Service tax on land owners

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Practicing CA (Querist)
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17 April 2012 If land owner gives his property for development to the builder (By way of Development Agreement) & he gets 40% share for the same ,what will be his service tax liability & when will it arise???

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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17 April 2012 Dear Prajakta,

Transfer or Surrneder of development rights are liable for service tax. There is no service tax liability in your case. It is sale of rights.

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CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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17 April 2012 Dear Prajakta,

Transfer or Surrender of development rights are liable for service tax. There is no service tax liability in your case. It is sale of rights.

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CA Kishore Tallam

CA Kishore Tallam (Expert)
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17 April 2012 Agree with Expert. Sale of development rights is not a service. However, Capital Gains will be applicable on sale of such development rights.

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Practicing CA

Practicing CA (Querist)
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17 April 2012 Thanks sir, but in our case builder is giving 40 % constructed Residential complex to us and he is saying that he is providing construction services to us on which we (the land-owner) should bear the service tax liability. Also if possible can you tell me the section or circular to which i can refer to defend my point.
Please help sir.

CA Kishore Tallam

CA Kishore Tallam (Expert)
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18 April 2012 You can first review the JD Agreement between land owner and the builder. Whether he gives you the fully completed flat or raw structure is sold to you and then he gives you construction service, based on which u need to see the applicability of service tax.

Practicing CA

Practicing CA (Querist)
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18 April 2012 Good Morning Sir, As per Development Agreement, he is giving 40% share fully constructed (one separate bungalow & remaining flats in the building to be constructed beside our bungalow). That is he is giving ready possession bungalow & flats as our share to us ( ie land lord)
Now what will be the Service tax Liability.
Also circular 151 dated 10/02/2012, if at all applicable please tell me whether the ultimate service tax burden is on builder or landlord.

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CA Kishore Tallam

CA Kishore Tallam (Expert)
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18 April 2012 From the information given by you, it seems to me that the builder agreed to given fully completed and constructed residential flats to you which would be the total consideration for giving development rights. In such case, the owner is not required to bear any liability of service tax since it will be assumed that the consideration of flats given to owner is including all and no extra taxes would be levied.

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Practicing CA

Practicing CA (Querist)
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18 April 2012 Thanks sir, but as per development Agreement all taxes will be borned by the landlord & builder in the (60 : 40 ) ratio. (the ratio in which they share the total area for construction of land)

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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18 April 2012 Dear Prajakta,
Read Clause no. 2.2 Circular No. 151 /2 /2012-ST issued by CBEC, there is no liability of builder in case of flats/property given by builder to existing buyers without any consideration in case of redevelopment.

There is no liablilty of builder to pay service tax on the portion for which there is no consideration.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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18 April 2012 I belong to the company where various similar projects are undertaken, and we do not collect any service tax from the existing owners for giving flats free of cost.

thanks.

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