Transcript for:
Joint Development Agreements and Tax Implications

covering joint development agreements income tax implications in one hour is like narrating full Mahabharata in 15 minutes with all details it's simply not possible because the subject is so vast so what I propose to do is cover as much as we can emphasize more on 45 5way because those are those are recently newer Provisions whatever we cover we cover it sincerely while the material is ready for the entire seminar so without wasting much time I'll start with the presentation directly there will be some spaces I will run through and there'll be some spaces which I'll pce myself over for better understanding I hope that is fine I just like somebody to confirm that the screen is visible when I share [Music] it could someone confirm that they can see this screen yes ma'am perfect so why JD is firstly it's very obvious land is limited land is expensive people who own land want to monetize more than just selling land out at basic cost and on the other hand there are Developers for whom land is very expensive to buy out but anywh this Finance requirement they are not funded easily by Banks borrowing doesn't come easily to Developers so that is why they also need a partnership of s sorts with somebody and that's how the combination of a landowner for getting more monetary enhancement or also even flat owners for get in the pursuit of getting bigger better spaces would be willing to join hands with a developer and get in return the enhanced constructed area so that is why joint developments it's a no-brainer sometimes we interchangeably use the word joint development and Joint joint venture the two terms are not same especially joint venture it's not the subject matter of today's discussion but nevertheless just a brief on joint venture is when two parties come together with a common business objective they one as compared to the World At Large when they come together make a separate entity sometimes or constitute a separate entity like aop LLP and when they agree to do certain things more responsibilities with each other that is when a joint venture comes into picture and their roles Are Not Mere contributor of land or doing the construction services they're far more spread out but as as a joint development agreement is concerned The Limited role that a land owner pays plays is actually contributing his land the developer brings along the financial wherewithal to do the construction and the skill sets to do the construction that is where jda or Da comes in place in jda or da land owners will file the separate returns developers will file the separate Returns the entities would be separate monetary flow would be separate there are a lot of civil decisions on this not necessarily tax which you could refer to if there's ever a confusion on joint development versus joint venture and why it is important is the way they are taxed is of course very different one of them is on the screen here fakir Chan gulati in Supreme Court one could refer to that to understand the differences between joint development and joint venture now that we know JDS what are the types of JDS this is also very well known so I'll just quickly say area sharing where I as a land owner put my land in developer comes in does construction on it now out of the constructed area I take back some percentage of constructed area the building is mine that is why it's called area sharing in Revenue sharing I put my land in developer does the construction developer sells the construction constructed area proceeds that come in the revenue that is there that I will share a little bit with the developer so probably I'm expecting that the prices will go higher I don't want to take the ownership of a property I am simply wanting to take entitlement in the money that is coming in through a real estate appreciating Market lumpsum considerations plain simplicit changing land for money these three are the prevalent ones we will start with area sharing but before I move to that one small thing is I wanted to also bring out the new evolving models that are there because all the areas of jda that are there so far are having complexity in terms of GST Stam Duty income tax of course is there so there are constantly Pursuits to make different models these are few models which we've seen recently project or development management agreement or it's also called as a consultation agreement sometimes and a codev development agreement now that we know which types of J so I have put a slide on Modest operandi of area and revenue sharing won't go into it we can look at it later coming directly to the tax aspect we are focused on land owner over here right now we focused on Capital asset for this discussion first while we will also do Revenue uh holding but still to start with whenever a tax question comes up whenever a jda comes up first thing to know is to distinguish between Capital asset and stock in trade it is a very basic thing so I don't need to harp on it but still it is something that we cannot miss if somebody's holding it as an investor just for appreciation it will become a capital asset or if somebody's holding it as an adventure doing certain activities like a business person to become stock in trade in both the part in both the parts all kinds of JD are possible so if you see Capital asset also has all three models of jda stock and trade also can undergo whatever kind of jda is there but why is it important to distinguish because tax implications will change the moment it's a capital asset you're looking at section 45 to 55 capital gains head if it's stock and trade you're looking at 28 to 43 business head for Capital asset you're looking at special tax rate now 12.5% 20% Etc stock in trade you're looking at regular rates applicable to an assess for business income as far as reinvestment benefits go Capital asset has Express benefits for reinvesting proceeds when you sell a capital asset not similarly for stock and trade so that is but in stock in trade you could get claim of many other expenses apart from the cost of acquisition so that is one and lastly one more thing which is very conceptual the moment we are talking of changing of hands of capital asset we are looking at the concept of transfer that is the underlined Concept in that entire chapter but when we looking at business income we are looking at the concept of acral or arisal of profits so that is why the chargeability itself the point of tax will vary based on which head we are looking at which head does the asset Fallen is a factual exercise which is also a subject matter of discussion if we do at length but broad principles to remember in three parts is when the capital asset was acquired what was the intent of acquiring it and how it was then continued to be held what was the conduct of the assess when the asset was held by the assess and towards the end when I'm entering entering a joint development agreement what kind of actions am I doing so broadly when I acquired it how did I record it in my book how did I continue to hold it what was the frequency of transactions how many how many other lands do I hold which are business asset or stock and trade when it comes to doing transactions in jda who is taking the approvals whose names are the enoc's on who is making the payment for property taxes who is running to all the regulatory offices who is looking at the plans that these are the kind of factors that should be evaluated in deciding whether something is a capital asset or a stock in trade now the predominant issue with now we will focus on area sharing per se first to start with we looking at Capital asset and area sharing the problem with this area was what happens like I said I give my land as a land owner developer comes in constructs constructed area and we share that area the issue here was twofold one when is the tax event arising two on what amount should I pay the tax when is the tax event arising we all know by and large because of chaturb dadas kapar and Bombay high court case the general conent consus was that the moment you enter joint development agreement and give the possession in essence when you satisfy all conditions of transfer 247 subsection 5 that is the time the tax on jda comes in but the problem also was on what amount because I right now don't have either money received from Builder or the constructed area which will come to me in future neither do I have the liquidity liquidity to pay away the taxes so government sensed these two problems s and came up with the provisions of section 45 5A now 45 5A is dealing with these two aspects I will take a minute I'll pause for everybody to read the section by themselves and then we will start discussing everybody can proceed to just read the bare section as it is shown on the screen so many of us would be aware that 455a basically says in very very broad terms that when an individual or Huf transfers a capital asset or an underlying immovable property land or building under a specified agreement they don't write development agreement here they've defined specified agreement in a particular manner then the capital gains on this transaction will be triggered it will be taxable in the year in which completion certificate for the constructed area is received and the valuation of this constructed area will be the stamp Duty value of the constructed area on the day it is received that is the time the assess will pay tax if assess has received some money in addition to this constructed area that also will be offered to tax so these are the two broad Concepts in section 45 5A here be mindful that we talking of the stam Duty value of the incoming asset even though there's an outgoing land and building which is there there might be a Stam Duty value today we are not discussing that we are looking at when it is coming in the value at that point of time and of the asset that is coming in while the section looks okay we will now dissect small parts of it and go to analyze it a little more deeply firstly I want to point out that this section was introduced in finance budget 2017 with effect from assessment year 2018 19 so the first question comes is does this section operate retrospectively or prospectively that means let's take a small case study assessment year 1617 a jda was entered this is before introduction of 45 5A somebody entered a jda now assessment 2021 the constructed area was ready and completion certificate was obtained between these two years came 455a and no