for the old flat and the payment of ₹6,00,000/- was with respect only to the additional area purchased from the developer. The Assessing Officer accepted this explanation and held that the provisions of section 56(2)(x) of the Act were not attracted.

Revenue / respondent submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Court / Tribunal analysis and reasoning

merely identifies and records the permanent alternate premises allotted in substitution of the existing premises pursuant to rights which had already accrued under the Development Agreement. Therefore, the execution of the Permanent Alternate Accommodation Agreement cannot be regarded as the starting point for computing the period of holding.

“Mere payment of instalments towards additional area does not postpone the date of acquisition.” ….. “Once the date of allotment/crystallization of rights is taken as the date of acquisition, it is evident that the assessee had held the capital asset for a period exceeding thirty-six months... Consequently, the asset qualifies as a long-term capital asset.”

counted from the date of execution of the conveyance deed or the Permanent Alternate Accommodation Agreement. What is relevant is the point of time when enforceable rights in the property come into existence. Applying the aforesaid principle, we find that the assessee acquired the original flat in the year 2006. The Development Agreement executed on 15.02.2013 recognised and crystallised the assessee's entitlement to receive the redeveloped premises consisting of the original carpet area together with 30% additional area without consideration. The additional area purchased from the developer also originated under the same Development Agreement. Also, the area transferred by the assessee's mother derived its character from rights already held by her, and upon transfer, the assessee stepped into her shoes for determining the period of holding. Therefore, each component comprised in Flat No. 503 emanated from pre-existing rights under the redevelopment arrangement and cannot be dissected into separate capital assets merely because the Permanent Alternate Accommodation Agreement was executed subsequently.

which the period of holding is to be reckoned. The counsel for the assessee has contended that the holding period should be reckoned from the date of acquisition of the original flat in December, 2006, whereas, in the alternative, it was argued that even if the rights in the redeveloped premises are considered to have crystallised under the Development Agreement dated 15.02.2013, the capital asset would nevertheless qualify as a long-term capital asset on the date of its sale on 20.01.2018. We find merit in the alternative contention of the assessee. The original ownership rights indisputably originated in the year 2006 and those rights continued throughout the redevelopment process. The Development Agreement executed on 15.02.2013 specifically recognised and 10

crystallised the assessee's enforceable right to receive the permanent alternate accommodation comprising the original area, the additional area receivable free of cost under the redevelopment scheme and the additional area agreed to be purchased from the developer. Thus, even assuming, for the sake of argument, that the period of holding is reckoned from the date of the Development Agreement, 15.02.2013, the capital asset was held by the assessee for almost five years before its sale on 20.01.2018, which is well beyond the statutory period prescribed for treating the asset as a long-term capital asset. Therefore, it is not necessary for us to finally adjudicate whether the holding period should commence from the original acquisition in the year 2006 or from the crystallisation of rights under the Development Agreement in the year 2013, since under either view the asset qualifies as a long-term capital asset.

capital asset sold by the assessee was held for a period exceeding the statutory period prescribed under the Act. Accordingly, the gains arising therefrom are liable to be assessed as Long-Term Capital Gains. Consequently, the assessee is entitled to the benefit of indexed cost of acquisition in accordance with law. Further, it is an admitted position that the assessee invested the capital gains in purchase of another residential house within the period prescribed under section 54/54F of the Act. Therefore, having held that the gains are Long-Term Capital

In view of the foregoing discussion, and respectfully following the binding judgment of the Hon'ble Bombay High Court in PCIT v. Vembu Vaidyanathan (2019) 413 ITR 248 (Bom.) as well as the recent decision of the Coordinate Bench in Mrs. Urmila Jagdish Mehta v. ACIT (ITA No. 5944/Mum/2024, order dated 29.12.2025), we hold that the capital gains arising on sale of Flat No. 503 are assessable as Long-Term Capital Gains and not as Short-Term Capital Gains.

Operative decision and relief

confirmed by the learned CIT(A) is accordingly directed to be deleted. The Assessing Officer is further directed to allow the benefit of indexed cost of acquisition and to grant exemption under section 54/54F of the Act in accordance with law. 20.

Accordingly, the grounds raised by the assessee are allowed. Order pronounced in the open court on 16-Jul-2026. Sd/VIKRAM SINGH YADAV ACCOUNTANT MEMBER

Copy to: MR. RAJESH SHAMJI FURIA 168, SHRIPATI BHAVAN, V.N. PURAV 1 MARG, CHUNABHATTI-SION MUMBAI 400022

Authorities and precedents appearing in the judgment

• Coordinate Bench of the Tribunal in Mrs. Urmila Jagdish Mehta v. ACIT
• Bombay High Court in PCIT v. Vembu
• Court in PCIT v. Vembu Vaidyanathan (2019) 413 ITR 248 (Bom.)
• Coordinate Bench in Mrs. Urmila Jagdish Mehta v. ACIT (ITA No

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Redevelopment flat; capital gains; exemption. The operative result is classified as Operative order controls. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Redevelopment flat; capital gains; exemption. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Maintain a date-and-payment matrix for transfer, agreement, possession, investment and construction; capital-gains exemptions commonly turn on this chronology.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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