Capital Gains Tax & Joint Development Agreement

Joint development agreement in the scope of capital gains tax consequences of transactions on a large one and is designed with an eye.

The last decade has seen tremendous growth in real estate, also in legal disputes in relation to tax matters was an increase.
A joint venture between landowner and a developer for the development of most properties are considered better way.

Residential buildings built on a landowner to measure the X-acres is a joint development agreement between landowner and developer, the general issues which typically arise as the following are
A) capital gains tax when the landowner and developer creates? The joint development agreement signed at the time, the residential buildings to achieve at the time, or at the time of the sale of residential buildings?

B) In case, if there is breakdown of joint development project, does the landowner has to pay capital gains tax.
According to S.45 (1) Income Tax Act, any transfer of capital asset during the past one year of benefits arising from the assessment year immediately following the head capital gains "is chargeable under.

However, the Income Tax Act (2) S.45, some relaxation of certain assets as capital assets do not trade, consumable stores or raw materials held for the purposes of trade or business of any kind for the treatment of stock returns . And, facts developer is engaged in the manufacturing business, according to him so, building wealth is a storehouse of goods. It "can not be considered as capital asset. No surplus reserves of the material is generated by the developer on the sale of business will be chargeable to tax as income. Therefore, the developer responsible for the payment of capital gains tax is not.

In case of joint development agreements, arrangements between the landowner and the developer that the developer has to bear some part of the capital gains tax, only the developer pay the capital gains tax is borne by the landowner will be responsible for otherwise landowner have to bear the capital gains tax.

Now, the question arises, arises when the capital gains tax event?
"Purely from the point where capital gains will depend on the terms of joint development agreement are deemed received«. Where such is the nature of the agreement that a contract has been in the right part of the performance, capital gains tax assuming responsibility for the builder will arise over such rights.

"« The rights transferred, but deferred until construction is completed, capital gains tax liability of the developer built in the year will be generated in full.

"« Where the landowner and builder executed joint development agreement, the consideration receivable in built-up area to the building and the landowner is given by the builder, it is advisable to avoid the transfer of property to apply Section 53A of the work. The agreement that the license to enter the premises and the building is provided for construction builder mentioned can be achieved by. possession landlord, which will be handed over as the built-up area and has built and maintained by distributed. this condition, the transfer is received over the years built up area and not only will take place before.

Jasbir Singh Sarkaria again in [2007] 164 108 Taxman (AAR New Delhi), it was held that in the case,
1) Agreement for the transfer of real estate in its own immediate transfer of possession does not provide for the OU, to enter into this Agreement on the date of sub-section 2, clause (v) not be considered the date of transfer within the meaning of can be (47) of the Income Tax Act.

2) to sub-section 2, clause (v) Drawing (47), it is necessary that the whole idea to the sale is final installment must be received by the owner.

3) In the case of two agreements on the terms and irrevocable agreement is GPA, GPA performance of the land "transaction involving possession permit" section will be taken as performance contracts And so, the meaning of Section 2 (47) within the transfer (v) that have taken place on the date of execution of GPA must be understood.

4) Once it is held that the nature of the transaction sub-section 2 (v) clause (47) was referred to took place on a particular date, the actual physical occupation need to check in date is. It is enough if the transferee that transaction based on a way to enter and effectively exercise acts of possession done properly.

In case joint development agreement between the landowner and developer breaks down and the project is completed, then what is the landowner is liable to pay capital gains tax?

(I). If the developer is responsible for breaking down the joint development agreement, either the landowner or to contract in both cases in terms of joint development agreements as to specific performance for breach of developer compensation from the developer, get Highlander will be receiving. And, what capital gains tax charge under landowner developer has acquired, it must first be "capital asset" comes under the definition of

In the case of CIT v. Vijay Flexible Containers [1990] 186 ITR 691 (Bom.), the assessee for a firm to purchase property at a special rate with the person entered into an agreement. The assessee paid a sum of Rs. 17 500 as earnest money. As the seller of the contract failed to perform his part, the sale agreement the assessee filed a lawsuit for specific performance had been forced, or alternatively to compensate for its violation. Agreed terms were reached in the suit and a decree in favor of the assessee for the amount of money was passed. 117 500 and interest. Questioning whether the amount received by the assessee was a capital asset. A division bench of Bombay High Court held that the property purchase agreement, the assessee's right to have conveyed to her real estate law, he deserves the right to use the same against their vendors but did not receive had to see or even free with a transferee against the transferee. Assessee can also right handed. So, why settle for what he achieved sales tax under the said Act, 1961 and consequently a capital asset within the meaning of the property was. Court further held that his right to give up her real estate specific performance claims by one of the vehicles were abandoned capital asset within the meaning of the Income Tax Act and therefore there is a capital asset was transferred.

(Ii). In a joint development agreement, the project begins, the developer for project gives an idea of landowner. Even if the project because of the breakdown of joint development agreement is not completed, then at the beginning of the project by the developer to pay the landowner considered as capital asset would be treated?

K.R. Srinath V. In the case of assistant. CIT, [2004] 141 268 Taxman (Mad.), where the assessee for the purchase of a property initially paid in advance under an agreement, the agreement reserved the right to specific performance, and the first agreement under which ideas later another agreement was canceled and the seller at no cost to any person was allowed to sell the property, there is a disclaimer of authority by the assessee 'transfer' was the amount, and resulting benefits was assessable as capital gains. Since the assessee for the sale to acquire the right to work had to pay an amount, that there was no cost of acquisition so as to consider that there is no capital gains to be assessed can not be said to be taking.

Therefore, even joint development agreement between landowner and developer breaks down, the landowner is achieved due to the joint development agreement, the landowner has acquired what "capital asset" and fall under the definition of income-tax capital gains levy can do on the capital asset.


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