capital gains tax was offered in this period overall so far so now the question is whether we can take the benefit of 455a in this transaction and say that in the year of completion certificate ay 2020 21 I will apply Stam Duty value and offer it to tax in ay 2021 nothing doing 201617 does not matter anymore is it retrospective or prospective the arguments on both sides one side says that one argument would be that these Provisions are clarificatory beneficial remedial the government came to solve the hardship of assess so they should have been considered as an existence forever anyway there was a gray area on how to calculate now the government has blessed one mechanism so it should apply retrospectively that's one part of the argument other part says no this is a chargeability section it has been introduced for the first time in the provisions of the act it is a substantive charging provision so there is no way we could have applied it in the past since it was non-existent a substantive charging provision should act only prospectively so these are the two sides which I think both hold equal Merit but as judicial procedence stand today there are many decisions I've reproduced a small list below where the Trib have all said that section 45 5A should operate only and only prospectively in none of the decisions retrospective application has been permitted by the courts so if a JD has been entered before 455a intruction all we can do is stick to the older law there and not try to import 45 5A into it yes if the agreement is entered after AI 1819 very well we are looking at 455a so let's go ahead and 40 5 and now that we know where it operates let's look at part two the section starts with not withstanding anything contained in subsection one not not withstanding anything contained in subsection one of what obviously 45 because this is a part of 45 itself 45 1 2 3 4 5 58 so SE now when it says not withstanding anything contained in subsection one I want to see what is in 45 subsection 1 it's populating on your right this is what 451 says 451 is basically the charging section for capital gains as usual and it says anything any capital gain arising in previous year from transfer should be chargeable to capital gains but you see I've underlined a phrase it says save as otherwise provided in section 4 54 54b 54 54 54 so one question that was being discussed is if what ises notwithstanding clause mean it is an overriding Clause it is trying it's attempt to override a conflict if there's something prescribed in 451 and there's a new Clause 455 and there is a conflict between the two which there clearly is which one should have the supreme authority will be 455a because it starts with notwithstanding that is why it's enabling Provisions have to override 451 so what are we effectively doing 451 was taxing the transfer in the year of transfer itself here we are saying no taxation is in the year of completion certificate very well notwithstanding provision helps me override that but what about this exemptions under 541 debate was then if it is overriding 451 and 451 is allowing deductions under all subsections of 54 then in that case do I say that 45 5A also overrides it and I don't get benefit the consensus is no whenever there's a notwithstanding provision if there's a conflict there's overriding effect but if something can operate simultaneously if two Provisions can work hand in hand there is no conflict then both should be given effect to when I operate 455a my capital gains is calculated in a particular manner in a particular year but my deductions are not changing in any case so those should still be available to me even if I go through a joint development or 455a mechanism not withstanding anything contained in subsection one where the capital gain arises to an assy being an individual or Huf so be very sure that you are applying this only to individual or HF if the land or building is held in a firm or company this section does not trigger you go outside this section again you go back to 451 and do your computation some small questions around this was when I look at at an individual do I look at only resident individuals or say there's an individual outside India non-resident who is holding land here and entering a specified agreement will he or she also be able to apply 455a section is open to all non-resident or accident both can go for 455a question again is I am an individual but the developer is not developer is a firm or a company does it matter no only the person giving up their immobile property land or building are individual or Huf as required if the developer is any other entity form does not matter 455a continues to apply what if I as an individual am jointly holding the land with say a firm now there are two parties who are owners and we are entering an agreement then does 455 apply the answer is anyway two returns will be separate two people will take two different positions on two different pans so if you are an individual or Huf you can take 455a firm or company will continue to work separately second so it's the same section I've reproduced on the left I'm not changed that we're just highlighting different phrases so what is the trigger from the transfer of a capital asset where the capital gain arises to an assesse being an individual or HF from the transfer of Capital asset so two things you need to see transfer and capital asset where is transfer defined in section two subsection 47 Clause AB 1 2 3 4 5 6 so even if you're doing 45 5A you cannot lose sight of 247 you still have to go to 247 we are also going to discuss 247 in the ensuing slides so keep this in mind marry both the concepts if you are not fulfilling the conditions of a transfer itself in 247 even if if you enter an agreement which is sorry included in 455a you don't need to apply 455a because firstly it has to be transfer of a capital asset second capital asset which we already discussed if it's a stock in trade you are not looking at 455 again you are looking only for Capital assets being land or building now which is this Capital asset the capital assets nature is specifically land or building so questions that come here are what kind of land and building does it apply only to residential only to commercial the answer to residential versus commercial is doesn't matter it just says land or building so even if I have a shop or a commercial property which I am surrendering in a joint development agreement for receipt of constructed area 455a continues to apply to me need not be residential what about agricultural versus non-agricultural for example non-agricultural is clear you surrender land you get share it's taxable but what about things where the land was agricultural in nature when the transfer happened so there was no transfer it's not a capital asset per se transfer of a capital asset is a precondition it's not a capital asset it is a land but not a capital asset so what position should be taken over there but by the so at the time that it was transferred the non-ag the agricultural land was transferred there was no transfer person because no Capital asset but by the time the construction happened on it the agricultural land got converted to non-agricultural permissions were sought Construction was done now it is non-agricultural in nature so how do we look at these transactions we will look with a case study in the further slides now very important questions which gets asked mostly what about rights in land and building especially for Mumbai region lot of older cases are there where people have salt of ownership in the land through a tency ride there are certain industrial areas where there is leasehold rights they are long-term leases or long tenants in those cases where the 45 5A will apply because these are not land or building but rights in land and building we can derive pages from section 50c and uh 45 and all where we've seen that land and building is separate from rights in land and building so even in this case 455a if you are not the owner but just having a right in it you should not apply 455a you need to go back to 451 and for example if you're a tenant in a building and a development agreement is being entered in that case you may not be eligible to take 455 you need to pay tax in the year of joint development agreement provided other conditions are fulfilled without taking benefit of when the construction is complete and what the stam Duty value is this is an important phrase so we are saying everything on the top if it is trans if from the transfer of a capital asset being a land or building of both under specified agreement the capital gains shall be chargeable to income tax shall be chargeable to income tax how does this matter when I say shall be chargeable to tax and I have also used the word transfer on the top if you see first I'm saying there has to be a transfer then I'm saying there'll be sh be chargeable to tax there are two events happening now we need to understand whether these two terms are the same the answer is no transfer is a different event which is an action chargeable to taxes it's just the incidence of tax how does this matter let's look at some few important questions here if in year one itself I'm doing a transfer today I enter a JD I'm doing a transfer for all practical purposes my transfer complete your five is when I'm getting my completion certificate which is the year in which income shall be chargeable to tax there is no coincidence between these two events there are two different events two different timings and why this becomes important is if you look on the left hand side I have plotted certain questions where basically the Common Thread is that the word used in these Provisions is transfer for example firstly whether there is transfer when I'm looking at 247 I don't look at chargeability to tax under 455 I simply look at the transfer so I don't have to worry about 455 second what is the period of holding of the asset why I'm blinging this up if I look at section 242a which defines short-term capital assets it says when assets are held for a period of XY months up to the date of transfer so now I have to look at up to the date of transfer not up to the date of chargeability to tax so let's see look at the right hand side there's a dark blue square which is there's a small case study I acquired the asset in 2324 immediately next year I entered into a joint development agreement so within one year I'm entering a joint development agreement now completion certificate