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Pvt ltd company's director sold personal land to company

Abhimanyu Bind (CA Final Student & Audit Assitant) (2049 Points)

07 January 2013

Hi,

A director of PVT LTD Real Estate company sold his land to the company and for consideration he has reserved certain flats say 3 in the apartment which will be constructed in future on that open land. Now, please explain the tax treatment and accounting treatment of the transaction.

Regards,

Abhimanyu

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4 Replies

Rikin (Learner) (140 Points)
Replied 07 January 2013

1. Director sold Land to Company...Consideration paid by company to director would be debited as land cost for project...(as company in construction business it will not be treated as an asset)

2. You can either make adjustment entry of 3 Flats given to director...against land capitalised...or...Take flats sold to director without consideration or nominal value.

3. Director would be liable to Taxed under Capital Gains for sale of land.

4. Company will not taxed....unless it solds flat constructed on that land...rather it can claim land cost..under project WIP.

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Abhimanyu Bind (CA Final Student & Audit Assitant) (2049 Points)
Replied 07 January 2013

Thanks for your reply, but director has not received any consideration presently. He will receive it in future in the FORM OF FLATS in apartment constructed on the same LAND recieved by company.

Please reply accordingly.

Roshan Thomas (C.E.O ) (356 Points)
Replied 07 January 2013

In the books of the company

Cost of land is accounted as cost of project X (current asset)

AS -7 has followed for projects once sale agreement is executed. While taking revenue of project sale consideration for these three flats cannit be considered. This will get automatically adjusted into the cost of project.

When sale agreement is not entered then this is not covered under AS-7. The cost will form part of inventory. Here every year cost of these 3 flast should be shown as cost of project sold

Tax Treatment

In case the land is a long term capital asset. He will be eligible for exemption u/s 54 if other conditions like completion of construction within 3 years is satisfied

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