Section 50C on Sale of Agricultural Land: Can Stamp Duty Value Replace Actual Sale Consideration

By CA Surekha Ahuja

The Complete Legal Position Under the Income-tax Law

A complete legal analysis of Section 50C on sale of agricultural land, applicability of stamp duty value, exclusion of agricultural land qualifying under Section 2(14)(iii), capital gains provisions, judicial principles and the impact of the New Income-tax Act.

The Legal Position in Brief

Section 50C can apply only where the property transferred is a "capital asset" being land or building or both. Agricultural land qualifying for exclusion under Section 2(14)(iii) of the Income-tax Act cannot be subjected to Section 50C merely because its stamp duty value is higher than the declared sale consideration.

The first question is not: What is the stamp duty value?

The first question is: Whether the land transferred is a capital asset at all?

This question determines the entire taxability.

Introduction: The Jurisdictional Error in Applying Section 50C

Section 50C is one of the most important deeming provisions relating to transfer of immovable property.

In many assessments, the Revenue proceeds as follows:

• Compare the declared sale consideration with stamp duty value.
• Find that stamp duty value is higher.
• Invoke Section 50C.

However, this approach overlooks the fundamental condition embedded in Section 50C itself.

Section 50C does not apply to every transfer of land. It applies only to:

"transfer of a capital asset, being land or building or both."

Therefore, before examining valuation, the Revenue must first establish the existence of a capital asset.

The correct legal proposition is: Section 2(14) is the gateway to Section 50C. Where the gateway is closed because the asset is not a capital asset, the deeming fiction of Section 50C cannot operate.

The Statutory Sequence Under the Income-tax Law

The capital gains provisions operate in a definite order:

Step 1: Section 2(14) — Definition of Capital Asset

The Act first determines whether the property is a capital asset.

↓

Step 2: Section 45 — Charging Provision

Only transfer of a capital asset gives rise to taxable capital gains.

↓

Step 3: Section 48 — Computation Provision

The taxable capital gain is computed.

↓

Step 4: Section 50C — Stamp Duty Value Provision

Only thereafter can stamp duty value substitute the declared consideration.

The Revenue cannot legally begin with Section 50C while ignoring Section 2(14).

Section 50C Does Not Create Tax Liability

A common misconception is that Section 50C taxes land where the stamp duty value is higher.

That interpretation is incorrect. Section 50C is not a charging provision.

It does not decide: whether an asset is taxable; whether capital gains arise; whether a property is a capital asset.

It is only a computation mechanism. The Supreme Court in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) held that charging provisions and computation provisions constitute an integrated code.

A computation provision cannot operate independently where the charging provision itself does not apply.

Therefore:

No capital asset → No capital gains charge → No computation → No Section 50C

Agricultural Land Qualifying for Exclusion Under Section 2(14)(iii): Outside the Capital Gains Framework

The Income-tax Act excludes agricultural land qualifying for exclusion under Section 2(14)(iii) from the definition of "capital asset".

Only where the statutory conditions prescribed under Section 2(14)(iii) are satisfied does the land fall outside the capital gains provisions.

In such cases: it is not a capital asset; Section 45 does not apply; capital gains computation does not arise; and Section 50C cannot be invoked.

The legal chain is:

Agricultural Land Qualifying for Exclusion under Section 2(14)(iii)

↓

Excluded from Definition of Capital Asset

↓

Outside Section 45

↓

Outside Capital Gains Computation

↓

Section 50C Not Applicable

A Deeming Provision Cannot Create a New Taxable Asset

Section 50C creates a legal fiction. The fiction is limited.

Stamp duty value may be deemed to be the full value of consideration. The fiction is not:

Agricultural land qualifying for exclusion under Section 2(14)(iii) shall be deemed to be a capital asset.

The Revenue cannot extend a statutory fiction beyond the purpose for which Parliament created it.

The Supreme Court has repeatedly held that legal fictions must be strictly interpreted.

CIT v. Amarchand N. Shroff (1963) 48 ITR 59 (SC)

The Court held that a legal fiction cannot be extended beyond its legitimate scope.

CIT v. Mother India Refrigeration (P.) Ltd. (1985) 155 ITR 711 (SC)

The Supreme Court reiterated that deeming provisions must remain confined to the purpose for which they are enacted.

Therefore: Section 50C can deem consideration. It cannot deem the nature of the asset.

Agricultural Land Qualifying Under Section 2(14)(iii) and Urban Agricultural Land: The Critical Difference

The expression "agricultural land" alone does not decide taxability.

The statutory definition and location are decisive.

Particular	Agricultural Land Qualifying for Exclusion under Section 2(14)(iii)	Urban Agricultural Land
Capital asset status	Excluded if all conditions of Section 2(14)(iii) are satisfied	May qualify as capital asset
Capital gains provisions	Not attracted	Applicable
Section 50C	Not applicable	May apply
Stamp duty value	Cannot replace consideration under Section 50C	Relevant, subject to law

Judicial Support

The judicial position consistently recognises that Section 50C cannot operate unless the transferred property is a capital asset.

Jignesh Harshadbhai Patel v. ITO (ITAT Ahmedabad)

The Tribunal held that where agricultural land was outside the definition of capital asset, Section 50C could not be applied.

Shahnaj v. ITO (ITAT Jodhpur)

The Tribunal reiterated that agricultural land excluded under Section 2(14) cannot be brought within Section 50C.

The principle emerging from judicial interpretation is:

Section 50C determines the value of consideration only after taxability exists; it does not create taxability.

Impact of the New Income-tax Act

The transition to the New Income-tax Act does not alter the fundamental legal principle.

Although the numbering and drafting structure may undergo changes, the underlying concept remains:

• only a capital asset can enter the capital gains framework;
• stamp duty substitution provisions operate only after taxability is established;
• agricultural land excluded under the applicable definition of capital asset remains outside the capital gains mechanism.

A change in statutory numbering does not change the legislative principle unless Parliament specifically changes the substantive law.

Therefore, the core argument remains:

The Revenue must first establish that the property is a capital asset under the applicable law. Only thereafter can any stamp duty valuation deeming provision be invoked.

The Correct Defence Strategy in Assessment Proceedings

Where an addition is proposed under Section 50C, the assessee should not begin with valuation arguments. The primary challenge should be jurisdictional:

"The property transferred is not a capital asset; therefore, Section 50C cannot be invoked."

