TDS or Capital Gain

Hi,

In my opinion, currently it is merely deposit / advance with the company as the right to purchase land will be exercised only after the end of 3 years. So at that time if repayment is made, TDS u/s 194A will get attracted while if land is sold it may be capital gain

Mr.CA Sourabh Mitra and Mr.CA Pranjal Joshi

First of all we have to study the terms of agreement between the company and the depositors.  If in the agreement it has been agreed that possession of plot of land is handed over to the depositor at the time of accepting the deposit, it will be a differenct situation from the one as mentioned by CA Pranjal Joshi.

We cannot come to a conclusion unless the terms of agreement between the depositor and the company are thoroughly studied.

Best Wishes

Sathikonda

Hi Saurabh,

As per my understanding, the transaction is a normal transaction of loan as on date.The borrower needs to make annual provision of interest on the basisof notional market price and TDS provisions will be attracted thereon if the interest amount exceeds Rs 5000/- .

Now when the transaction actually becomes the sale, the main concern are as follows:

1. What is the sale consideration? Ans is the then market price .

2. What is cost of acquisition?  Actaul cost of acquisition , no adjustment for the interest portion as that is not incurred for aquiring the title to the property by the borrower.

3. Can this be treated as exp in relation to transfer? please refer to case law CIT vs Maithreyi pai[1985] in this regard which states that if the exp has already been the subject matter of deduction under other heads it cannot be allowed as deduction u/s 48.So it is not even expense in relation to transfer.

Now another important question is about the TDS .As per my opinion the lender can adjust it against his tax liability for respective years as in any other case of interest income, i.e can take its credit on annual basis.Then in case of third year if the transaction is converted to sale and then capital gain then no separate adjustment for TDS of earlier years needed.

and in regard to last part of ur query let us wait for other friends to answer as in this respect even i m not sure.

Dear Saurabh,

In the absence of  confirm agreement(whether oral or written) to get back the land after 3 years, the above transanction will be treated as "TRANSFER" witnin the meaning of Sec 2(47)

REMEMBER DEFINATION OF TRANFER COVERS "EVEN ENJOYMENT OF POSSESSION"

No point of Sec 194 A, "This thing can be proved by the tax tratment/ maturity of zero coupon bonds - that it is trated as capital gain & not as interest"

The only difference is in the present case we have land instead of bonds........

If there is a clause in the agreement that if the lender does not take back the land after 3 years,he will get,say Rs 72,500/-(the advance taken by the company is say Rs 50,000/-),then will be there any TDS provision u/s 194A of IT Act in the books of the company?

How shall we adjust the TDS after 3 years if lender take the land?

Dear Friends, i have some doubt which need serious clarification... urgently.. The doubt pertains to present issue

How can a private ltd company accept deposits from the public other wise than in course of its business? Pls see the Companies acceptance of deposits rules, rule 2(b)(x), which covers this within the ambit of deposit...... how this company can accept deposits to take such finance from public???

https://www.mca.gov.in/Ministry/actsbills/rules/CAoDR1975.pdf

rgrds

The company will show this amount as advance against land & not as deposit

Sourabh Sir,

I could be wrong.....

Merely by backing the moneys received with land, does it mean that it will change its character?? All deposits are advances, thats y we are having  in sch VI as loans and advances, special disclosure as "deposits" no.... In liabilities side, we have to show deposits as unsecured loan.....

The CAoDR says that any money borrowed by a company will be deposit, unless it falls in one of the cases no...... inviting large number of people to provide loans also falls within the category of deposit right, since Moneys are being obtained from people other than the specified certain entities....

Also there is clear stipulation of repayment to the people (who i think are not shareholders or directors).... So this wil be deposit rite????

someone pls explain to me.......

Mr.CA Sourabh Mitra

First of all you have to provide the terms and condtions of the agreeement  between the company and the lender/prospective buyer.  Please let us know exact wording such as "company" means "vendor" or anything elese, the person who makes the advance is a "lender" or prospective "vendee". Is it "advance taken on the security of plot of land" or "advance accepted for sale of plot of land"

In the absence of the above details it is not wise on our part to discuss the matter.

Best Wishes

Sathikonda

Dear G.K.

I THINK U R RITE, IT WILL BE TREATED AS ACCEPTANCE OF DEPOSITS..........

Good work bro, I couldn't relate to it with voilations under Company Law,