Inherited tenancy rights and section 54: cost of acquisition may need fresh factual inquiry, but housing deduction remains unavailable.

On transfer of inherited tenancy rights, the cost of acquisition depends on the succession/devolution regime: the predecessor's cost is relevant, and where that cost cannot be ascertained, fair market value on the relevant date may be considered. Because the record did not clearly establish when the tenancy rights arose or whether consideration had been paid, the matter required fresh factual examination and was remitted for reconsideration. Deduction under section 54 was not available on transfer of tenancy rights, as the provision applies to transfer of a residential house and not a mere tenancy interest.

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Issues: (i) Whether, on transfer of inherited tenancy rights, the cost of acquisition was required to be determined on the basis of the previous owner's acquisition cost or the fair market value as on 1.4.1981, and whether the matter required fresh factual examination. (ii) Whether deduction under section 54 was available on transfer of tenancy rights.

Issue (i): Whether, on transfer of inherited tenancy rights, the cost of acquisition was required to be determined on the basis of the previous owner's acquisition cost or the fair market value as on 1.4.1981, and whether the matter required fresh factual examination.

Analysis: Tenancy rights, when acquired otherwise than by purchase, fall within the special regime governing cost of acquisition. Where the asset comes by succession, inheritance or devolution, the previous owner's cost becomes relevant, and if that cost cannot be ascertained, fair market value on the date the asset became the previous owner's property may be considered. The record did not satisfactorily establish when the tenancy rights first arose or whether the previous owner had paid consideration, and the additional material sought to be relied upon required scrutiny.

Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication after giving the assessee opportunity to adduce evidence; the assessee obtained partial relief on this issue.

Issue (ii): Whether deduction under section 54 was available on transfer of tenancy rights.

Analysis: Deduction under section 54 was held to be unavailable where the subject of transfer was tenancy rights and not a residential house property as contemplated by the provision.

Conclusion: The claim for deduction under section 54 was rejected.

Final Conclusion: One issue was sent back for reconsideration and the other was decided against the assessee, resulting in a partial allowance of the appeals for statistical purposes.

Ratio Decidendi: In a case of inherited tenancy rights, the correct cost-of-acquisition enquiry depends on the statutory regime for assets acquired by succession or devolution and may require determination of the predecessor's cost or fair market value where that cost is not ascertainable; section 54 does not extend to a mere transfer of tenancy rights.

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