Relevant supporting evidence includes:  revenue records; land classification; agricultural activity records; cultivation details (where relevant); municipal distance certificate; population criteria; applicable Government notifications.

The issue is not what the stamp duty authority has valued. The first issue is whether the Income-tax Act recognises the property as a taxable capital asset.

Frequently Asked Questions

Is Section 50C applicable on sale of agricultural land?

Section 50C applies only where agricultural land is a capital asset. Agricultural land qualifying for exclusion under Section 2(14)(iii) is outside the scope of Section 50C.

Can stamp duty value replace actual sale consideration for agricultural land qualifying for exclusion under Section 2(14)(iii)?

No. Stamp duty value can replace consideration only where the conditions of Section 50C are satisfied.

Does every agricultural land sale escape capital gains tax?

No. Only agricultural land qualifying for exclusion under Section 2(14)(iii) falls outside the definition of capital asset. Agricultural land treated as a capital asset, including specified urban agricultural land, may be subject to capital gains tax.

What is the first test before applying Section 50C?

The first test is whether the property is a capital asset. Valuation comes only after that determination.

The Ultimate Legal Proposition

The entire controversy can be reduced to one principle:

Section 50C is not the starting point of taxation; Section 2(14) is. The existence of a capital asset is the jurisdictional foundation upon which Section 50C rests. Where agricultural land qualifies for exclusion under Section 2(14)(iii) and is therefore not a capital asset, the deeming fiction under Section 50C cannot arise.

Conclusion

The issue of Section 50C on sale of agricultural land is not fundamentally a valuation dispute.

It is a question of statutory jurisdiction. The Income-tax law first asks whether the property is a capital asset.

Only after that threshold is crossed can computation provisions and stamp duty valuation provisions operate. Agricultural land qualifying for exclusion under Section 2(14)(iii) remains outside the capital gains framework.

Section 50C, being merely a computation provision, cannot bring such land into taxation through a valuation fiction.

A valuation provision cannot create a taxable asset. A machinery provision cannot create a charging provision. A legal fiction cannot travel beyond the words enacted by Parliament.

The final legal position is therefore clear: Section 2(14) opens the door to capital gains. Section 50C can enter only after that door is open. If the asset is not a capital asset, the stamp duty value cannot replace the actual sale consideration

Capital Gains Tax 2026: 12 Hidden Tax Traps & Landmark Court Decisions

By CA Surekha S Ahuja

12 Hidden Capital Gain Traps, Landmark Supreme Court & Tribunal Decisions, Section 54EC Six-Month Rule and Winning Taxpayer Arguments

"In capital gains taxation, the difference between a successful exemption claim and a tax dispute is often not the transaction itself — but the interpretation of one word, one date or one document."

Capital gains provisions provide some of the most valuable tax-saving opportunities under the Income-tax Act. However, they are also among the most litigated provisions.

A taxpayer may genuinely:

• invest in specified bonds,
• purchase or construct a residential house,
• repay a housing loan,
• inherit property,
• sell property at market value,

yet face disputes due to:

• incorrect interpretation of statutory timelines,
• technical objections,
• valuation differences,
• misunderstanding of cost computation rules.

Capital gain litigation is therefore not only about tax calculation. It is about:

Dates + Documents + Interpretation + Judicial Principles

This guide discusses important capital gain disputes where taxpayers succeeded because courts examined the exact language of the law and the real substance of the transaction.

Part 1-Supreme Court Principles Governing Capital Gain Litigation

Principle	Judicial Authority	Key Learning
Incentive provisions should advance the legislative purpose	Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (SC)	Exemption provisions intended to encourage investment should not be frustrated by narrow interpretation
Reasonable interpretation favourable to taxpayer should be considered	CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC)	Where two reasonable views exist, taxpayer-friendly interpretation may be adopted
Deeming provisions cannot be applied mechanically	K.P. Varghese v. ITO (1981) 131 ITR 597 (SC)	Legal fiction must be applied only for the purpose for which it was created
Exemption conditions cannot be ignored where clearly prescribed	Commissioner of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1 (SC)	Statutory conditions must be fulfilled
Real nature of transaction must be examined	Vodafone International Holdings BV v. Union of India (2012) 341 ITR 1 (SC)	Genuine commercial arrangements require factual analysis

Part 2-12 Hidden Capital Gain Problems Faced by Taxpayers

No.	Issue	Section	Practical Question
1	Six months period for 54EC investment	Section 54EC	Is six months equal to 180 days?
2	Investment made in last calendar month	Section 54EC	Can July/August investment still qualify?
3	Date of transfer	Section 45 read with Section 2(47)	Is registration date always relevant?
4	House purchased but CGAS deposit not made	Section 54F	Can genuine investment survive procedural lapse?
5	Purchase of new house before transfer	Section 54	Is exemption available?
6	Repayment of housing loan from sale proceeds	Section 54	Does loan repayment qualify as investment?
7	Housing loan interest not claimed earlier	Section 48	Can interest form part of cost?
8	Stamp duty value higher than sale consideration	Section 50C	Can stamp value automatically replace actual value?
9	Agreement date versus registration date	Section 50C	Which date should be considered?
10	Cost of inherited property	Section 49(1)	Which owner's cost applies?
11	Fair market value as on 01.04.2001	Section 55	How should old property be valued?
12	Joint development agreement	Section 2(47)	When does transfer actually happen?

Part 3- Section 54EC - The Most Misunderstood Six-Month Rule

Statutory Language

Section 54EC provides investment: "at any time within a period of six months after the date of such transfer."

The law uses:  Six months and not: 180 days

Practical Example

Property transferred on 11 January 2026

Particulars	Date
Date of transfer	11.01.2026
Six calendar months	February 2026 to July 2026
Investment made	25.07.2026

Department View

The Revenue may argue:

11 January 2026 + 180 days = approximately 10 July 2026.

Therefore, investment after that date is delayed.

Taxpayer's Defendable Argument

The taxpayer can argue:

• Parliament deliberately used the expression "six months".
• If 180 days were intended, the law would have specifically stated 180 days.
• Month should be interpreted as a calendar month.

Judicial Support

1. Niamat Mahroof Virji v. ITO

ITAT Mumbai Special Bench
ITA No.1964/Mum/2014
Order dated 19 December 2016

Facts

• Assessee transferred a long-term capital asset.
• Investment was made in REC Bonds.
• Revenue denied exemption by calculating the period as 180 days.

