Development rights given to partnership firm

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2015 Hi ,

I have a very interesting query.

Assumptions:
1) Sally got Land gifted from parents and paid the stamp duty according to the revenue records. Let say at that time land was valued at 20 Lakhs.
2) Sally now wants to give development rights to ABC and not sell the land to a PVT LTD COMPANY ABC.
3) SALLY , JOHN and ABC PVT LTD want to develop the said land and make a hotel on the same. JOHN Is director of ABC but wants his company ABC to only give capital and take their liable share nothing more. Major work will be done by individual John which he wants to take profit personally into his account.

4) Since stamp duty valuation is always less than the actual land value. The said land if valued by a govt auth valuer the same will be valued at Rs 2 crore.
5) ABC PVT LTD will be putting in let say 2crore of capital to build the hotel.
6)Sally and JOhn will be the working partners.
7) John is also the director of ABC PVT LTD.

Questions
1) If developments rights are give and land is not sold and put inside the partnership firm will there be any capital gains arising?(As there is no sale)

2)What should be the correct profit sharing ratio for
a) Sally
b) John
c) ABC Pvt Ltd

3) Is partnership firm the best type or do you recommend another type of legal company?

Amol S Joglekar

Amol S Joglekar (Expert)
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11 June 2015 who is MIKE in all this?.
.
.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2015 No mike haha just JOHN.

Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2015 No mike haha just JOHN.

Amol S Joglekar

Amol S Joglekar (Expert)
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11 June 2015 Thank you for EDITING the query.

01. The hotel building is owned by whom? Sally or Partnership firm or ABC Pvt Ltd? What for the Sally's land is being developed?...(I am trying to drive you at CONSIDERATION part which will automatically solve the issue of capital gain)

Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2015 Project is to make hotel on sallys land.

Sally's share is land which is 2crore.
ABC Pvt LTD is giving cash Rs2crore to build the hotel.
Sweat equity is John and Sally who are developing the hotel.

We need to figure out what share of the project goes to whom legally. But the land will always be in the name of Sally.

Amol S Joglekar

Amol S Joglekar (Expert)
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11 June 2015 who is this Sonal now?

Anyway, the simple concept is the ratio has to be in proportion to the RISK associated with each of the contributory.

Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2015 Modified to sally. What about capital gains on the land? What about sweat equity ?

Amol S Joglekar

Amol S Joglekar (Expert)
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11 June 2015 01. Land is NOT transferred, it is developed. So? No transfer, no capital gain.

02. Who is going to be the OWNER of hotel building?

Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2015 Sally will own full land and part of hotel.

ABC Pvt ltd will own part of hotel but not land.

John doesn't mind just getting share in profits since his is sweat equity or even a small share of equity in the partnership.

We need to formulate the share of each party and what they can receive legally without any doubt!

Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2015 They are open to suggestion to make the share in the most tax efficient way.

Amol S Joglekar

Amol S Joglekar (Expert)
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12 June 2015 01. TAX need not be a consideration at all to decide the RATIO. Tax is , after all, just 30% at the most.....Once you are getting in millions, dont need to save in hundreds.

02. Be sure in stating that ABC pvt ltd shall own a part of HOTEL. Warning is...it may tantamount to "sale of developement rights" attached to land owned by Sally....(That is why I was meticulously asking from first go.....WHO IS GOING TO OWN THE HOTEL BUILDING?????? Please be very careful in that

Your views please!

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