Query regarding powers of AOP (Association of Persons)

Namaste

I have a query regarding powers of AOP.

Landowners had given their land collectively to a Developer in Joint Development but that builder could not complete the project and left it in between. The landowners cancelled the JDA with the builder and collectively formed an AOP and got its PAN, GST and started continuing the leftover construction work.

Now, they have completed some part of the project but they wish to again enter into JDA with a new builder but for the remaining part of the project.

Now, query is -

1) Can this AOP be entitled to enter into JDA with a new builder? Technically the land rights are with the landowners and not with AOP as a separate entity?

So, this new JDA shall be done by landowners in their personal capacity or can the AOP execute this new JDA?

2) The Landowners are suffering losses while completing the leftover construction work by the previous builder. So, in order to claim this loss and set it off in the coming years, the clients are inclining about entering into new JDA through AOP only?

Because presently AOP is in loss and since the remaining project will be done through a new builder via Joint Development with the landowners, then how come AOP will be able to set off its current year loss in the future when they will not be having any construction to do in the remaining project.

Kindly help me by answering these queries.

Thanks a lot

Hi Ishan,

Interesting and important questions on the powers and tax implications of an AOP in a real estate joint development context. Let me address both your queries clearly:

1️⃣ Can the AOP enter into a new JDA with the builder when land rights are with landowners individually?

Key points:

AOP (Association of Persons) is a tax entity formed by the landowners collectively mainly for carrying on business/activities together.
However, land ownership rights remain with individual landowners, not the AOP — because land rights can only be transferred by registered documents in the name of individuals/entities.
So, technically the AOP does not hold land ownership title and cannot directly execute a JDA as ‘owner of land’ unless land rights are legally transferred to it (which is rare and complicated).
Usually, the JDA is signed by individual landowners, and the AOP can be a party for carrying out construction activities or financial transactions.

So, practically:

The new JDA must be executed by landowners personally or through a legal vehicle holding the land title (like a partnership or company).
The AOP can be involved operationally, but cannot act as landowner to execute a JDA if it doesn’t have title over land.

2️⃣ On losses suffered by landowners during leftover construction & setting off losses through AOP

Situation:

AOP incurred losses completing leftover construction.
Landowners want to claim these losses for set-off in future years.
Remaining construction to be done via new JDA with landowners.

Tax viewpoint:

Losses of the AOP can be set off against future income of the same AOP, subject to normal tax rules.
But if future construction & income arises from the new JDA entered by landowners personally, then the AOP will have no income to set off these losses.
Hence, losses of AOP remain unabsorbed unless AOP earns income in future from the same business.

Possible approach:

If the new JDA is entered by landowners individually, then losses of AOP cannot be set off against income from JDA.
If the parties want to utilize losses of the AOP, then the new project income should flow through the AOP itself.
But this requires the AOP to have legal capacity over land or rights to carry out development, which is complicated unless land ownership is transferred to the AOP.

Important caution:

Tax authorities are strict about commercial substance — if landowners retain land title personally but try to channel all income through AOP just for loss set-off, it might attract scrutiny.
Best practice is to align the legal ownership, contractual rights, and tax treatment consistently.

⚖️ Summary:

Query	Practical Conclusion
Can AOP execute new JDA?	No, unless it holds land title. Landowners must execute JDA personally.
Can AOP set off its current losses against future JDA income?	Only if future income arises in AOP. Otherwise losses remain unabsorbed.

Suggestion:

If possible, consult a legal expert to explore if landowners can assign development rights to AOP, making it capable of entering JDA.
Or, consider forming a company/LLP for the project with transfer of land rights to that entity for seamless tax & legal clarity.
Ensure all arrangements comply with real estate and income tax laws to avoid disputes.