Income Tax on property development.

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This query is : Resolved

CA KRISHNA KUMAR DARUKA (Querist)

12 February 2011 One company owns a sizable land in the heart of a major city. Very old godowns are there on this land and they are all let out. Now the company is getting all these godowns vacated by paying lump sum compensation to the tenants. Further the company proposes to demolish these godowns and make a commercial marketplace there. For this they have entered into an agreement with a developer who will construct the commercial space there and will give a portion of the market to this company which in turn will sell its portion to the public. Now my questions are:
1. Whether the company has to deduct any TDS on compensations being paid to the tenants. If yes under which section.
2. The profit earned from this transaction will be taxed under which head.
3. Whether compensation paid to tenants and other incidental expenses can be reduced from the above gain.

prasad

prasad (Expert)

14 February 2011 1. the company need not deduct any TDS for the compensation paid.
2 Assuming the company has enetered into a developement agreement with the builder, the profit earned shall be taxed under the head capital gains
3. Yes the compensation paid to the tenents and other incidental expenses can be reduced from the sale proceeds or gains.
(This is regarding capital Gains).
4. The profit on sale of commercial premises assuming the cost of acuisition eqaul to the cost assigend by the builder in the developement agreement, the company will have to either be taxed under short term capital gains.(assuming teh company sells teh premises immidiately). If the comapny sells teh new commercial after 36 months then, the gains can be taxed under long term capital gains.

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