08 February 2024
Dear Sir, I am farmer and having residential cum commercial plot at my city which is having Municipal Council. The said plot is my ancestral property and I am having 25% share in the said plot (We are four brothers having equal share of 25%). The government valuation of the said plot is Rs. 73,21,000 in year 2017. In the same year, along with my brothers we decided to develop the said plot and made Joint Development Agreement with developer. According to said agreement the developer share is 55% and owners share is 45% and subsequently my share is 11.25%. As per the said Joint Development Agreement the developer paid us Rs. 20,00,000 as refundable deposit (My share is Rs. 5,00,000). However, due to the covid-19 and other reasons the project is delayed and still project is under construction. Recently, I received the notice from income tax Order under clause d of Section 148A of the Income Tax Act, 1961 in which the income tax department asking explanation regarding sale of immovable property amounting 73,21,000. However, we did not do any sale of said property and its joint development agreement. In view of above it is kindly requested that please guide me and how to answer the income tax authority. Regards
It seems that the notice you received under clause d of Section 148A of the Income Tax Act, 1961, is regarding the Joint Development Agreement (JDA) you entered into for your ancestral plot. Here are the key points you need to consider and address in your response to the income tax authority:
1. **Nature of Joint Development Agreement (JDA)**: - Explain to the income tax department that the transaction with the developer is not a sale of property but a Joint Development Agreement. Under this agreement, the developer has acquired development rights over the property while the ownership remains with the owners (you and your brothers).
2. **Income Tax Treatment**: - In a Joint Development Agreement, typically, there is no immediate capital gains tax liability on the owners. Tax implications arise when the developed property or its share is transferred or sold. - Since there is no sale of property involved yet, no capital gains tax should be applicable at this stage.
3. **Explanation of Notice**: - Clarify that the notice might have been issued due to the valuation of the property in the government records. Emphasize that no sale transaction has taken place, and hence, there should be no capital gains tax demand.
4. **Details of the Agreement**: - Provide copies of the Joint Development Agreement, highlighting the terms and conditions, including the refundable deposit received from the developer. - Mention that the refundable deposit is part of the consideration under the agreement and not a sale consideration for the property.
5. **Impact of Covid-19 and Project Delay**: - Briefly explain the impact of Covid-19 and other reasons for the delay in project completion. This can help provide context for the ongoing nature of the agreement and why no sale has occurred yet.
**Supporting Documents**: - Attach supporting documents such as the Joint Development Agreement, correspondence with the developer, and any other relevant documents that substantiate your explanation.
**Seek Professional Advice**: - If needed, consult a tax advisor or a chartered accountant who specializes in property transactions and income tax matters. They can provide specific guidance tailored to your situation and help draft a comprehensive response to the income tax department.
It's crucial to respond to the notice within the stipulated time frame and provide a clear and factual explanation to address any concerns raised by the income tax department regarding the Joint Development Agreement.
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