Taxation on real estate agent

This query is : Resolved

MANISH (Querist)
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17 October 2014 Hello All,

I have a client (A) who is a real estate commission agent. He has certain accumulated commission amount with a builder (X) against the business logged in by him with the builder.

Now as per certain arrangements between the A and X, it has been agreed that X shall allot three units in a project of builder in full and final satisfaction of outstanding commission payable to A.

In doing so A has raised his bill of say 100/- + service tax @ 12.36% totalling 112.36 on the builder.

X has alloted 3 units at agreed price of 33/- each. These units have market value of 50/- each.

Now A has sold all these units in market @ 50/- each.

My queries are:

What shall be the Service Tax amount A need to charge from the buyer of his units;
What all are the taxes he need to pay in these transactions;
Is VAT applicable in them;
What accounting entries should be done in the books.
All experts are requested to help with some resolutions wrt legal aspects involved in it.

Best Regards

Manish

CA VISHWAKEERTHI.P.S.

CA VISHWAKEERTHI.P.S. (Expert)
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18 October 2014 Really good question .

In My opinion:

If assessee received Rs. 150 /- worth of unit he need to offer Rs. 112.36 as commission received and remaining as gift u/s 56(vii)(b) .

When he sold the units there shall be capital gain i.e., Nil (150-150)

Answer to questions :
a) Service tax payable Rs. 12.36

b) Tax on commission received and income from other source i.e., gift to the value of Rs. 37.64/-

c) No VAT component (as we treated as capital asset)

d) Asset ....Dr 150
To Commission a/c 112.36
To Gift from Mr. X 37.64

(Being amount of commission received in kind )

Bank a/c ....DR 150
To Asset 150
(Being Asset sold )

MANISH

MANISH (Querist)
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18 October 2014 Hello Viswakeerthi, Thanks for your reply !

Little doubt.. I believe Gift cannot be accounted for here as the assessee is a Real Estate commission agent and he got the unit from a builder, who owe him commission.

The builder ran short of cash but had inventory to settle due to the assessee.
Both the parties to the transaction are in same line of business and the units allotted by builder becomes inventory for assessee under discussion.

Pl suggest.

Best Regards
Manish

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CA VISHWAKEERTHI.P.S.

CA VISHWAKEERTHI.P.S. (Expert)
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19 October 2014 Sir if you recognize the gift then your capital gain on sale of unit become zero. Other wise you required to offer tax under capital gain .

And

If you want to treat the unit provided by builder as inventory (If your assessee ready to prove that transaction of sale of units as adventure in nature of business ). Then it will be tarted as business income .

Even builder sold his inventory not mean that it shall be inventory for other too. May be capital asset to other.

Intention of assessee plays role to treat it as business income or capital gain.

In my opinion commission agent not deals in units usually so it not trading item for him. But if assessee intention to trade on those goods then it can be treated as business income.

Difference of amount to be settled to actual amount received shall be taxable either gift or business income this also be depends on intention of the assessee .