is coming after four years in 2728 so the question that is here is what what is my period of holding if I count it from 2324 to 2425 it is one year if I count it from 2324 to 2728 it is four years so in the first instance it's a short-term asset in the next instance it is a long-term capital asset uh if whoever has any thoughts on this could plot their answers in the chat box as to you believe it's a shortterm asset or a long-term asset short-term capital asset UMES Raman says shortterm Rajesh M says shortterm very well any other asset any other answers so the answer is right that it should be short-term because technically speaking we are only looking at the event of transfer and not the chargeability to tax but now this creates a additional hurdles let's look at the third box on the left hand side it is shortterm now forget this case study because this case study was only for period of holding but let's look at the other questions independently if it was a longterm Also let's assume it was a long term in both cases let's say in one year I entered jda in year let's say I bought the asset in year one sorry I bought the asset in year one year five I entered into jda so in any case it's a long-term asset in year 10 I am going to get the constructed area and offer tax question is when I do my capital gains computation in the return in year 10 what will be the period for which I will do the indexation from year one to year five or year one to year 10 that is the question I hope the question is clear whether indexation will be available from year one to year five or year one to year 10 whoever thinks indexation should be available up to chargeability year 10 just write year 10 who thinks it should be year five because transfer has happened in or five and why the question the Genesis is that when I look at section 48 and when I look at indexation condition it says period from which asset is held to the transfer again and the indexation of the year of transfer so whether we should look at indexation for fifth year will obviously be lower indexation for 10th year will obviously be higher which is the year we should be looking at year five year five yogesh says year 10 rashmikant ch he says year five okay there is more consensus on year five than year 10 and that I believe comes from the fact of strict reading of the law as is because the word transfer is contained in the provisions and which is right if I'm reading it legally strictly it is your fine but we also need to understand that indexation introduction the legislative intent is to compensate for the inflation that is happening if I bought an asset many years ago and selling it after many years inflation needs to be accounted into and that is why indexation is given if I were to apply year five I would index my asset till year five but the sale cons that I'm receiv is in year 10 the stam Duty value adopted is also of year 10 inflation would have been taken into account in actuality or reality when the St Duty value is derived so there will be a mismatch of inflation for those five years that is why it could be argued that it should be at least matching and we should go to year 10 other way to look at it is if you look at the right hand side bottom uh box in slightly grayish color this is a comparable situation to 452 if you all remember section 452 deals with conversion of capital asset to stock and trade here also transfer happens in the year of conversion but when is it chargeable to tax in a future year when the stock in trade is sold similar to this year transfer has happened in middle but chargeability is at a later point of time there also these questions were asked as to when the indexation needs to be done year of transfer or year of sale the house is divided there there are decisions which say indexation only up to date of transfer I written one decision for sample there are decisions with say indexation up to the date of taxability I have written two decisions Sak sugars and nther and platforms which say you take the indexation right up to the date of transfer so in our example year 10 so in my view also while strictly it is year five a position could be taken to stretch it up to year 10 on the logic of parity but a formal uh clarification to this effect is not available as of now last question on this front let's say same example year one I bought the asset year five I entered a jda year 10 is when the completed units are coming to me now I need to and we also discussed that for these capital gains also reinvestment benefit is available reinvestment benefit typically I would not separately pay out of my pockets and buy a property because anyone new property is and to coming the new constructed property itself is going to be my reinvested property but problem here is the reinvestment timeline in all these sections say within two years you do the purchase after your transfer or within three years you construct a property after your date of transfer again the word transfer is very categorically mentioned in the reinvestment timelines so again the question here is that in year five itself my transfer if at all I assume has happened my property is not ready for three years in that case will I be eligible to claim the deduction under Section 54 or 54f as maybe or will I have to forego my deduction and offer the capital gains without benefit of reinvestment if you think you will get the benefit of reinvestment even if it is after five years say yes if you think no say no we won't get the benefit okay I see a yes no from CA kosha um G says yes yoges and H say can you repeat why date of transfer will be date of jda so we have not discuss this in detail yet yoges G why date of transfer will be date of jda there are many decisions which we will discuss in the slides to come we have to discuss the conditions of section 247 also to arrive at that conclusion but for now we are assuming that all conditions of 247 or say 2475 specifically are met and that is why we are saying JD is the date of transfer because transfer is governed by section 247 and not 455 I hope that's clear so we have some yeses and some NOS on uh the aspect of whether reinvestment benefit will be available again here we taking a leap from conversion under Section 452 if you see there was a circular there circular number 791 of issued on 2nd June 2000 what was happening there in 452 case also when a capital asset was converted to a stock and trade date of conversion a year five that time no money actually came to the sess it was just change of nature in the s's hand itself it was more like an internal Arrangement money actually came when the stock was sold in the future years that is why to it in the language of how the circular is what it s the collection of Revenue itself was in a future year was causing hardship to the assess and that is why they expressly said that from the year of chargeability to tax from the year where the stock is actually sold you count this timeline of two years or three years and that is why you should get benefit of fre investment again for 45 5A this circular is not expressly issued but it's reasonable to believe that similar rational should be followed and if we look at 455 there are two more arguments to make this stronger one in 452 at least I know the value of capital gains that has arose or a reason because the fair valuation in that day was considered as my sale value in 455a the case that we are dealing with I don't know what the value will be Stam Duty value will be known to me only when the completion certificate year actually comes in so even if I want to reinvest I don't know how how much amount so I don't have the money either neither do I know the valuation so it's impossibility of performance to an extent so for practical purposes while the strict reading would be year of transfer for practical purposes I think a position could be taken that you look at the years up to the date of completion certificate also it would be worthwhile to mention wherever it is possible it may not practically be possible everywhere but wherever it is possible if the completion is actually envisaged within 3 years a CL C could be included in development agreement to indemnify the buyers where they write that we expect the property to come back to us in three years and if not developer may be liable to share certain part of taxes what this could help in doing is there are many case laws which say where substantial compliance has been done by an assess for in the context of 54 what is substantial compliance payments have been made agreement is done done but for some reason Builder is unable to deliver it within time courts have taken a lenient View and said because assess has done its own part and the objective of reinvestment is being met 54 deductions should not be denied similarly here if your Clause actually contains a clause your agreement contains a clause like that it could Grant you further protection wherever it is practically possible going back to our analysis so we've discussed some more but we'll move ahead in this section now we say capital gains shall be chargeable to income tax as income of previous year in which certificate of completion is issued certificate of completion I understand in certain jurisdictions of India there is no concept of certificate of completion there might be certain places where there's only occupancy certificate there might be some other certificate nomenclature could be different in such cases it is advisable to understand what is the equivalent certificate in your area of operation and count that as certificate of completion over taking an aggressive position that there's no certificate of completion so no 455a this could also be relevant where there's plotted development where land is only developed into plots and sold there may or may not be certificate of completion in certain jurisdictions there we need to understand the intent of Law and operate accordingly certificate of completion of what whole or part of the project when I say whole or part of the project first I need to understand what is a project now project is not defined anywhere so what happens if there's a phase wise there's a huge project let's say I surrender my land and project is being developed in four phases Phase 1 2 3 4 my area in this project is coming to me only in year four for example I have no share of area in your one 12 three but the language uses com certificate of completion for whole or part there are certain areas in Maharashtra which give