Accounting in case of real estate develpoers

This query is : Resolved

Kinjal Pradip Sheth (Querist)
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25 April 2009 HUF has acquired a plot of land. Memorandum of Understaing is made between HUF & its Karta whereby HUF has approached Karta for construction of residential building on the said plot.

Terms & conditions of MOU are as follows ;

1.The expenses related to the Development of said Property shall be totally borne by the Karta.
2.Karta shall have right to sell the flats to the proposed buyers at a price to be decided in consultation with the HUF.
3.HUF in return shall shall part with 15% profit on sale proceeds of each flat as Development right to Karta
4.Karta has assigned all their rights, title or interest in the said plot.
5.Karta shall cease to have any matter of any rights, title or interest in the said plot.

Please suggest accounting in case of both i.e.HUF & Karta.

CA Devin

CA Devin (Expert)
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25 April 2009 There is Principal-Agent relationship between HUF & karta respectively, HUF is the legal owner of property and Karta is Just receiving Commission and accounting may be done accordingly.

However, there are many issues like department may this as colorable device, which can be cleared only after through study of MOU and relevant case laws.