Winning Argument - The assessee argued:

• Statute says "months".
• It does not say "days".
• Calendar month interpretation should apply.

Decision- The Special Bench accepted the assessee's contention and held:

• Six months cannot automatically be converted into 180 days.
• The expression must be interpreted as calendar months.

2. Alkaben B. Patel v. ITO

(2014) 43 taxmann.com 333 (Ahmedabad ITAT Special Bench)

Principle

The Tribunal recognised that the period of six months under Section 54EC has to be understood with reference to calendar months.

Practical Lesson

For 54EC claims:

✔ Check the exact wording of the law
✔ Do not mechanically calculate 180 days
✔ Preserve investment proof and legal working

The position is strongly defendable where investment falls within six calendar months based on judicial interpretation.

Part 4- Judicial Solutions — Taxpayer Winning Arguments

Capital Gain Problem	Judicial Authority	Facts	Winning Argument & Decision
Section 54F — CGAS not followed but house constructed	CIT v. K. Ramachandra Rao (2015) 56 taxmann.com 163 (Karnataka HC)	Assessee constructed residential house within prescribed period but did not deposit amount in CGAS	Court held that actual investment achieved the object of Section 54F and allowed exemption
Section 54 — Residential investment timing	CIT v. Natarajan (2006) 287 ITR 271 (Madras HC)	Timing of residential investment was disputed	Court examined purpose of provision and allowed benefit where conditions were fulfilled
Transfer through development agreement	CIT v. Balbir Singh Maini (2017) 398 ITR 531 (SC)	Revenue considered development agreement as transfer	Supreme Court held transfer requires fulfilment of statutory conditions
Stamp duty value dispute	K.P. Varghese v. ITO (1981) 131 ITR 597 (SC)	Revenue attempted mechanical substitution	Deeming provisions cannot ignore genuine facts
Agreement date relevance	Sanjeev Lal v. CIT (2014) 365 ITR 389 (SC)	Agreement existed before registration	Supreme Court recognised importance of transaction timeline
Inherited property indexation	CIT v. Manjula J. Shah (2013) 355 ITR 474 (Bombay HC)	Property inherited from previous owner	Previous owner's holding period considered for indexation
Old property valuation	DCIT v. Gauranginiben S. Shodhan (2014) 45 taxmann.com 445 (Gujarat HC)	Dispute regarding FMV	Evidence-based valuation approach accepted

Part 5- Housing Loan Repayment and Interest — A Frequently Missed Area

Housing Loan Repayment

A common question:

"If sale proceeds are used for repayment of housing loan, can it qualify as investment?"

The answer depends on:

• whether the loan was used for acquisition/construction,
• whether repayment has direct nexus with acquisition,
• whether exemption provisions permit such treatment.

Proper documentation is critical.

Housing Loan Interest

Another common issue:

"I paid housing loan interest but did not claim deduction earlier. Can I add it to cost while calculating capital gains?"

This cannot be applied automatically.

The taxpayer must examine:

✔ Whether deduction under Section 24(b) was already claimed
✔ Whether double deduction is being created
✔ Whether interest has direct nexus with acquisition

A fact-based computation should be prepared.

Part 6 - Capital Gain Litigation Prevention Checklist

Area	Action Required
Section 54EC	Calculate six-month period carefully and preserve bond documents
Section 54/54F	Verify purchase/construction timeline
CGAS	Check compliance before return filing due date
Section 50C	Analyse agreement date and valuation
Old property	Maintain valuation report
Inherited property	Preserve previous owner's documents
Housing loan	Maintain sanction letter and repayment statement
Interest claim	Verify earlier deductions
Transfer date	Analyse legal transfer, not only registration

Final Conclusion

Capital gain planning is not completed when the sale takes place.

The strongest exemption claims are built through:

✔ Correct interpretation of law
✔ Correct calculation of dates
✔ Complete documentation
✔ Understanding judicial principles

The ultimate lesson from capital gain litigation is:

A genuine transaction may face a dispute, but a legally planned and properly documented transaction has the strongest defence.

Housing Loan Interest Not Claimed in ITR: Can It Increase Property Cost and Reduce Capital Gains Tax

 By CA Surekha Ahuja

Section 24(b), Section 48 & Section 54 Explained With Practical Taxpayer Cases

“An expense ignored during the ownership period may become a valuable tax consideration when the property is eventually sold.”

Many taxpayers purchase residential property through housing loans and pay substantial interest over several years. However, due to lack of awareness, low taxable income, or incomplete tax planning, the interest deduction under Section 24(b) may not be claimed in earlier Income Tax Returns.

At the time of sale of the property, a critical question arises:

Can such unclaimed housing loan interest be added to the cost of acquisition and reduce capital gains tax?

The answer requires analysis of:

• Section 24(b) deduction history,
• Section 48 capital gains computation,
• judicial principles,
• and the rule against double benefit.

Housing Loan Interest: Two Different Tax Stages

Stage	Provision	Tax Impact
During ownership	Section 24(b)	Deduction against income from house property
At the time of sale	Section 48	Possible consideration while computing capital gains

The same expenditure cannot be allowed twice.

The key question is not whether interest was paid, but whether the taxpayer has already received tax benefit for that interest.

Can Unclaimed Interest Become Part of Property Cost?

Where borrowed funds are used for acquiring a property and the related interest has not already been claimed as deduction, an argument may exist that such interest forms part of the acquisition cost.

The Supreme Court in CIT v. Mithlesh Kumari (92 ITR 9) recognised the principle that interest paid on borrowings utilised for acquisition of property may be considered as part of acquisition cost.

However, the claim depends on facts, documentation and absence of double deduction.

Practical Tax Position

Situation	Position
Interest fully claimed under Section 24(b)	Cannot be added again
Interest paid but never claimed	Possible claim, subject to facts
Interest partly claimed	Only unclaimed portion requires examination
No proof of payment available	Claim may face challenge
Joint ownership	Owner-wise analysis required

Ticklish Case Studies

Case 1: Retired Person Never Claimed Interest

Facts- Property purchased: ₹80 lakh- Housing loan: ₹60 lakh - Interest paid: ₹45 lakh  -Interest claimed earlier: Nil

The taxpayer never claimed deduction due to low taxable income.