part OC or part completion certificate even floorwise is obtained for certain buildings if let's say part completion certificate is obtained but in that part I do not have a share of profit share of property what happens do I still need to pay 45 5A by estimating that what will be the St St Duty value will be available whether the area is constructed or not your municipality will give a reckner of rates which will give the St Duty value you you know how many square feet you are going to get so in that case even though I've not received my area is not even constructed sometimes not begun construction do I need to offer it to tax tax authorities May argue very well yes in this case again practically we need to see that we are not keeping everything at and to the extent possible commercially also somebody would want to get their area sooner if I try to postpone this by planning and putting my area only in the last phase that also will defeat the way this section works so this needs to be taken care when there's phase wise development either you could explore if you could do separate JDS itself for separate phases if it's possible if not if you could spread your share over the phases possible otherwise you need to go into intricacies of Water Project is you might get some help from atib 10 section and all on what project is how interpreting whole or part comes next is when certificate of completion is issued the word used is issued now when issue the question is we are in March 2025 today let's say some building is substantially completed I approach the municipal Authority and say you issue me a completion certificate look I've substantially complied with all the possible conditions in that case municipality gives me the complete the designated Authority gives me the completion certificate only next year next financial year Stam Duty value has increased in such case which date do I see if you've received in this year and next year it's still a good case certain cases for some unknown reasons if the issuance is delayed by two three years your Stam Duty value would have significantly gone up higher while I understand your tax year also has changed but Stam Duty value also has changed so if somebody wants to say issuance versus application which date should we be seeing here it says issuance so we look at issuance unless it's an exceptional case in atib 10 also this was an issue where people have contested that I did my responsibility there was no fault with the building even when the application was made no new requirements were as such um identified so my application date itself should be my inssurance date for certificate where the Gap is too high and issurance date has come later and St Duty value is way higher you could take this argument and look at application date in such cases otherwise strictly reading it is issuance date in most cases it should not be an issue the main part the blue box is what is the value at which tax will happen the stamp Duty value on the date of issue of said certificate of his share being landed building or both in the project as increased by any consideration received in cash or by check or draft or by any other mode so monetary consideration gets added to your area consideration and gets taxed monetary consideration could come to you in year one itself completion of project happens in year five taxability for the entire transaction moves to year five you don't need to pay your tax in year one also one word used is consideration received what if it is receivable and in that case also received should be looked at broadly in capital gains most decisions where only payment is deferred I'm talking of unconditional deference if payment is deferred it has been assumed to include that quantification once done transfer once done money once received or receivable should be chargeable to capital gains in that year itself one very important term which was there which I didn't highlight in this entire process was specified agreement which is the Crux of this situation why didn't highlight because I wanted to discuss it separately so here's everything to be triggered there has to be a specified agreement so let's look at what specified agreement is on the screen right now is the definition from the bear act I'll give you a minute to read it let's start looking at small terms specified agreement means a register agreement so what if it is not registered are you in this no if everything else is also satisfied but the agreement is not registered or we looking at some something comparable to balir Singh many you are out of specified agreement it has to be a registered agreement and in which a person owning land or building so owning is a very critical word here tenant leasehold as we discussed earlier would not be captured in this because you have to have ownership to develop a real estate project now real estate project also we said project is not defined but we have to go by colloquial sense or look at other sections to understand what is real estate project here whether you receive cash or not has been left optional so certain questions that come up one we discussed rights in land or building if you're only holding rights and not ownership it means specified agreement does not trigger you have to be owner if you had rights in land and building you go back to 451 let's say okay for a moment I'll park that aside we'll move to the second uh bullet let's say minuscule area is only left is there in a joint development agreement for example I Surrender my land I receive everything in cash let's say 10 CR worth of cash and I say 100 square feet you give me in area technically am I fulfilling all conditions yes I'm getting some area in that project but I'm getting everything in money this is being done probably only to defer it instead of taxing 10 CR today I'm waiting for that 100 square feet to get built and tax it that year whether this kind of an arrangement would fall in specified agreement I have my doubts literally yes it does fall but it is like playing with fire if you're planning on these lines of keeping only one flat or one small piece why because the language say whether with or without payment so law is not really bothered about with or without payment why because the intent was quantification was an issue but here if everything is Quantified then to take 455a might be unfair sorry and real estate project of plotted development here I just wanted to highlight that even plotting schemes if you give land and get land back in a plotted Arrangement will fall under specified agreement because technically it also has other requirements to fulfill it needs to do a road public gu and it needs to do certain uh fulfillment of conditions by municipality record so that also will get covered under specified agreement not necessary a constructed building has to come in next is allotment of are some other project I handed over land here buildings are going to be constructed Builder is having another project running in another area Builder says I'll give you area in that project anywhere you wanted area we giving area will that work answer is no because if you look at second last line from bottom it say being land or building or both in such project so the project has to be the same where you are giving land is where you should receive share and not somewhere else that's about it that's more or less what I wanted to cover on specified agreement we'll move to deduction of tax at source broadly what this section says I will not wait to read it broadly what it says is this is a new section which was introduced hand inand with 455a 194 IC said that if there is an agreement specified agreement under 455a that is happening at the time of payment of the monetary consideration to the land owner not the consideration in kind you will deduct 10% tax at the time of payment of credit whichever is earlier so now few issues that come when I look at 194 I deduction of tax in JDS first is whether 194 IIA also has a parallel application with 194 I what I mean by that is you're aware 194 I requires you to deduct tax at 1% when there's an acquisition of a land or building from another party here also there's an acquisition of land or building from another party but because there a specific section for this Arrangement and which starts with a non- obst clause not withstanding anything contained in section 194 IIA 194 IIA will not have application once 194 IC triggers second question what if I'm paying consideration to a non-resident under Section 455a we discuss that 455a equally applies to non-residents even if they surrender their land now I am making payment monetary consideration to the non-resident along with some area share my question to you is whether 10% TDS will be applicable on payment to non-resident as well if you think yes it's 10% just say yes if you say no then tell me which other section would we looked at raaj says 195 very well absolutely that's the correct answer so won't wait longer uh the section itself applies only to residents for non-residents you go back to 195 and the bigger challenge that I want you to realize over there is in 195 there is no bifurcation between monetary consideration and area only 194 IC if you read the it says responsible for paying to a resident and it also says not being consideration in kind similar benefit might not be there in 195 195 says anything paid to a non-resident so there there might be a challenge that also the monetary the non-monetary consideration may also get clubbed in the TDS Provisions rates of course will be higher subject to you taking a lower withholding or something TDS on consideration kind like I just highlighted no TDS even if it has some value we have seen in Lottery cases 194b and all says you value it you pay that tax tax something of that sort is not envisaged in 194 IC if it's absolute pure area share No TDS requirements will arise TDS on transfer before completion certificate what does this mean I decided to go under Redevelopment I surrendered my land or building year one year year five I was supposed to get the completed area before year five itself saying year four I decided to sell away these rights to somebody else I am not going to wait for the constructed area I am going to get some money from somebody and that person can then take the new area that comes in on this money which comes from this person on the fourth year whether they will be teds whether it will be under 194 I see is a question TDs is just a smaller part the bigger