Service tax applicability on development of farmhouse

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Jyoti Vats

Chartered Accountant

23 Points Posted on 16 January 2013

Is service tax applicable on development of FARMHOUSE..???

There is a Co. (eg. ABC Pvt Ltd.) and it undertakes the work of
development of land, registered in the name of its Directors (
purchase cost of land in the hands of Directors- Rs. 700 per Sq.
yards), into FARMHOUSES. Later on these developed farmhouses are sold
and the sale proceeds ( say Rs. 1325 per Sq yard) received by the Co.
are reimbursed to the directors ..Not the whole amount is reimbursed,
only the cost of Land+ some % age of Profit is paid to the directors
i.e a part of sale receipt is retained by the Co.

Is Service Tax payable on such transaction..?? If yes, then by whom
and on which amount [ Gross Amount i.e Rs. 1325/- or Net Proceeds i.e
Rs. 625 (Rs. 1325-Rs.700)].. Pls reply asap..

Replies (2)

Madhukar N Hiregange

Chartered Accountant

33545 Points Posted on 16 January 2013

Assuming that there is a ST liability option is to pay ST on 25% of the gross amount. If there are 2 agreements- 1 for sale ofland and 1 for construction then on the construction ST can be paid on 40%x 12.36%.

Jyoti Vats

Chartered Accountant

23 Points Posted on 16 January 2013

Sir there is no sale of land by the directors. They are entering into a COLLABORATION AGREEMENT for development of land owned by the directos and no construction activity is carried on by the Co. The agricultural land is just developed by the Co. & activities such as construction of roads, electrification, fencing of land, land levelling etc. is carried out by the Co. The sale proceeds will be recd by the Co. (say Rs. 1325/- per Sq. Yds.) along with a fixed amount for charges towards EDC, maintenance & electrification (say Rs. 65/- per Sq. Yds.) out of which the land cost ( say Rs. 500/- per Sq. Yds.) along with some profit margin will be given to the directors.

Whether service tax will be attracted and on which amount.?