Professional View -  The taxpayer has a stronger position because:

✔ interest was actually paid;
✔ loan was used for acquisition;
✔ no earlier tax benefit was taken.

However, bank certificates and old ITR records are essential.

Case 2: Interest Claimed Only Up To Section 24(b) Limit

Facts - Total interest paid: ₹60 lakh -Deduction claimed: ₹30 lakh- Balance: ₹30 lakh

Issue - Can the balance be added to cost?

Professional View-  This requires careful review.

The amount already allowed cannot be claimed again. The treatment of the balance depends upon facts, applicable provisions and judicial interpretation.

A blanket claim of the entire balance may invite scrutiny.

Case 3: Joint Ownership With Different Tax Positions

Facts - A property is jointly owned by husband and wife.

• Husband claimed his interest deduction.
• Wife never claimed her share.

Professional View

Capital gains are calculated separately for each owner. The tax position of one co-owner does not automatically decide the treatment for another co-owner.

Case 4: Repayment of Existing Housing Loan From Sale Proceeds

Facts - Property sold: ₹1.75 crore -Outstanding loan: ₹50 lakh

The seller repays the bank loan from sale proceeds.

Position

Repayment of existing loan is repayment of liability. It generally does not reduce capital gains.

Case 5: Section 54 Planning

Where sale proceeds are invested in another eligible residential property, Section 54 may apply subject to: ✔ eligibility conditions, ✔ timelines, ✔ investment proof.

Section 54 exemption is independent of the treatment of housing loan interest.

Documents Required for a Defensible Claim

Maintain:

✅ Housing loan sanction letter
✅ Bank interest certificates
✅ Loan account statements
✅ Previous ITR computations
✅ Proof of deductions claimed earlier
✅ Purchase and sale documents

Common Mistakes

❌ Adding interest already claimed under Section 24(b)
❌ Treating loan repayment as capital gain deduction
❌ Ignoring old ITR records
❌ Not separating co-owner calculations
❌ Losing loan documents after many years

Final Advisory View

Housing loan interest not claimed in earlier Income Tax Returns may not automatically disappear as a tax benefit. Where:

✔ borrowing was used for acquiring the property,
✔ interest was actually paid,
✔ no deduction was already claimed, and
✔ proper evidence exists,

a taxpayer may have a sustainable position to consider such interest while computing capital gains.

However: Tax law recognises genuine acquisition cost but does not permit the same expenditure to create multiple tax benefits.

The right question is not: “How much interest did I pay?”

The right question is: “How much of that interest has already received tax recognition?”

NRI Property Tax India 2025: The Capital Gains Trap Families With Mixed Resident and NRI Heirs Cannot Afford to Miss

 By CA Surekha S Ahuja

The  resident and non-resident families on cross-border inheritance, property taxation and succession planning is a little ticklish. This article reflects the provisions of the Income-tax Act, 2025 applicable from Assessment Year 2026-27. Tax laws may change; readers should verify the latest position from the Income Tax Department’s official portal and consult a qualified tax professional before taking any decision.

Why This Guide Matters

If your family owns property in India and your children are divided between those living in India and those living abroad, you may have a hidden tax planning challenge that many families discover only after the property is sold — when a substantial amount of money gets blocked as TDS.

The Income-tax Act, 2025 (applicable from AY 2026-27) simplified the headline capital gains rate for many property transactions to 12.5%. However, beneath this apparent simplicity lies an important difference:

Resident heirs and NRI heirs are not always taxed in the same manner when they sell inherited or gifted property.

This difference can significantly impact:

• the amount of tax payable,
• cash blocked as TDS,
• ability to reinvest and claim exemption,
• repatriation of sale proceeds,
• and the ultimate wealth transferred to the next generation.

This guide — Part 1 of a two-part series — explains the tax architecture that families must understand before transferring or selling inherited property.

Part 2 will cover the transfer strategy:

• Will vs family settlement vs gift,
• allocating property to one child while compensating another,
• whether joint ownership is beneficial,
• and succession planning strategies for families with resident and NRI heirs.

Who This Guide Is For

This guide is especially relevant for:

• Parents planning transfer of Indian property to children living in India and abroad.
• Families deciding between a Will, gift or family settlement.
• Siblings who have inherited property jointly and are planning a sale.
• NRIs inheriting ancestral or self-acquired property in India.
• Professionals advising families on cross-border inheritance planning.

Quick Answer: How Is NRI Property Sale Taxed in India?

An NRI selling inherited or gifted property in India generally faces:

Issue	Position
Capital gains rate	12.5% (subject to applicable provisions)
Indexation benefit	Not available for NRI sellers under the new framework
TDS	Deduction under Section 195 at applicable rates on sale consideration unless lower deduction certificate obtained
Lower deduction route	Application through Lower Deduction Certificate process (Form 128 under Income-tax Act, 2025 framework; corresponding to earlier Form 13)
DTAA relief	Possible where eligible under the applicable tax treaty
Repatriation	Governed separately under FEMA/RBI rules

The biggest mistake families make is assuming that resident and NRI children will have identical tax consequences merely because they inherit the same property.

They may not.

The Capital Gains Rate Asymmetry: NRIs Do Not Get the Same Choice

For property acquired before 23 July 2024, resident sellers may have a choice between:

• 20% tax with indexation, or
• 12.5% tax without indexation

whichever results in lower tax.

NRI sellers, however, do not enjoy the same flexibility.

Seller Status	Property Acquired Before 23 July 2024	Property Acquired On/After 23 July 2024
Indian Resident	Choice between 20% with indexation or 12.5% without indexation (whichever is beneficial)	12.5% without indexation
NRI	12.5% without indexation	12.5% without indexation

For older properties, especially properties held for decades where inflation-adjusted cost can substantially reduce taxable gains, indexation can be valuable.

Planning implication:

For resident heirs, the tax rate itself may provide a planning opportunity.

For NRI heirs, the focus shifts to other levers:

• correct determination of cost,
• FMV as on 1 April 2001 where applicable,
• exemption planning,
• DTAA relief,
• and proper TDS management.

The NRI TDS Trap: How Lakhs Can Get Blocked Until Refund

The biggest practical problem for NRI sellers is often not the final tax liability.

It is cash flow blockage due to TDS.