part is how will this get taxed this has been dealt within the Proviso to section 45 5A Proviso is the next very next slide so suffice to know for now that we are looking only at transfer of land or building in year four when I'm actually going to transfer I'm not transferring land and building or the share has not come yet I am not transferring my original land neither is my new building ready that is why this is transfer of a right and then again 194 IC should not trigger as far as trans transer before completion certificate is envisaged TDS on payment to consideration to company what is the question here the question here is I said 455a is applicable only to individuals and HFS that is fine specified agreement is defined in this section that is also fine 194 I is a separate section what 194 IC says is that any person responsible for paying to a resident resident mind you not individual or HF any sum by way of consideration not being consideration in kind under the agreement referred to in 455a so it is not saying individual it is not saying Huf it is saying the payment is under a specified the title if you say it says payment under a specified agreement let's say there's an agreement between a company and a developer all the necessities of a specified agreement that it being registered that it being surrender of land or building that it being receipt of share and project everything is satisfied so technically it is fitting in specified agreement but 455 is not applicable to them in such case would 194 IC still be applicable to this transaction whether the company who is paying to the land owning company needs to deduct tax at 10% the answer strictly could be yes because all the other conditions of 194 IC are met and probably because of this reason one may not be able to go to the 1% tax position again and when it comes to TDs it's always the case especially if you are the deductor safer than sorry so here somebody might want to explore 10% TDS even if paying to a company even though 455a does not apply to them you look at 194 IC separately timing of TDs is okay TDS on Transit rent hardship allowance Etc TDS should be linked ideally to taxability of income firstly because TDs is to collect income tax in advance if something is taxable only then you need to deduct tax at source while paying that income so that is why it is a linked concept but for now we just discussing the TDS there are decisions uh from Bombay high court and certain tribunals as well where the concept that has been written is in sar's Furniture vaa which is a Bombay High Court decision it was in the context of TDS itself not 194 I though it was in the context of 194 I where rent was being paid the question was on the company paying the rent on the entity paying the rent they were held as assess in default for not deducting tax on this rent being paid because it said this rent falls under 194 I and you need to do TDS the court said that this is not pure rent per se it is hardship allowance or compensation in nature is a capital resit in nature and not should not be taxable per se and that is why TDS also is not required to be done on this sum this decision itself has certain challenges one it was not a tax decision per se it was a civil uh case it was single bench single member bench and 194 IC was not there in place at that point of time so whether this decision will continue we don't know but what the position today says this is not taxable and there's no TDS on that similarly very recently in 2025 there was a decision of n Rose developers Mumbai tribunal where also similar position was held and where the question was in the context of 194 IC by then IC was introduced they have also upheld the same thing that this transaction does not need to suffer any teach is same concept goes for other payments which are made but there's another school of thought which I just want you to know is that the section says payment under specified agreement it says any sum by way of consideration under agreement referred under 45 5A it does not say consideration for land or building it does not say uh that only those payments which are towards land and building need to be deducted at source it just any payment under specified agreement any consideration for 455a somebody might argue because 455a is happening I'm giving rent it is as good as a consideration we have just bifurcated into two parts it is not really separate rent I would never pay that person rent if I was not doing a jda with that person and that is why and also because this language is open-ended in 194 IC it falls under 194 IC and it should be subject to tax because it is consideration under agreement referred in 455a it is captured in that agreement that I will give you so much rent it is consideration for allowing me in the broader scheme of things if it was not there my 455a wouldn't sail through so that is I look at it as a composite Arrangement and deduct tax this school of thought also cannot be ruled out only thing is at present as the judicial predent stands they have said 194 IC should not apply decisions are provided slide also later this is one of the important Pro next slide is a Proviso in section 45 5A which deals with situations where the transfer has happened before receipt of completion certificate what it says in very short bulleted points it says 455a will stop applying 455a Provisions shall not apply when if assess he transfers his share in the project when before issuance of completion certificate the example which I gave earlier year one I entered jda year five I was supposed to receive completed area year four itself I decided that I will transfer my rights in that case 4558 will seize to apply and last bullet gains deemed to be income of the previous year in which transfer takes place so year four itself is the year when the taxability will arise again and you will not wait for your five again this provision has lots of questions lot of computational issues we'll just take one or two broad questions and if anybody has specific questions I'm happy to answer them later first question that I have is this section also says whole or part I have not reproduced the section but it says ke that if a person transfers whole or part of his share that was going to be received in consideration of 455 so my question is if I was supposed to receive four flats in the jda but I transfer right attached only to One Flat before receipt of CC I continue to hold the other three will this provisor still Trigger or will it trigger only if all floor flats are sold to my mind while it is not clarified in the ACT per se is whenever you part with even a part of the right the provisor should trigger otherwise it would lead to people making arrangements of just keeping a small part held on until the end and transferring everything else in the beginning this provides or forget the provisor the entire section was introduced because quantification was an issue but the moment I decide to transfer the right today today itself I get the money it's a fair provision I know the money that is going to come in I know that it is coming today then why shouldn't the tax be today yeah only restricted to the area which is being transferred is a fair assumption but the taxability should happen today and not wait for the entire share that I was going to be receiving to be transferred even a part trans ER could trigger this provisor question again okay in my opinion like I said we are the provisor should trigger even when a part is transferred question is should the entire amount that was going to come to me constructed Flats plus this small path that I'm transferring should gains from all of it be taxable today because provisor is not saying the tax only on the part which is being transferred unfortunately the provisor is not having that language it just says 455a shall not apply if assess transfers so now the problem is 455a do they stop applying in entirety to my entire Arrangement or just to this limited aspect the law is not clear but here I think the practical way of working it out would to have two separate computations two separate years the part which is being transferred before completion certificate tax should be offered in that year of transfer on that actual value for the share that one continues to hold up to completion certificate you continue to apply 45 5A that could be a logical way of reading this law otherwise it will become messier than it already is be careful that whatever we are transferring here is only a right so you apply everything other than 455 with the computation mechanism how to calculate the consideration value what cost to take is it the cost of original asset because now you're not transferring land or building you're just transfer a right that you had received that right probably was received only one two years ago land was acquired 10 years ago JD was entered two years ago is it a short-term or a longterm gain that right how do you value the cost of that right because cost of land could be separate this in itself is a very challenging computation mechanism I'll will broadly tell you what my thought on that is is that you need to break it up into two parts rights should be transferred separately but before that the land is like we discussed for 45 5way purposes if all 247 conditions are made and transfer has happened in year one that transfer should be calculated separately and transfer of Rights subsequent to that should be calculated separately taxability of other amounts this we've already discussed in brief on the screen right now are just certain decisions which affirm what I said that Transit rent Corpus hardship allowance as courts hold right now are all in the nature of capital receipt not subject to tax not subject to deduction of tax even there are decisions one of them which I remember is a Paras Kari where the rent was not even utilized as rent by that individual the individual was living in somebody his parents' house I think and just continuing to get the rent even there the same principle was upheld even though the rent did not help him in actually being utilized as rent it was held that there should be no tax on that amount nowhere has this argument been taken that this is all as a part of consideration for jda itself so that argument remains untested as of today should not be surprised if it comes in so that's why while we might advise our clients on basis of these decisions today a word of caution can still be put in before we advise the client that it is