Capital gain

This query is : Resolved

Ravindra Mittal (Querist)
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13 September 2012 Mr. X inherited a piece of residential land measuring 1979 sq.yds from his father,Out of this, 152,22 sq,yds was later surrendered to Jaipur Nagar Nigam as per their norms of approving plans for multi storey buildings. Thus, effective land remained 1826,77 sq,yds,

Mr. X had no funds to develop this property. So he collaborated with a Builder/Developer to develop this property.

They entered into an agreement in August,2006 to develop a commercial project on this piece of land. The following terms were agreed upon:

1. The developer shall give a refundable security deposit to the landlord amounting to `75 lakhs
2. The Landlord shall hand over the vacant possession of the said property to the Developer when the land is duly converted from residential to commercial and building plans approved
3. The vacant possession was handed over to the Developer in November,2008, with a limited purpose of commencing construction of the complex.
4. The fees for conversion, approval of plans would be shared between the land lord and developer in the ratio 65%:35% respectively. However, the entire amount to be incurred by the developer, initially.
5. The landlord would give the developer 35% of the finished product in lieu of the cost of construction to be incurred by the developer.
6. The land lord refunded 20 lakhs to the developer, against the security deposit of Rs.75 lakhs
7. TOTAL expenses incurred by developer for conversion of land and approval of plans etc ` 75,70,434
8. Now, the amount to be refunded by the landlord to the developer, as per agreement:

*65 % of ` 75,70,434 49,20,782.00
*Security Deposit
(`75 lakhs minus `20 lakhs, already paid)
55,00,000.00

__________________

` 1,04,20,782

Since landlord had no funds to be returned to the developer, so he compensated the developer by surrendering 4129,39 sq.ft of finished product, in addition to 35% as per agreed terms.

The share of finished product was handed over by the developer to the landlord in November,2011.

Now, it has to be decided:
Has the landlord incurred any capital gain in the above process of compensating the developer with some piece of land in lieu of getting the entire property developed by the builder?

If so, at what point of time and what would be the capital gain?

(Normally capital gain arises upon selling any property. In the above case, no property was sold)

CA VISHNU GAVKARE

CA VISHNU GAVKARE (Expert)
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14 September 2012 Sec 47 says transfer and not sell. Further transfer has given very wide meaning which covers the above transaction hence landlord has made capital gain. Capital gain will occur in the year of transfer i.e. wen land lord transfers to developer.