Seller	Applicable Provision	TDS Position	Practical Impact
Resident seller	Section 194-IA	1% where applicable (above threshold)	Usually manageable
NRI seller	Section 195	Applicable rate including surcharge and cess, depending on facts	Large amount may be deducted from sale proceeds

The key difference:

Resident seller TDS is generally linked to sale consideration under the specific property TDS mechanism.

NRI seller TDS under Section 195 applies based on the payment made to the non-resident seller and may require a lower deduction certificate to avoid excessive withholding.

Without a Lower Deduction Certificate, the buyer may deduct tax at the applicable rate on the gross amount payable, even though the actual capital gain may be much lower.

Worked Example: NRI’s Share of Consideration Is ₹90 Lakh

A property inherited by three siblings is sold for:

Total sale consideration: ₹2.70 crore

Each sibling receives:

1/3 share = ₹90 lakh

Assume one sibling is an NRI.

Scenario	Approximate Tax Deduction
Without Lower Deduction Certificate	Around ₹11.7 lakh to ₹13.5 lakh (depending on applicable rate)
With Lower Deduction Certificate	Based on estimated actual tax liability

The difference can result in several lakh rupees remaining blocked until the refund process is completed.

Refunds may take considerable time, affecting:

• investment plans,
• remittance plans,
• and family settlements.

Important Point for Joint Property Sales

In inherited property sales involving multiple heirs:

TDS is calculated separately for each seller based on:

• their residential status,
• amount payable to them,
• and applicable provisions.

A resident sibling selling alongside an NRI sibling does not automatically face NRI TDS treatment.

Each seller must be evaluated separately.

How to Avoid the NRI TDS Trap

An NRI seller should plan the Lower Deduction Certificate process before the sale is completed.

Documents generally required include:

• proposed sale agreement,
• computation of estimated capital gains,
• ownership and inheritance documents,
• passport and foreign address details,
• supporting tax records.

The biggest mistake is applying after the buyer has already deducted the tax.

(Continued in Part 1B: DTAA Relief, Section 54/54F Planning, CGAS Compliance, FMV as on 1 April 2001, FEMA Repatriation, Action Checklist and FAQs.)

LTCG under Section 112A after Finance Act 2025: Computation, Basic Exemption Limit, Surcharge, Tax Planning and ITR Reporting for AY 2026-27

 By CA Surekha S. Ahuja

New Tax Regime | AY 2026-27 (FY 2025-26)

Introduction

Part 1 examined the legal framework governing Long-Term Capital Gains taxable under Section 112A and clarified the position following Finance Act 2025 that the enhanced rebate under Section 87A cannot be used to reduce tax payable on such gains.

Once that position is understood, the more important questions become practical.

How should Section 112A gains be computed?

How does the Basic Exemption Limit interact with Long-Term Capital Gains?

What benefits continue to remain available despite the Finance Act 2025 amendment?

What planning opportunities remain permissible within the law?

How should such gains be reported in the Income Tax Return?

This article addresses these practical aspects.

Five Numbers Every Investor Should Know

Particulars	FY 2025-26
Basic Exemption Limit under New Regime	₹4,00,000
Annual Exemption under Section 112A	₹1,25,000
Tax Rate under Section 112A	12.5%
Maximum Surcharge on Section 112A Tax	15%
Maximum Effective Tax Burden on Section 112A Gains	Approximately 14.95%

These five numbers drive most Section 112A computations.

The Most Important Provision Investors Often Miss

While most discussions focus on the 12.5% tax rate and the annual exemption of ₹1.25 lakh, an equally important provision is often overlooked.

Before the special rate under Section 112A is applied, the law requires consideration of the Basic Exemption Limit.

Statutory Provision

The first proviso to Section 112A(2) provides:

"Where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax."

Legislative Intent and Interpretation

The purpose of the proviso is simple.

A taxpayer should not lose the benefit of the Basic Exemption Limit merely because a portion of the income consists of Long-Term Capital Gains taxable under Section 112A.

Accordingly, the law requires a comparison between:

• The Basic Exemption Limit; and
• The taxpayer's income excluding the Long-Term Capital Gains taxable under Section 112A.

Where such income is below the Basic Exemption Limit, the amount of the shortfall must first be reduced from the Long-Term Capital Gains before the special rate under Section 112A is applied.

Only thereafter is the annual exemption of ₹1,25,000 under Section 112A considered.

What the Provision Does Not Mean

The proviso does not create a separate deduction.

It does not provide an additional exemption.

It does not automatically permit every taxpayer to reduce Long-Term Capital Gains by ₹4 lakh.

The relief is available only to the extent that income excluding Long-Term Capital Gains falls short of the Basic Exemption Limit.

Where income chargeable at normal rates already equals or exceeds the Basic Exemption Limit, no benefit remains available under this proviso.

Practical Illustration

Assume a resident individual has:

• Salary Income: ₹2,50,000
• Long-Term Capital Gains taxable under Section 112A: ₹6,00,000

Step 1 – Determine the Shortfall in the Basic Exemption Limit

Particulars	Amount (₹)
Basic Exemption Limit under New Regime	4,00,000
Income excluding LTCG	2,50,000
Shortfall	1,50,000

Since the income excluding Long-Term Capital Gains is below the Basic Exemption Limit, the shortfall of ₹1,50,000 becomes eligible for adjustment under the first proviso to Section 112A(2).

Step 2 – Reduce the Shortfall from LTCG

Particulars	Amount (₹)
LTCG under Section 112A	6,00,000
Less: Adjustment under first proviso to Section 112A(2)	(1,50,000)
Balance LTCG	4,50,000

Step 3 – Apply the Annual Exemption under Section 112A

Particulars	Amount (₹)
Balance LTCG	4,50,000
Less: Annual Exemption under Section 112A	(1,25,000)
Taxable LTCG	3,25,000

Step 4 – Compute Tax

Particulars	Amount (₹)
Taxable LTCG	3,25,000
Tax @ 12.5%	40,625
Health and Education Cess @ 4%	1,625
Total Tax Liability	42,250

Understanding How Much LTCG Can Escape Tax

A common oversimplification is that ₹5.25 lakh of Long-Term Capital Gains is always tax-free.

That is not what the law provides.

The amount of LTCG that escapes tax depends on the extent to which the Basic Exemption Limit remains unutilised.

