Chargiability of amount received for vacating the premises

[Guest]

Amount received from shop owner by the shop tenant for vacating the premises is chargeable to income tax?If yes, how?Please clarify.

[Brijesh Verma]

Dear Sujit Ji This transaction amounts to 'Transfer' under section 2(47)(ii) of the Income Tax Act as there is a 'EXTINGUISHMENT OF ANY RIGHT THEREIN'. The amount may well be subjected to Capital Gain Tax.

[Guest]

Many many thanks for the reply.One more thing which I need to clarify as there is no amount involed which can be classified as Cost of Acquisition,can the rent pad to landlord be treated as Cost of acquisition/improvemnet or the entire amount will be taxable as Capital gain?

AI Summary

Extinguishment of rights as transfer: payment to vacate premises may attract capital gains tax treatment. Payment by a tenant for vacating premises is a transfer by extinguishment of rights and may be taxable as capital gain; the key practical question is whether expenditures (such as rent paid to the landlord) can be treated as cost of acquisition or improvement to reduce the capital gain or whether the whole receipt is taxable.