not taxable now what happens is if an now we are moving to section 49 very small section very obvious section I just ask it as a case study in 1011 I acquired an asset originally I acquired the land at 50 lakhs in assessment year 1011 now I transferred that land into jda let's say in 2425 I'm receiving constructed area value of which is rupees 2 CR this new constructed area the new flat that I'm receiving just am Duty value is 2 CR I am going to transfer it say 10 four five years later 20 30 31 my question to you is what is the cost of this new asset I hope the question is clear original asset acquired at 50 lakhs it went under went jda new flat came in new flat was valued at 2 CR now this new flat is proposed to be sold after a period of four five years what is the cost of acquisition for this new flat anybody who wants to put it up in the comment box two CR everybody's answered I Rashmi Chi Kar meta rajes Malu everybody says 2 CR and this is given in the act so there should be no ambiguity around it so it says that cost of acquisition of share in land or building the new asset acquired should be the full value of consideration that you offered to tax under 45 highway just be mindful that if you had transferred the share in the project before the project was completed then you cannot resort to 49 so I hope this is clear I'll move to two case studies for I think we're running a little short on time but we'll complete these case studies first and then we'll see what to do first case study on Computing capital gains under jda I will read it out see I will explain the land land that I had I acquir at 1 CR in assessment year 1819 a registered jda was entered for surrendering this land so in 1819 it had become a long-term capital asset let's say in the specified agreement I was expecting to receive constructed area how I I is the land owner and developer are going to share the constructed area in the ratio 40 to 60 40% of constructed area land owner or I will retain 60% the Builder will retain completion certificate let's say is received in 2425 that is after 5 years in 1819 I entered into jda 2425 is when I will receive the completion certificate let's say Stam Duty value of that area which I receive on completion is 9 CR rupees land I bought at one CR I entered into jda constructed area that is coming to me that entire project it is valued at 9 CR the 40% area which is coming to me how will I compute the capital gains for ay 2122 I have written ay 2122 as a typo it is ay2 2425 gains will be computed in ay 2425 what will be the capital gains in this case if you want to populate the answers in the Box I'm happy to read them I'm putting up the example again for reading the stamp Duty value of of the entire area that I'm receiving is 9 CR the land I bought at 1 CR 9 CR less rajish says 9 CR less indexed cost of rupees 1 CR up to 2425 okay so you're saying indexation right up to chargeability fine any other answers on this okay seems like no more answers so we will whatever is said by rajes is what I have populated here 9 CR St Duty value on completion date is my full value of sales consideration I will take indexed cost of right now written one CR but you will take indexation up to 1819 or 2425 depending on which position you decide to take like I said a position that you can take indexation up to 2425 is reasonable doesn't look very aggressive to me capital gains 8 CR here you will get deduction under 54 but we have to be mindful of this challenge of three years that we have already discussed earlier same case study absolute identical facts I'm populating again on on the screen with a little difference now I would like you to listen to me carefully on the difference cost of land one CR 1819 I entered into jda we decided to share the areas 40 60 the constructed area I will keep 40% and developer will retain 60% now the way the jda language is worded you would have whoever Works in practice on jda would have seen it as not uncommon to cons consider that what I am giving up here is only 60% land whatever be consider that 60% land belongs to Builder 40% land is anyway coming back to me in the form of 40% constructed units are coming back to me with my 40% land I'm never giving it away only I'm retaining the 40% land only construction that happens on that has come to me and that is why in a 2425 when completion certificate is received stand Duty value of 40% is 9 CR whoever would have seen the chart of ready reckner would know that there are many columns in Maharashtra we have in marati banam K zamin commercial residential all separate columns there you also get full value of a building along with the land you also get value of land separately if you want to find so if you say Stam Duty value of 9 CR you could split as five CR for constructed area the construction of 40% area and four CR for con the underlying land that is the value of Stam Duty value by the time 2425 has come historically I bought the entire land at one CR but eventually Stam Duty value also would have increased 40% value of the stam Duty value of the land itself was four crores for example in this case since time is short I am not taking responses I will tell you what is another way of looking at this it depends on language of jda it comes with complications of GST but it is a possible position that is the reason why I'm highlighting it it is backed by tribunal decisions as well how the calculation has been done in such case full value of sale consideration five CR what is five CR five CR is just the stam Duty value of just the constructed area land I am not including from that nine CR why because land was always mine I never gave it up then indexed cost of acquisition instead of taking one CR the land that I gave up was only 60 to the extent of 60% so 60 lakhs was the cost of land you index it appropriately was taken as the cost capital gains on the balance of 4.4 CR and reinvestment benefit will continue this is little gray take it with a pinch of salt I'm not saying no other school of thought is possible on this but this is also there and it has been backed by precedence so depending on your jda language you should look at your computation very carefully last case study again on computation of capital gains I hope this one is clear I'll just wait on the screen for a minute for you to obsorb and move to the last case study another case study a 18190 now I'm a flat holder I have a th000 square feet flat in Mumbai say I'm holding it for long term and so it's a long-term capital asset Builder comes along I say okay I will surrender my flat you give me a flatback instead of 1000 square ft you give me 1,200 squ ft now this transaction goes through 2122 I receive completion certificate and 1,200 squ ft in this case also we should remember the principles we remember so this case study is just a variation of what we did earlier earlier I had done it as a proportion uh where my land is not going here there's an additional constructed area but I'm looking at variation two that we saw here full value of sale consideration what am I really getting Stam Duty value of th000 square fet constructed area th000 square feet related land was already held by me I am only taking constructed area Stam Duty value but 200 square feet worth extra area that I'm getting I never had the land so for that we will take Stam Duty value including the land I hope that's clear indexed cost again here because you are not giving you are saying that the land was continued to be held by me here you will not reduce the land value most cases we won't have this value separately when we buy a land we buy it at a full price it does not differentiate between land and building but where required EV valuation report should be obtained from registered valer these valuations should be separated only the constructed value underlying land you cannot claim as cost because in the first place you're saying you didn't transfer reduce that amount and the difference should be taxed on capital gains I hope so far it is clear now with the permission of I think we're already at 615 uh somebody from Taxman team can tell me if you would like to take question answers first or would you like to um complete the balance presentation for cases where 4558 not apply you can you can proceed as for your convenience I'm okay with that all right so let me do one thing I will run through 45 cases where 455 is notable also we'll not spend a lot of time because it is another discussion in itself but so that everybody is aware of the broad principles that work we are looking at cases where 455a does not apply what are those cases either it is in a year before 455a introduction or it is cases where it's not individual Huf or we are looking at cases where it is not a capital asset we are looking at stock and trade in those cases how do we go about in a joint development agreement situation I sorry I stopped sharing screen by mistake for all cases which were not covered by 455a you have to look at 451 451 says and I'm talking only of capital assets right now obviously if it is a business asset you're again moving to acrel concept you are not falling in the chapter only of 43 to 55 now here everything is governed by concept of transfer transfer where is transfer defined in section 247 247 is Sub sub six sub Clauses most most popularly used Clause is Clause five when it comes to Joint development agreements it says any transaction involving the allowing of The Possession of any immobile property to be taken so possession is being allowed to be taken or retained I have taken and I'm retaining in part performance of a contract of the nature referred to in SE section 53a of topa transfer of property Act 1882 this is the clause which has been used more often than not in jda most of these conditions usually get satisfied and that is why it is held as a transfer under 247 we look at cases but but here all I want to highlight is 1 2 six these Clauses are also for transfer don't we should not be blind to them sometimes topa conditions don't get satisfied but one two or six get satisfied sometimes there's a conveyence some other way of enabling the effect of enjoying the property which falls in sub Clause six so while five maybe the most often used Clause you should see that one 126 also don't trigger in your case in fact if you see the recent Supreme Court decision they also eval six when five fails to apply and then they come to a conclusion whether it's a transfer or not so in all other Capital asset cases we look at that 53a