Income Excluding LTCG	Shortfall in Basic Exemption Limit	Section 112A Exemption	Total LTCG Escaping Tax
Nil	₹4,00,000	₹1,25,000	₹5,25,000
₹1,00,000	₹3,00,000	₹1,25,000	₹4,25,000
₹2,50,000	₹1,50,000	₹1,25,000	₹2,75,000
₹4,00,000 or more	Nil	₹1,25,000	₹1,25,000

Thus, the benefit under the first proviso to Section 112A(2) gradually reduces as income chargeable at normal rates increases.

Benefits That Continue To Remain Available

Annual Exemption of ₹1.25 Lakh

The first ₹1,25,000 of eligible Long-Term Capital Gains continues to remain exempt every financial year.

Unlike the rebate under Section 87A, this exemption is not linked to any income threshold and remains available irrespective of the taxpayer's income level.

Grandfathering Continues

For eligible equity investments acquired before 31 January 2018, the grandfathering provisions introduced when Section 112A was enacted continue to apply.

Accordingly, appreciation accrued up to 31 January 2018 remains protected in accordance with the statutory computation mechanism.

No Change in Indexation Position

Section 112A continues to tax gains without the benefit of indexation.

Surcharge Cap Continues

The surcharge on tax attributable to gains under Section 112A continues to remain capped at 15%.

Why the Surcharge Cap Matters

A taxpayer with very high ordinary income may otherwise be exposed to surcharge rates of up to 37%.

However, tax attributable to Long-Term Capital Gains taxable under Section 112A continues to enjoy a statutory surcharge ceiling of 15%.

As a result, the effective tax burden on such gains remains substantially lower than the maximum rate applicable to ordinary income.

Tax Planning Opportunities Within the Law

Annual Exemption Utilisation

The annual exemption of ₹1.25 lakh under Section 112A resets every financial year.

Investors may consider periodic review of their portfolios to ensure efficient utilisation of the available exemption.

Low-Income Years

Years involving retirement, sabbaticals, business losses, career transitions or temporary reduction in income may allow greater utilisation of both:

• The Basic Exemption Limit; and
• The annual exemption under Section 112A.

Capital Loss Management

Long-Term Capital Losses may be adjusted against eligible Long-Term Capital Gains in accordance with the provisions governing capital gains.

Proper utilisation of carried-forward losses can significantly reduce future tax liability.

Financial Year-End Review

A year-end review of gains, losses, holding periods and exemption utilisation remains one of the most effective tax planning exercises available to long-term investors.

Important Clarifications for Investors and Taxpayers

Rebate Eligibility and LTCG Taxation Are Two Different Concepts

A taxpayer may satisfy the conditions for rebate under Section 87A and yet remain liable to pay tax on Long-Term Capital Gains taxable under Section 112A.

Eligibility for rebate and computation of LTCG tax operate independently under the Act.

The Basic Exemption Limit Does Not Automatically Reduce LTCG

The benefit under the first proviso to Section 112A(2) arises only where income excluding Long-Term Capital Gains falls below the Basic Exemption Limit.

Once income chargeable at normal rates equals or exceeds the Basic Exemption Limit, no relief is available under the proviso.

The Annual Exemption of ₹1.25 Lakh Is Available Regardless of Income Level

Unlike the rebate under Section 87A, the annual exemption under Section 112A is not linked to income thresholds.

The exemption remains available even where the taxpayer's income runs into several crores.

Chapter VI-A Deductions Do Not Reduce Section 112A Gains

Deductions available under Sections 80C, 80D, 80G and other provisions of Chapter VI-A do not reduce Long-Term Capital Gains taxable under Section 112A.

The 15% Surcharge Cap Continues To Protect Equity Investors

Even where a taxpayer falls within a higher surcharge bracket, tax attributable to gains under Section 112A continues to enjoy the statutory surcharge ceiling of 15%.

Accurate Reporting in Schedule CG Remains Critical

The annual exemption under Section 112A should be claimed through the prescribed computation mechanism.

Investors should avoid reporting only the net gain figure and should carefully reconcile disclosures with AIS, broker statements and demat records.

ITR Filing Precautions

Use the Correct Return Form

Situation	Applicable Return
Capital gains and no business income	ITR-2
Capital gains along with business income	ITR-3
Taxpayer having capital gains	Not eligible for ITR-1

Report Gross Gains

Gross Long-Term Capital Gains should be disclosed in Schedule CG.

The exemption under Section 112A should be claimed through the prescribed computation mechanism rather than by reporting only a net figure.

Reconcile With AIS and Supporting Records

Before filing the return, reconcile:

• AIS
• Contract notes
• Broker statements
• Demat statements

to minimise mismatch-related notices and adjustments.

Review Grandfathering Computations Carefully

For investments acquired before 31 January 2018, grandfathering computations should be independently verified and not accepted blindly from pre-filled data.

Key Takeaway

While Finance Act 2025 settled the controversy relating to the availability of rebate under Section 87A against Long-Term Capital Gains taxable under Section 112A, the core structure of Section 112A remains largely unchanged.

The annual exemption of ₹1,25,000, the relief embedded in the first proviso to Section 112A(2), grandfathering protection for pre-31 January 2018 acquisitions, capital loss set-off provisions and the statutory surcharge cap of 15% continue to provide meaningful benefits to investors.

For AY 2026-27 onwards, successful tax planning will depend less on rebate-based interpretations and more on understanding the statutory computation mechanism, utilising available reliefs efficiently and ensuring accurate reporting of Long-Term Capital Gains in the Income Tax Return.

Section 87A Rebate and LTCG under Section 112A: What Finance Act 2025 Changed for AY 2026-27

By CA Surekha S. Ahuja

New Tax Regime | AY 2026-27 (FY 2025-26)

Finance Act 2025 Has Clarified the Legislative Position

One of the most debated questions in recent years was whether the rebate under Section 87A could reduce tax payable on Long-Term Capital Gains taxable under Section 112A.

The issue gained prominence after Finance Act 2025 increased the rebate under the new tax regime to Rs.60,000 and raised the income threshold to Rs.12 lakh.

Finance Act 2025 has now addressed the matter through an express statutory amendment.

For AY 2026-27 onwards, the law makes it clear that the enhanced rebate under Section 87A is available only against tax computed under the slab rates of the new tax regime and not against tax payable under special-rate provisions such as Section 112A.

The Three Provisions Every Investor Must Understand

The taxation of equity Long-Term Capital Gains under the new regime is now governed by the interaction of three provisions.

