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Land owner's contract for construction with a promoter

Biswas Ardhendu Sekhar (PRACTISING CA) (67 Points)

30 May 2013

A land-owner has entered into an agreement with a Promoter for construction of a four-storied building under which

he will get a immediate down payment of Rs.10,00,000/- , one Garage and a commercial shop measuring 200 sq. ft plus first floor having about 1500 sq.ft. The Promoter will get one garage and a commercial shop of 200 sq. ft plus second and floor each measuring 1500 sq. ft. The constrction will be completed within a period of eighteen months. Present market rate of construction is around Rs.1,500/- per sq'ft and the sell price on average is around Rs.3,000/-

What will be the treatment of this down-payment amount and the first floor that the land-owner will get. ?

Has the land-owner any tax-planning option ? If so then what is that ?

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MJ Krishnamurthy (ACCT(Retd)) (7197 Points)
Replied 31 May 2013

Mr B A Shekar,

This is a joint venture entered between the land owner and developer.According to the agreement the land value is compensated by some advance,a shop of 200sq ft and a house of 1500 sq ft area.It also means that the land owner has paid a value equal to the built up area given to him at market rate.This is also a works contract agreemnt,although there is no money transfer on that account. You may observe that a sale agreement will be made between the land owner and the builder as the value of so much of property is received at the time of registration..Hence, the contractor has to pay tax on the entire works cost of the building ,including that given to the land owner, and the latter ha sto account as payment received from the builder and paid for construction......mjk

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