Capital gain

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This query is : Resolved

shaikh irfan (Querist)

17 April 2012 Mr. A, an builder owner of plot, which was purchase before 12 months, enter into a development agreement of residential row house project of 11 row houses with Mr. B. as per agreement Mr. A, giving his plot to Mr. B, for development and in consideration Mr. A takes 5 row houses.

my query........
1) under which head this transaction is consider. (business income o capital gain)

2) what will be tax treatment.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

18 April 2012 In my view, in case of the builder the plot of land may be treated as a stock in trade or
a revenue expenditure. While entering into an agreement with the Developer, the land gets transferred. The FMV of 5 row houses is sales
consideration for the said land and can be taxed under the head IFBP as Business Income.
.
Tax liability will be the same even if you consider the plot of land as short term Capital Asset.
.
Seek opinion of other experts also.
.

shaikh irfan

shaikh irfan (Querist)

18 April 2012 thx a lot Bafna sir for your valueable opinion.

shaikh irfan

shaikh irfan (Querist)

18 April 2012 one more thing i want to point out. Mr.A not transfaring title in the name of Mr. B as there is a mutual agreement between them. is it make any change in tax treatment

shaikh irfan

shaikh irfan (Querist)

18 April 2012 one important point i missed to pointed out. that Mr. A was not transfer title of land in the name of Mr. B, as they r mutually agreed on the terms of development. is it make any change in tax treatment.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

19 April 2012 To give the land for development is tantamount to transfer as per the views of experts because without providing effective possession of the land, development activities can't be performed.
.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)

19 April 2012 In your case it is important to note when Mr. A purchased the land. If the land was purchased more than 3 years then Long Term Capital Gain will come and if it is less than
3 years then it is Short term capital gain will applicable as soon as you enter into a development agreement. This is first phase. In the second phase you can show investment and claim deduction under Section 54 or 54F as the case may be by taking the value of the row houses as investments but still there is also very much controversies

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