Section 112A

Section 112A applies to Long-Term Capital Gains arising from:

• Listed equity shares satisfying the prescribed STT conditions

• Units of equity-oriented mutual funds

• Units of business trusts

For AY 2026-27:

• Tax rate: 12.5%

• Annual exemption: Rs1,25,000

• Indexation: Not available

• Grandfathering provisions for assets acquired before 31 January 2018 continue to apply

Section 87A

Finance Act 2025 substantially enhanced the rebate available under the new regime.

Particulars	AY 2026-27
Maximum rebate	Rs.60,000
Threshold for rebate eligibility	Normal income taxable at slab rates not exceeding Rs12,00,000
Eligible taxpayer	Resident Individual

However, the enhancement came with an equally important restriction.

Section 115BAC

Section 115BAC(1A) contains the slab rates applicable under the default new tax regime.

The significance of this provision lies in the language used in the newly inserted second proviso to Section 87A.

The Finance Act 2025 Amendment

With effect from AY 2026-27, Finance Act 2025 inserted a second proviso to Section 87A which provides that the rebate shall not exceed the amount of income tax payable at the rates specified under Section 115BAC(1A).

This amendment is the key to understanding the new position.

Since tax under Section 112A is charged at a special rate and not at the slab rates prescribed under Section 115BAC(1A), the rebate cannot be used to reduce tax payable on such gains.

In practical terms:

✓ Rebate may reduce tax on salary income

✓ Rebate may reduce tax on business income

✓ Rebate may reduce tax on house property income

✓ Rebate may reduce tax on other slab-rate income

✗ Rebate cannot reduce tax on LTCG taxable under Section 112A

An Important Distinction Taxpayers Must Understand

The restriction on rebate against Section 112A gains is separate from the determination of rebate eligibility.

A taxpayer may satisfy the conditions of Section 87A and still be liable to pay tax on Long-Term Capital Gains under Section 112A.

For example, a resident individual having salary income within the prescribed rebate threshold and Long-Term Capital Gains taxable under Section 112A may qualify for the rebate in respect of the slab-rate tax. However, the tax payable on the Long-Term Capital Gain will continue to be computed separately under Section 112A and cannot be reduced by the rebate.

This distinction is likely to be one of the most important practical aspects of the amendment.

What Has Not Changed

Annual Exemption of Rs.1.25 Lakh Continues

The first Rs.1,25,000 of eligible Long-Term Capital Gains remains exempt every financial year irrespective of the taxpayer's income level.

Grandfathering Continues

For specified equity investments acquired before 31 January 2018, the grandfathering provisions introduced when Section 112A was enacted continue to apply.

Indexation Remains Unavailable

Section 112A continues to tax gains without the benefit of indexation.

Surcharge Cap of 15% Continues

The surcharge on tax attributable to gains under Section 112A remains capped at 15%, even where the taxpayer falls in a higher surcharge bracket.

Consequently, the effective tax burden on such gains remains substantially lower than the maximum tax burden applicable to ordinary income.

What the Amendment Actually Does

The amendment does not:

• Increase the tax rate under Section 112A

• Withdraw the annual exemption of Rs.1,25,000

• Remove grandfathering benefits

• Alter the statutory surcharge cap of 15%

Its primary effect is to restrict the enhanced Section 87A rebate to tax computed under the slab rates of the new tax regime.

Key Takeaway

Finance Act 2025 has provided legislative clarity on the interaction between Section 87A and Section 112A.

From AY 2026-27 onwards, the enhanced rebate of up to Rs.60,000 is available only against tax computed under the slab rates of the new tax regime. Tax payable on Long-Term Capital Gains under Section 112A remains outside the rebate mechanism and continues to be taxed separately at 12.5% after the annual exemption of Rs.1.25 lakh.

For investors and taxpayers, the focus should now move away from rebate-based interpretations and towards understanding the practical implications of Section 112A, including annual exemption utilisation, surcharge treatment, capital loss set-off, tax-efficient exit planning and accurate return reporting—topics that we examine in Part 2.

Pagdi Tenancy Redevelopment & Capital Gains: Complete Guide on Cost of Acquisition, Taxability and Exemptions

 By CA Surekha Ahuja

FMV vs NIL Cost | Section 45(5A) | Section 49(7) | Section 54F | Section 56(2)(x) | Latest ITAT Rulings

“A redeveloped flat is not a gift from the developer — it is consideration received for surrendering a valuable capital asset.”

Executive Summary

Pagdi redevelopment taxation has become one of the most litigated areas under capital gains law.

The core controversy generally arises when:

• a Pagdi tenant surrenders tenancy rights to a developer,
• receives ownership rights in the redeveloped premises,
• and subsequently sells the redeveloped property.

The central issue is:

Whether the cost of acquisition of the redeveloped property should be treated as NIL under Section 55(2)(a), or whether FMV/stamp duty value on redevelopment date should be adopted as substituted cost?

The answer materially impacts tax liability.

The stronger and increasingly accepted judicial position is:

• tenancy rights are valuable capital assets,
• redevelopment is an exchange transaction,
• ownership rights are not received without consideration,
• Section 56(2)(x) ordinarily does not apply,
• and FMV/stamp duty value on allotment/OC/possession date should generally constitute the cost of acquisition.

Quick Answers

Question	Position
Are tenancy rights capital assets?	Yes
Is redevelopment a transfer?	Yes
Is NIL cost always correct?	Generally no
Most defensible cost?	FMV/stamp duty value on OC/allotment date
Does Section 56(2)(x) apply?	Generally no
Holding period starts from?	Allotment/OC/possession date
Can Section 54F & 54EC apply?	Yes

Understanding the Pagdi System

Under the Pagdi system prevalent mainly in Mumbai and Maharashtra:

• tenants pay upfront premium (“Pagdi”),
• monthly rent remains nominal,
• tenancy rights become commercially valuable and transferable.

Although ownership remains with the landlord, the tenant possesses valuable legal and commercial rights.

Accordingly:

Tenancy rights are recognized as capital assets under the Income-tax Act.

The complexity begins when redevelopment converts tenancy rights into ownership rights.

Statutory Framework

Section 2(14) — Capital Asset

Tenancy rights are capital assets.

The Supreme Court in CIT v. D.P. Sandu Bros. conclusively recognized this principle.

Section 2(47) — Transfer

Transfer includes relinquishment, extinguishment and exchange of rights.

