Capital Gain

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Nisanth C S (Querist)

22 September 2009 'X' sells a land to 'Y' on 2007.Y has no right on land at all.He has to find a buyer, who is ready to buy a house property on the same place.Then X will ready to construct a building on that area and Y will sell it.25% profiy belongs to the seller means 'X'.I want to know that the initail transaction ( X to Y) attracted by Capital Gain Tax.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

23 September 2009 X' sells a land to 'Y' on 2007.Y has no right on land at all.

If X sells the land to Y then Y is the owner of land having every right attached with the transaction of sale of the land.

The answer is based upon the assumption that X has agreed to sale the land to Y on the condition that construction will be done by X only on such land and what ever profit Y would earn, 25% of it will be given to X. Suppose X sold the land to Y in Rs 100000/ and construction done by x on the land is of 200000/-.
The property is sold for Rs 350000/-.Profit is Rs 50000/.
Y is retaining 37500/ and x is receiving Rs 12500/-. The transaction between x and y is in the nature of a business activity.
It will be business income of both X & Y.
However, in initial transaction, profit earned on sale of land by x will attract capital gains tax and that would arise in the year 2007.

The answer may differ if the facts are different.

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