of topa I'm discussing for the reason that this sub Clause five like I said is when 53 of topa is satisfied we'll only look at the bottom we can't discuss the section right now what are the essential requirements of 53a there has to be a contract it has to be in writing it has to be signed I'll go one step forur it has to be registered also people who have read B ing any Supreme Court decision know that registration was not done in that case on account of that the entire tax blocks fell down and nothing was taxed even though all other conditions of 53a were being satisfied especially for agreements which are executed after 2001 September 2001 is when an amendment came in section 17 and section 49 of topa not Income Tax Act which made registration mandatory in topa so the argument was whether topa registra ation becoming mandatory should percolate to income tax or there are other arguments also which were there at different levels CIT it high court but when it came to Supreme Court all other complexities stood on one side and simply non-registration of the development agreement made the capital gains litmus test fail so here when you're looking at 53a look at registered agreements they should pertain to transfer of immobile property possession giving is a very very important element of topa all the discussions that we have always says 53 is satisfied if possession is given or not if possession is not given despite signing a JD despite it being a contract despite it being in writing despite it being signed registered there is everything but possession is not given as a part of the contract we can still wait and capital gains should not trigger even if everything is done and there has to be a positive act from Builder side to say that he is willing he or she's willing to do her part of performance in the cont and only when all of these get satisfied 247 subclause 5 gets satisfied and transfer can be said to have happened in this section this is just a broad chart there could be many more sub Clauses in this as to when when in the past have courts held that capital gains is chargeable now I'm just reminding you we are looking at non 45 5A cases please allow me to just plug my charger one second so depending on conditions being satisfied in 455a in the past these are just five sample timing incidents that I have written one many times it was taxed on entering jda itself because all conditions were satisfied sometimes all conditions were satisfied but possession was not given what is possession itself is a big question it does not always mean physical possession or legal possession or executory possession but whatever that meaning of possession which I think we cannot discuss right now year in which that possession was given was also the year of capital gains so jda happened in year one possession happened in year three year three is when capital gains was set to be hit in certain cases on receipt of consideration where the logic was that till I don't get anything in return I'm unable to quantify and I'm unable to satisfy the tests of transfer willingness is in a question basically the question here was that willingness of contractor is known when the property comes in when all the acts are substantially properly executed on receipt of consideration also certain cases have held that capital gains will get taxed then not on the first two limbs sometimes when Builder commen his activity again this emanates from the fact that he's showing his performance and like I said registration of Da also because we have a Supreme Court decision we should be looking at that next few slides I'll scroll through but I'll just tell you what they essentially are these are so many decisions where tax has been held to be payable on the date of entering jda the first one is chaturb dwarkadas kapara which is a very celebrated decision of Bombay High Court which is a must read if we are dealing with jda situations of such sort in that case the broad broad principle if I have to tell you was that jda was entered in say 1994 1995 the POA came to be executed somewhere 1999 and construction started so so 1999 is another year where ass said that this is the year where my tax liability triggers Court said no the day you did the jda the substantial compliance was done in effect management and control of that entire project was given bonafides were established is the year when your JDS triggered I'm just summarizing in one line that is when in effect if it was a sale transaction also it would have sailed through all rights had gone to the develop so that is why just subsequent acts that were supposed to happen under the contract continued to happen till 1999 doesn't mean tax will happen in 1999 and that is a tax happened in 1994 itself I think and following that there are many decisions of this I would like to highlight jabir Singh Saria if somebody really wants to read principles of why tax gets triggered on the date of entering JD it is jabir Singh sarara that I would recommend to read this is another set of decisions where tax was levied only when the actual constructed area was received or actual consideration was received two of these decisions NAU deu and arti Sanjay kadam here the question was that after doing the jda the performance was not happening from the other side so the assess said and mind you very well for example arti Sanjay kadam was a decision that happened after chaturb daras Kapa so it was a well established principle that the moment JD is signed possession is given effect contract is sailing through there should be capital gains tax so senior Advocate d g had ad had argued the earlier case of chaturb dadas kapia admittedly the line in that was that transfer has happened only year is in question so how Mumbai tribunal looked at it in AR Sanjay kadam is that year transfer itself has not happened it's not about the year of transfer because the Builder is not doing certain acts it is supposed to do there are certain arguments that are happening between the developer and Builder and that is why you should also look at when the constructed area is coming from the other party and that is when you actually tax me tax me they looked at edum real income Theory case also these are also other decisions Chosin is also a wonderful decision in a different context but these are decisions which you could see for seeing if tax liability could be defer to year of receipt of consideration Golden Rule practically we've seen on year of execu tion of jda mostly tax gets uh triggered but these are certain cases where it has not triggered so it might help if you are advising your client this is a list where tax has been triggered when Builder commenced construction activity till the Builder didn't do anything didn't start didn't obtain approvals IOD Loi nothing was said to be taxable here is the agreement is signed but possession of land was not given so these are decisions where they have said capital gains will trigger on giving The Possession so I'm not going into it because now there are many other aspects to it but suffice to know that there are positions available which you can apply to individual cases and decide whether there should be tax in the year of transfer or not balir Singh man is a decision where I already mentioned because of non-registration of Da the entire agreement failed the this is one you could look at but when you look at the decision of balir Singh Mani Supreme Court was not looking at other aspects of whether it fulfills the conditions of transfer which up to high court were seen and High Court held it to be a transfer even without registration so if you are planning to apply balir Singh Mani you should also look at other aspects of balir Singh manyi there's a decision which is subsequent to balir Singh manyi In the case of sesai this is something I will highlight on for one or two seconds ironically this decision was supposed to be against the S it was against the assc in this particular case but when it comes to General applicability for us it has become a positive case how why do I say that in this case 9798 is when the transfer happened agreement was signed agreement was entered agreement was registered effectively possession was given in fact there were rights to go ahead Market the project take approvals go ahead sign agreements also with the other party but the consideration that was so this was supposed to happen over a period of time the client thought now that everything is done the assassi thought everything is done it offered the income to tax in that year itself because everything was supposed to be done what happened unfortunately is the Builder and land owner got into litig I'm just blanking the screen out so you can just listen to this as a story what happened is the Builder and the land owner got into a tiff thereafter and there was some disagreement and in the year 2003 is when they had to enter a compromise deed what tax Authority said now the tax has already been charged in 97 or 98 somewhere tax authori said that 2003 when you're amending this deed when you're entering into a compromise agreement is the year in which your taxability arising for this jda because your terms are now in fact getting conclusively decided assess tried to say no the year of transfer was the earlier year whereas tax authorities managed to win this case on the fact that if you are still entering a compromise deed if you're still settling at some other terms that means The Possession if work is stuck the effective possession has also not been given even though all other rights are given possession is not strictly a legal concept it should be looked at factually and in s steals it was able they have taxed this transaction in the year 2003 where the compromise agreement happened in most other cases the intent is to postpone the tax liab to Future even though all Agreements are done earlier so sasai is a new light that we all should examine to see if it can be applied to our cases we already discussed what are the possible timings of transfer in so again now because 455a does not apply you cannot take Stam Duty value of the incoming asset what are the other possible mechanisms for computing the consideration for transfer one of them is cost of construction I give my land as say I want 4,000 ft constructed what I essentially receive in a way in very crude language Construction Services from the Builder for 4,000 Worth area whatever he spends to make that area is what is my benefit so that becomes my consideration you could