Accordingly

Transaction	Tax Position
Surrender of tenancy rights	Transfer
Redevelopment exchange	Transfer

Section 45 & Section 45(5A)

Redevelopment may trigger two separate events:

Event	Tax Position
Surrender of tenancy rights	Section 45 / 45(5A)
Subsequent sale of redeveloped premises	Separate capital gains event

Section 45(5A) further recognizes redevelopment taxation based on completion certificate/OC date.

Section 55(2)(a) — NIL Cost Theory

Revenue authorities often rely upon Section 55(2)(a), which provides NIL cost where tenancy rights were acquired without payment.

However, this provision applies to:   original tenancy rights.

It does not automatically apply to: ownership premises received in exchange for surrender of tenancy rights. This distinction is critical.

Section 49(7) — Strong Support for FMV Approach

Section 49(7) supports the substituted-cost principle.

It effectively recognizes that:

• where redevelopment results in a new capital asset,
• value adopted at the time of receipt becomes the cost basis.

Accordingly:

Aspect	Position
Cost base	FMV/stamp duty value on OC date
Holding period	From receipt of redeveloped asset

Section 56(2)(x) — Why It Ordinarily Does Not Apply

Redevelopment is generally 

• not a gift,
• not receipt without consideration,
• but an exchange transaction.

Therefore:

Section 45 generally applies, not Section 56(2)(x).

The Core Controversy — NIL Cost vs FMV

Revenue’s Typical Position

Revenue authorities frequently argue:

• tenancy rights originally had NIL cost,
• therefore redeveloped ownership property should also carry NIL cost.

This approach often taxes almost the entire sale consideration.

Why NIL Cost is Legally Weak

The flaw in the NIL-cost theory is simple:

• the original tenancy right,
• and the redeveloped ownership flat,

are not the same capital asset.

Once redevelopment occurs:

• tenancy rights are extinguished,
• ownership rights arise.

That ownership asset is not acquired free of cost.

It is acquired against surrender of valuable tenancy rights.

Therefore:

redeveloped ownership premises cannot logically be assigned NIL cost.

Why FMV/Substituted Cost is Stronger

The FMV approach is supported because:

Reason	Explanation
Exchange transaction	Ownership received against surrender of rights
Commercial reality	Developer gives ownership only because rights were surrendered
Judicial support	Strong ITAT and HC backing
Real income theory	Tax should apply only on actual appreciation

Accordingly:

FMV/stamp duty value on allotment/OC/possession date becomes the most defensible cost of acquisition.

Judicial Landscape

ACIT v. Shree Krishna Pharmacy

One of the most important redevelopment rulings.

Tribunal Held:

• builder provided ownership premises only because tenancy rights were surrendered,
• tenancy rights constituted valuable consideration,
• FMV/stamp duty value should form cost base.

Key Principle

“Had there been no tenancy rights, the builder would not have offered any flat on ownership basis.”

Anil Dattaram Pitale v. ITO

The Tribunal held:

• redevelopment is not receipt without consideration,
• Section 56(2)(x) does not apply,
• Section 45 governs the transaction.

ITA No. 4080/Mum/2025

The Tribunal effectively recognized:

If tenancy rights had been surrendered for cash instead of flats, equivalent market value would have been paid. Thus

• flats merely substitute monetary consideration,
• FMV becomes the logical cost base.

Holding Period — Critical Issue

The more accepted judicial position is:

holding period starts from allotment/OC/possession date of redeveloped premises.

Not from:

original tenancy commencement date.

Holding Period	Tax Treatment
Up to 24 months	STCG
More than 24 months	LTCG

Practical Computation Illustration

Particulars	Amount
Sale Price	₹1.75 crore
FMV/SDV on OC date	₹1 crore

Capital Gain

$Capital\ Gain = 1.75\ Crore - 1\ Crore = 0.75\ Crore$

Tax under 12.5% Regime

$Tax = 0.75\ Crore \times 12.5\% = 9.375\ Lakhs$

What Happens if NIL Cost is Adopted?

Particulars	Amount
Sale Price	₹1.75 crore
Cost	NIL
Taxable Gain	₹1.75 crore

This results in:

• artificial taxation,
• taxation of unreal gains,
• and commercially irrational computation.

Capital gains law taxes:

real gains — not fictional gains.

Exemption Planning

Section	Relevance
Section 54	Residential property cases
Section 54EC	Eligible bonds up to ₹50 lakhs
Section 54F	Most relevant for tenancy-right cases

Proper exemption planning can materially reduce tax exposure.

Practical Documentation Strategy

The following documents are critical:

• Permanent Alternate Accommodation Agreement (PAAA)
• Occupation Certificate
• Possession letter
• Redevelopment agreement
• Stamp duty valuation papers
• Registered valuer report
• Original tenancy records
• Sale deed
• Earlier ITRs and computations

Revenue’s Likely Contentions vs Assessee’s Defence

Revenue Position	Assessee’s Defence
Section 55 mandates NIL cost	Applies only to original tenancy rights
Property received free of cost	Received against surrender of valuable rights
Entire sale consideration taxable	Only real appreciation taxable
Section 56(2)(x) applies	Redevelopment governed by Section 45

Key Takeaways

✅ Tenancy rights are valuable capital assets
✅ Redevelopment is fundamentally an exchange transaction
✅ Ownership rights are not received without consideration
✅ FMV/stamp duty value should generally form cost base
✅ Section 56(2)(x) ordinarily should not apply
✅ Holding period generally begins from allotment/OC date
✅ Sections 54F and 54EC can significantly reduce tax exposure
✅ Proper valuation and documentation are essential

Conclusion

The commercial and legal reality of redevelopment transactions is becoming increasingly impossible to ignore.

A Pagdi tenant who surrenders valuable tenancy rights and receives ownership rights in exchange cannot reasonably be treated as having acquired the redeveloped property at NIL cost.

The stronger and more defensible position is that:

redevelopment represents conversion of one valuable capital asset into another.

Accordingly:

• FMV/stamp duty value on allotment/OC/possession date should ordinarily constitute the cost of acquisition,
• Section 45 should govern taxation,
• and exemptions under Sections 54F and 54EC should be strategically planned.

“Redevelopment does not create ownership out of nothing. It merely converts one valuable capital asset into another. Taxation must therefore apply on real gains — not on fictional assumptions that valuable tenancy rights had no value at all."