A concise roundup of some important implications in relation to ITR, critical judicial rulings in relation to Capital Gains interpreted and applied today
ITR FOR AY 2025-26 KEY UPDATES
The Income Tax Department has released updated Excel utilities for filing returns for income earned in the financial year 2024-25 relevant to (AY 2025-26).
ITR-1 (Sahaj): Applicable to Individuals being a resident (other than not ordinarily resident)
ITR-2: Applicable to Individuals/HUF not having Business Income
ITR-3: Applicable to Individuals /HUF having Business income.
ITR-4(Sugam): Applicable to resident Individuals/HUFs/Firms (other than LLP) having total income upto Rs.50 lakhs, income from business and profession (presumptive income u/s 44AD/44ADA/44AE) and LTCG income u/s 112A upto Rs. 1.25 lakhs
ITR-5: Applicable for Firms/LLP/AOP/BOI
ITR-6: Applicable for all Companies registered under The Companies Act (excluding section 8 companies)
ITR-7: Applicable for all Trust, Sec. 8 Company, Political Parties, Scientific Research Institutions, University, College or Other Institutions
Vide Circular dated 27.5.2025, CBDT extended the last date for filing of IT returns which were due on or before
Capital Gains: Key Highlights From Recent Judicial Pronuncements
A. Redevelopment & Tenancy Rights are taxable as Capital Gains and not taxable under Section 56(2)(x), Rules ITAT Mumbai
Vasant Nagorao Barabde vs DCIT [TS-642-ITAT2025(Mum)] dated 22-05-2025
Held: The Tribunal noted that tenancy rights are a capital asset, and the surrender of such rights in exchange for a flat constitutes a transfer chargeable under the head ‘Capital Gains’ as per Sections 45 and 48. Since the entire consideration was reinvested in a new residential flat, the assessee was eligible for full exemption under Section 54F.
Anil Dattaram Pitale vs ITO (ITA No. 465/Mum/2025) dated 17-03-2025
Held: The Tribunal held that exchange under redevelopment Section 56(2)(x) did not apply since the property was not received as a gift but in lieu of a surrendered asset. The Tribunal further observed that if at all any taxability arose, it would be under capital
gains, which would be eligible for exemption under Section 54 for reinvestment in residential property.
S M L Comments: These above rulings are significant for taxpayers involved in property redevelopment or tenancy settlements. They reiterate that the substance of the transaction must be respected over its form. The above-mentioned two Mumbai ITAT recent
landmark rulings has provided much-needed clarity on the taxability of properties received under redevelopment schemes or against the surrender of tenancy rights.
B. Exemption on account of reinvestment in residential property under section 54F available for two flats if they can be considered as a single
dwelling unit.
Mrs. Kamla Ajmera vs. PCIT [2024] 169 taxmann.com 119 (Delhi High Court) dated 03-12- 2024.
Held: The High Court denied the claim of exemption as purchase of two non-adjacent flats on different floors, even if located in the same residential tower, cannot be considered a single residential unit. The Court clarified that the word “a residential house” in Section 54F refers to a singular unit. The benefit of purchase of multiple units is available and may qualify as “a residential house” only if the flats or floors are
constructed in such a way that they can be used as a single unit.
S M L Comments: This decision aligns with the earlier rulings that two adjacent properties can be considered as one single unit for the purposes of section 54F or section 54, if they are combined in a way that the multiple units are habitable as a single unit.
C. If a depreciable asset sold is a long-term capital asset, the rate of tax applicable would be that on long-term capital gains and not Short-Term Capital Tax Section 50.
SKF India Limited vs. DCIT [(2024) 168 taxmann.com 328 (ITAT, Mumbai-Special bench)] dated 03-10-2024.
Held: The ITAT (Special Bench) by majority amongst three Members held that gains arising from transfer of a depreciable capital asset, though ‘deemed’ to be short term capital gains, but that fiction must be confined only to computation methodology i.e. indexation u/s 48 is not available unlike in case of longterm capital gains. The deeming fiction under section 50 does not convert the nature of ‘long term capital asset’ into a ‘short term capital asset’ under the Act. Accordingly, even though such gains are categorized as short-term capital gains for the purpose of computation, the applicable rate of tax would be as per section 112 i.e. as applicable to long-term capital assets.
S M L Comments: This decision re-enforces the earlier rulings wherein the courts have held that the gains from the sale of depreciable assets would be computed as short-term capital gain (without indexation), but the rate of tax will be as applicable to long-term capital assets. The authorities have also allowed certain exemptions (such as reinvestment in immovable property, which is available only to longterm capital gains) as available when long term capital assets are sold. There are practical challenges in implementing this view as the income tax utility to file return of income may automatically calculate tax at the rates applicable in the case of short-term capital assets and there may be no option to compute tax at a beneficial rate.
D. Stamp duty value of property is not to be considered while reducing the written down valueof such depreciable property if it does not result in capital gains.
Composites India (P.) Ltd vs. ACIT [(2024) 169 Taxmann.com 72 (ITAT, Mumbai)] dated 21-11- 2024.
Held: The ITAT held that provisions of section 50C cannot be applied where the asset block continued to exist and therefore, the issue was that of calculation of WDV for the purpose of computing Business Income. Provisions of section 50C to replace the stamp duty value with the actual sale consideration would operate in the domain of capital gains and not for the purpose
of computing WDV and depreciation thereon.
S M L Comments: This decision not adopting stamp duty value on sale of a depreciable asset has been rendered in a scenario where the block of assets continues to exist and for computing WDV and depreciation thereon. However, the applicability of the same where there is a capital gain on sale of depreciable assets needs analysis
E. Indexation benefit available to a resident in case of transfer of foreign assets. DCIT vs. Aarav Fragrances and Flavors (P.) Ltd. (2024) 169 taxmann.com 201 (ITAT, Mumbai) dated 27-11-2024.
Held: The ITAT held that once the capital gain is required to be computed as per section 48, then, the full effect should be given to the provisions of the section. There is no reference in section 48 that indexation benefit is available only to specific assets (except in the case of non-resident selling shares of an Indian company). The section does not distinguish between the assets held in India and held outside India. Therefore, the assessee would be entitled to the indexation benefit in respect of assets held in foreign countries.
S M L Comments: A welcome relief to Resident assessee and distinguishes the earlier decision of ICICI Bank Ltd. vs. DCIT [2024] 159 taxmann.com 747 (Mumbai – Trib.) dated 25-01-2024 due to lack of clarity in the facts of the said case. After the amendment by the Finance Act (No. 2) 2024, this decision will have limited application as the indexation provisions have been deleted for most of the assets and assessee after 23rd July 2024.