take St Duty value of incoming asset 50d could be used to say St Duty value of outgoing asset is the consideration or the fair market value again all this is backed by many different judicial precedents I am not saying this as a story this this is really back this slide deck will be uh circulated by taxmen I believe later you have a list of all the decisions whoever decides to read it God bless you and last aspect that I'll just very briefly touch upon because we're at 6:30 if land or building is held as stock in trade not Capital asset we are not looking at capital gain schedule at all we are looking at Revenue mostly if it is stock in trade I become a builder I have to go back to my method of accounting I have to tax my income in the way I would have taxed if I were a builder that is on sale of assets ultimately because that is what my interest in my interest is not in selling this land my interest in constructing something on this land and ultimately selling it to buyers so as and when I'm accounting for that as for 145 there are many complexities around when to record Revenue itself that itself is a very big subject whether when everything is sold or on percentage completion whatever that method be is what will apply here sometimes we can also look at what the Builder is doing and there have been decisions where the it has held that whatever Builder followed as accounting mechanism parallely similar Revenue share was accounted for by the land owner and offered to tax it should be acceptable so more or less that is what we can cover as as far as joint development is concerned uh some points have been rushed so I hope through slides you'll get some more clarity but if there are any questions if taxmen is okay I'm happy to take them up at this point yes ma'am please go ahead uh then I need somebody to tell me the questions would you be unmuting the participants or okay I see some I see some questions in the chat box yeah yes so I can see the last question it says aay G says aay Daga says if a company not engaged in real estate activity converts its factory Land into stock and trade okay and then enters into a jda whether capital gain will be charged to tax under Section 451 or 452 for company in so see first part of your question says company not engaged in real estate activity conver con s itself to stock and trade you can convert to stock and trade once you start saying that now I'm going to do real estate activi so now you've become a Trader firstly now when I'm going into jda 45 itself loses entire sanctity you are looking at business income at the point of conversion is when you're looking at 452 because it's a strict case of capital asset converted to stock in trade so that is why you will look at 452 and eventually after that you will follow business income principles I hope it's clear 451 you will not need to go to per se the fair market value on the date of conversion will become your sale value you will reduce the original cost by indexing it that will be your capital gain if and when you sell this stock in trade is when you will actually end up paying this tax I hope that answers next question says Deepak agrawal G says in section 455a if landowner retains the property he receives on OC is there tax applicability of course so Deepak G in this case 45a is very clear that if youve retained the property you've received the OC I'm assuming OC here means CC which is completion certificate the entire chargeability is on receipt of completion certificate you have also retained the area so provis is not applicable to you st Duty value of the area that came in is where you will pay the tax on it I hope that answer I'm just not sure what your phrase of if the landowner retains the property means I'm assuming you're retaining the property that came in after construction and that is how 45 5A will trigger now I need to go up I think if Smith says indexation up to date of agreement so we have decided that indexation technically legally should be up to date of agreement assuming that is your transfer date but there's sufficient ground available if you want to stretch the indexation up to the taxability date up to the completion certificate date and it should not be an issue I think that's about it any other questions that I can answer okay I see some more have come in okay kushal Vijay shed says if an individual holds land in individual name and also some part through his LLP where he and wife is partner can he give his individual share to LLP for jda on area sharing any criticalities from income tax angle absolutely so if you give it to the LLP for jda I'm assuming you mean to say that they're contributing their land in l l p as a 453 contribution if that is one of the thoughts that I have when I read your section you can give it to LLP and LP then can undergo a jda with the developer that is one possibility I'll read it from your question second way to read your question is that there is a jda between the LLP and the individuals I'm not too sure what the question mentions if you want you can reach out to me separately so I can understand your question better but uh if the LLP under goes jda 45 5A will not apply if the individual themselves are undergoing a jda agreement with the LLP 455a should apply the first case where I said where contribution of land to LLP is concerned there you should look at 453 50 c and all should not apply the computation mechanism would be fair market value on the date of introduction or the land recorded value in the books of assets whatever that be in 453 and cost will be the cost in the hands of the individual Partners Deepak by retaining I mean he does not wish to sell and just rent out after completion certificate so effectively no transfer from land owner yes deak g i that is exactly what I understood when I answered first so I think it's the uh same answer your tax event has on the receipt of completion certificate rashik CH says normally Society enters into Redevelopment agreement can member of society claim benefit of 45 I no rashiki to my mind members are only entitled to rights ownership of land or building is still with the society should not be looked at from the lens of 455 it's way of computing which again could be a separate subject matter but to my mind 455a should not trigger there in fact it's a mutuality concept between the society and its members any other questions that I'm missing because I think U the chat box is moving as questions come in or go so maybe Taxman team can assist me a little if there's any question that has come in below and I cannot see ma'am there are questions in the chat box I think it starts from anoop akar's question yes I can see anoop's query on the right hand side now yes sorry it's a very long query Le okay Anu Makari has typed a lot as much as I typed in my PP I think ma'am the land owner enters into a jda for simple reason that he wants to sell all his share of flats okay however he does not maintain books of accounts nor he is a businessman okay will it become litigative if we treat it as capital asset instead of stock no ano G that is not an impediment anyway it's a factual ex what else did he do apart from giving his land if he has really only given in his land and the idea is to actually get flats and sell them just because there are multiple flats and he's willing to share those flat willing to sell those Flats at an enhanced value does not make him businessman just by going by so many facts I'll just add a line that if he has actually gone ahead and done something to better the land to enter jda he has approved taken approvals sanctions probably or there are any other actions on his part which show his enterprising attitude then there could be an issue but playing the intent of getting value for Flats should not be taxable as jda and there's something else below that it's the same question that has been retyped I hope that answers it should not become a capital asset mirely because of that nanobba says whether TDS on agreement to sale be made or only as per sale deed so if you're looking at jda per se I don't think there are many agreements to sale that are really happening neither sale Deeds we are looking at development agreements in 194 IC usually I'm looking at a case I'm assuming your case is not of Da but any other agreement to sale as a plain simplicit sale or buy of immobile property their agreement to sale also could be subject to TDs under 194 I if you are doing an agreement to sale first you should check whether it even becomes a specified agreement because if you see specified agreement there's a phrase which says the agreement which allows the other person to construct allows the other person to yes construct now simply doing an agreement to sale whether it is giving allowing the other person to construct or just giving selling the land to him and then maybe construction or no construction is the prerogative of the developer if that is how the language comes across even if I'm getting share of area probably it might not file fall in specified agreement itself is my sense maybe you can check the language of your agreement to say whether it really falls under specified agreement if it does then 194 IC it should not be there 194 IC in case of jda payment by Builder to Flat owner deduct TDS under 194 IC so in which your TDS so TDS U we have to follow matching concept again where we have the column in Return of income to carry it Forward till we offer the corresponding we carry forward the TDS credit till we offer the corresponding income to tax anywhere where TDS has been deducted earlier for example in the monetary consideration that came first Builder did the TDS and gave you the consideration constructed area came after four years that is when you're offering this monetary consideration to tax that case the corresponding TDS also should continue to be carried forward for four years and claimed as credit in the fourth year I think that was the last question KL if you could just confirm yes ma'am so I would thank everybody for a very patient listening it was wonderful speaking before a very well informed audience and the subject being so vast my slides are always also always going to be work in progress because you never know what tomorrow comes in the judicial precedence or clarifications so like buildings are being built our subject expertise is being built simult multaneously and till then we keep learning till it gets evolved and comes to some more plateaued position thank you everybody again thank you